Institutional

Galaxy acquires institutional crypto custody firm for $44M

Galaxy Digital invests $44 million to acquire institutional cryptocurrency custody platform GK8.

Galaxy Digital has invested $44 million into an institutional cryptocurrency custody platform to tap into its proprietary asset storage and management capabilities.

Mike Novogratz’s cryptocurrency investment firm has completed the acquisition of GK8, which has developed its own patent cryptocurrency custody technology aimed at giving secure asset management for institutional users.

The service specializes in providing cold vault technology that allows the execution of transactions without internet connectivity. Its in-house multi-party computation (MPC) vault provides the ability to automate transactions, and the service also provides access to decentralized finance networks, tokenization, NFT and trading.

A statement from Novogratz highlighted increased investor demand for custody services as a key reason behind the acquisition. GK8’s cold storage solutions and wallet technology will be onboarded into Galaxy Digital’s upcoming prime brokerage platform GalaxyOne.

The business deal will see Galaxy add an office in Tel Aviv to its organization, with nearly 40 GK8 employees becoming part of the wider group. GK8 founders Lior Lamesh and Shahar Shamai stay on through the acquisition to lead Galaxy’s custodial technologies offering.

GalaxyOne is touted to offer a broad range of cryptocurrency financial services to institutional-grade users on its launch. This will include trading, lending, derivatives, cross-portfolio margining as well as custodial offerings managed by GK8.

Galaxy doubled down on its investments into the cryptocurrency mining sector in December, announcing a $65 million acquisition of Argo Blockchain’s main mining operation. The mining firm had to sell off its Helios mining facility to avoid bankruptcy during a tough year for the sector.

Bitcoin price rally to $18K possible as $275M in BTC options expire on Friday

Bitcoin bulls aim to push BTC price to $18,000, and options data outlines clear reasons why.

Bitcoin (BTC) price jumped to $17,500 on Jan. 11, driving it to its highest level in three weeks. The price move gave bulls control of the $275 million BTC weekly options expiry on Jan. 13, as bears had placed bets at $16,500 and lower.

The recent move has permabulls and dip-buyers calling a market bottom and potential end to the bear market, but what does the data actually show?

Is the Bitcoin bear market over?

It might seem too pessimistic to say right now, but Bitcoin did trade below the $16,500 level on Dec. 30, and those bearish bets are unlikely to pay off as the options deadline approaches.

Investors’ main hope is the possibility of the U.S. Federal Reserve halting its interest rate increase in the first quarter of 2023. The Consumer Price Index (CPI) inflation report will be released on Jan. 12, and it might give a hint on whether the central bank’s effort to slow the economy and bring down inflation is achieving its expected results.

Meanwhile, crypto traders fear that an eventual downturn in the traditional markets could cause Bitcoin to retest the $15,500 low. For instance, Morgan Stanley’s chief investment officer and chief U.S. equity strategist, Mike Wilson, told investors on CNBC to brace for a winter downdraft and warned that the S&P 500 index is vulnerable to a 23% drop to 3,000. Wilson added, “Even though a majority of institutional clients think we’re probably going to be in a recession, they don’t seem to be afraid of it. That’s just a big disconnect.”

Bitcoin bears were not expecting the rally to $17,500

The open interest for the Jan. 13 options expiry is $275 million, but the actual figure will be lower since bears were expecting prices below $16,500. Bulls seem in complete control, even though their payout becomes much larger at $18,000 and higher.

*Bitcoin options aggregate open interest for Jan. 13. Source: Coinglass*

The 1.18 call-to-put ratio reflects the imbalance between the $150 million call (buy) open interest and the $125 million put (sell) options. If Bitcoin’s price remains above $17,000 at 8:00 am UTC on Jan. 13, less than $2 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC trades above that level on expiry.

$18,000 Bitcoin will give bulls a $130 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Jan. 13 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $16,000 and $16,500: 100 calls vs. 2,700 puts. The net result favors the put (bear) instruments by $40 million.
Between $16,500 and $17,500: 1,400 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
Between $17,500 and $18,000: 4,500 calls vs. 100 puts. The net result favors the call (bull) instruments by $75 million.
Between $18,000 and $19,000: 7,200 calls vs. 0 puts. Bulls completely dominate the expiry by profiting $130 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. But unfortunately, there’s no easy way to estimate this effect.

Bitcoin bears need to push the price below $16,500 on Jan. 13 to secure a potential $40 million profit. On the other hand, the bulls can boost their gains by slightly pushing the price above $17,500 to profit by $75 million.

The four-day rally totaled a 4.5% gain and liquidated $285 million worth of leverage short (sell) futures contracts, so they might have less margin required to subdue Bitcoin’s price.

Considering the uncertainty from the upcoming CPI inflation data, all bets are on the table, but bulls have decent incentives to try pushing Bitcoin price above $17,500 on Jan. 13.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

3 ways crypto derivatives could evolve and impact the market in 2023

Derivatives played a major role in the last bull market and it’s highly likely that they will be integral in the market’s evolution in 2023.

Futures and options let traders put down only a tiny portion of a trade’s value and bet that prices will go up or down to a certain point within a certain period. It can make traders’ profits bigger because they can borrow more money to add to their positions, but it can also boost their losses much if the market moves against them.

Even though the market for crypto derivatives is growing, the instruments and infrastructure that support it are not as developed as those in traditional financial markets.

Next year will be the year that crypto derivatives reach a new level of growth and market maturity because the infrastructure has been built and improved this year, and an increasing number of institutions are getting involved.

Crypto derivatives’ growth in 2023

In 2023, the volume of crypto derivatives will continue to grow because of two factors: first, the growth of relevant infrastructure such as applications for decentralized finance (DeFi) and also because of more professional and transparent intermediaries planning to enter the space. Eventually, this will lead to more institutions getting involved.

Understanding why traditional financial institutions use derivatives more than traditional spot markets is an excellent way to learn more about the market.

Some reasons for the growth are the ability to leverage capital, the fact that derivatives contracts in the U.S. are treated as long-term capital gains for tax purposes, and for their use in hedging, which is the ability to protect against unexpected price swings.

When more institutions get involved, relative volatility decreases, making trading derivatives a better use of capital. Also, as more institutions add crypto assets to their balance sheets, derivative instruments will become a critical tool for protecting against short-term volatility.

The industry is still in its early stages

Like 2022, 2023 is also bound to be a unique year for crypto derivatives. There’ll be a rise inboth centralized and decentralized options infrastructure and the continued development of new crypto primitives like structured vaults, everlasting options and experiments with derivatives.

The cryptocurrency industry is moving deeper into regulated markets as it tries to get more users and competes with existing traditional finance companies like brokerages that already let people trade stocks and other financial assets.

Most derivatives deals happen on Binance, OKX and Bybit, which are based outside of the U.S. and are not regulated. However, based on data from CoinGlass, CME Group is the only regulated U.S. market that has gained traction.

In November 2022, it was responsible for about 10.7% of the open interest in Bitcoin (BTC) and Ether (ETH) futures.

Big firms buying will continue buying small licensed derivatives operations

It’s getting harder to tell where retail markets end and institutional markets begin. The retail-focused businesses that crypto exchanges bought are run by some of Wall Street’s biggest and most experienced firms.

In January 2021, Coinbase bought FairX, a small futures exchange in Chicago. The goal of the deal was to make it easier for traders to get into derivatives markets. A retail-focused futures exchange startup called The Small Exchange also released a crypto futures product that requires less cash upfront. Citadel Securities, Jump and Interactive Brokers have all backed the company.

The growth of decentralized derivatives markets

Like centralized venues, perpetual futures comprise most of the volume of decentralized derivatives. First led by Perpetual Protocol and now by dYdX, the daily volume of decentralized perps averages $3 billion per day.

Even though growth has been robust, decentralized perpetual volume makes up less than 5% of all crypto derivatives volume. Over the next two years, we expect this segment to grow in a big way.

**Collect” below the illustration at the top of the page or follow this link.**

As more projects and protocols build on top of decentralized perpetual swap protocols, the value of the platforms that support them will continue to grow. Along with decentralized futures, options and structured products, market participants will be excited to see more crypto-native innovations like everlasting options developed.

Protocols like Deri, which offers both perpetual futures and everlasting options, let users trade derivatives in a very DeFi-native way, giving them the ability to hedge, speculate and arbitrage, all on-chain.

Derivatives could lure in more traditional investors

Institutional traders like these instruments more because they can provide stable returns, similar to fixed income, and these trades are executed with strategies like bull call spreads and covered calls. Also, institutional traders can combine call and put options to set a risk limit without risking liquidation for options trades.

Fidelity Digital Assets now offers their institutional client base the ability to borrow using crypto as collateral so that large companies can add Bitcoin to their assets more easily with the help of these services.

In 2023, it’s likely that crypto will be easier to use as collateral for everyday business, which will allow companies to take on more risk using cryptocurrency derivatives.

Derivatives played an instrumental role in the 2020-2021 crypto bull market for retail and institutional traders. For many investors, borrowing money and using derivatives is the easiest way to increase their bets on a variety of positions. They are available to use in stocks, currencies and commodities, but their use in cryptocurrencies has been steadily growing since 2017.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Major client demand was the ‘tipping point’ for BNY Mellon’s crypto services

BNY Mellon CEO Robin Vince pointed to a survey earlier this year that found 91% of institutional asset managers were interested in investing in tokenized assets.

BNY Mellon CEO Robin Vince says “client demand” was the “tipping point” that ultimately led to the bank’s launch of institutional-focused crypto services last week.

BNY Mellon, America’s oldest bank, became the first large bank in the country to offer custody of institutional clients’ Ether (ETH) and Bitcoin (BTC) on Oct. 11.

In an Oct. 17 conference call following the release of its third quarter earnings, Vince pointed to a survey commissioned by the bank this year, which found that 91% of large institutional asset managers, asset owners and hedge funds were interested in investing in some type of tokenized asset within the next few years.

“About 40% of them already hold crypto in their portfolios. About 75% of them are actively investing or exploring investing in digital assets,” he said, adding:

“And so what we heard from our clients is they want institutional grade solutions in the space.”

The new custody service was launched last week, allowing select institutional clients to hold and transfer Bitcoin and Ether on the same platform they manage their stocks and bonds.

Vince said that the digital asset custody solution was not created “just for the purpose” of custody crypto and that the bank sees it “as the beginning of a much broader journey.”

During the call, Vince said he envisioned the tokenization of “all kinds of assets and currencies,” including traditional financial assets as well as assets that “haven’t been as easy to manage in the financial system,” commenting:

“Some of those things could be much better managed using tokens.”

Examples he mentioned included commodities, real estate, forests and certificates relating to environmental, social and governance issues.

However, the BNY Mellon CEO said it could be years or even decades before the industry could see full adoption of tokenized assets.

“I’m not going to put an exact time scale on it […] But we thought that with a longer-term view this was an important space,” he said.

He also noted that they’re not spending a “ton” of money on the space, but will instead be investing in “smart” places in the ecosystem.

The bank, which has $43 trillion in assets under management as of 2022, had been playing with the idea of allowing clients to transfer and issue Bitcoin and other cryptocurrencies as early as February 2021 during the bull run for the asset class.

Institutional investor sentiment about ETH improves as Merge approaches

Professional investors are warming to Ethereum again as ETH-based funds see a third consecutive week of inflows.

Ether (ETH) prices may have dipped again on Wednesday, but there are signs that professional investors are warming to the asset as the highly anticipated Merge draws closer.

In its digital asset fund flows weekly report, fund manager CoinShares reported that Ether-based products saw inflows for the third consecutive week. There was an inflow of $7.6 million for institutional Ether funds, whereas those for Bitcoin (BTC) continued to outflow with a loss of $1.7 million.

Referring to the Ether funds, CoinShares stated: “The inflows suggest a modest turnaround in sentiment, having endured 11 consecutive weeks of outflows that brought 2022 outflows to a peak of US$460M.” It added that the change in sentiment may be due to the increasing probability of the Merge happening later this year.

The Merge is a highly anticipated Ethereum upgrade that changes its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS). It is currently preparing for one final test run, and the Merge proper is expected before October.

In late June, institutional investors started introducing capital back into Ether-based funds during a week that saw record outflows of $423 million, the majority from Bitcoin-based funds.

For the period, there was an overall inflow of $14.6 million but short Bitcoin funds made up $6.3 million, suggesting investors were still bearish on the king of crypto. United States funds and exchanges saw inflows totaling $8.2 million, with 76% of them comprising short positions, a similar percentage to the week ending July 8.

The warming of institutional investors to Ether has not been reflected in the asset’s spot price today. ETH is currently trading down 2.9% over the past 24 hours at $1,047, having lost 28% over the past month, according to CoinGecko.

Crypto Twitter has been busy debating whether Ether should be classed as a security or not, with the specter of tribalism raising its ugly head again. Bitcoin maximalists have sided with MicroStrategy CEO Michael Saylor who said that ETH was “obviously” a security last week.

However, this has been widely disputed by Ethereum proponents, including co-founder Vitalik Buterin who offered his take on the dispute on Tuesday.