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Top Stories of the Week - 10/27

Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories

This week in the newsletter, we recap a wild weak in Bitcoin markets, discuss the cracks emerging in the Wall Street Journal’s now infamous piece on Hamas’ alleged use of cryptocurrency, and our updated expectations for the timing of Ethereum’s next upgrade.

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BTC breaks out on further ETF anticipation

Bitcoin ETF anticipation drives BTC price above $35k, a level not seen since May 2022. Market participants noticed on Monday that several applicant ETF products were listed on the DTCC website along with trading tickers and CUSIPs, leading to speculation that bitcoin ETF applications were on the verge of receiving approval for trading. The listing of BlackRock's iShares Bitcoin Trust ETF was temporarily removed from the DTCC website the next day, only to re-added a few hours later. The DTCC later released a statement that “appearing on the list is not indicative of an outcome for any outstanding regulatory or other approval processes in respect of a particular ETF fund,” and a spokesperson for the clearinghouse clarified that BlackRock's bitcoin ETF ticker was in the database back in August, just as standard practice for potential ETFs.

Despite this back and forth on DTCC ticker listing, the price of BTC still held firmly above $33k for the remainder of the week, now trading at ~$34k as of writing (+18.5% over the last week). BTC market dominance rose to its highest level since April 2021, while the ETH/BTC ratio continues to slide, now at a 16-month low of 0.052.

In a private note sent to clients on Sunday, Galaxy Research provided color on how ETF anticipation accompanied by supply constraints and dealer options positioning could result in a significant break out for BTC price: "Bitcoin supply and liquidity constraints, coupled with significant short gamma positions from options market makers, could exacerbate any upward price move in the near term.” When dealers are short gamma and price moves up, they need to buy spot to stay delta neutral. Galaxy Research also discussed about the potential for a gamma squeeze in the dislocated Bitcoin options market three weeks ago on the Galaxy Brains podcast. Ultimately, on Monday, BTC continued to grind higher, eventually rocketing as high as $35k in a quick move driven by short covering, though BTC still remains in the elevated range.


Momentum continues to build for bitcoin on expectations that the world’s largest capital market will soon offer a spot-based ETF. We published a research report detailing the potential impact of a bitcoin spot ETF for the market adoption of bitcoin, particularly as it expands accessibility across wealth segments and could drive greater acceptance for bitcoin as an asset class through formal recognition by regulated and trusted financial brands. We see the US wealth management industry, specifically bank/BD platforms and independent RIAs, as the market with the greatest net new access to bitcoin from an approved ETF.

Based solely on this $47T market (excludes retail & larger institutional segments) and applying assumptions around the % of platforms ramping up access and % of wealth that allocates to BTC (10% of AUM adding BTC exposure at an average 1% allocation), we estimate $14.4bn of inflows into a bitcoin ETF in the first year following an ETF launch. Applying this inflow estimate into the historical relationship between monthly gold ETF fund flows & change in gold price (adjusted for the difference in gold / BTC market cap and % of assets held in investment vehicles), we estimate a 74% increase in BTC price over one year.

There will likely be a much larger impact for overall BTC demand from the second-order effects of a spot ETF approval as other international markets offer similar ETF products to a wider population of investors. In addition to ETF offerings, a wide range of other investment vehicles are likely to incorporate bitcoin to their strategies (e.g., mutual funds, closed-end, and private funds, etc.). While we acknowledge that ETF approvals are not guaranteed or other factors such as timing and macro conditions could our impact estimates, we see a promising next couple of months for bitcoin market narratives – aside from potential ETF inflows, the next halving (April 2024) is less than six months out, and bitcoin is finding growing acceptance as a "flight to quality" asset amid worsening geopolitical conditions and a rates environment that continues to be tricky... – Charles Yu

Data Provider Refutes Wall Street Journal Article on Hamas Crypto Financing

On October 10th, the Wall Street Journal (WSJ) published an article titled, “Hamas Militants Behind Israel Attack Raised Millions in Crypto” that now appears to have vastly overstated the amount of funds Hamas and the Palestinian Islamic Jihad raised via crypto donations. As covered in our newsletter last week, on October 17, over 100 US lawmakers sent a letter to the U.S. Department of the Treasury (Terrorism and Financial Intelligence) and the White House (National Security Advisor) urging immediate action to prevent crypto’s use in illicit financing. That letter relied primarily on the WSJ’s reporting as the basis for alarm.[TW1] On October 18, onchain analytics firm Chainalysis, the top blockchain analytics vendor for the U.S. government, published a blog disputing the data in the WSJ report.

On Wednesday of this week, Elliptic, the primary source for the original WSJ piece, publicly disavowed the data used by the WSJ in a blog post entitled “Setting the record straight on crypto crowdfunding by Hamas.” Elliptic’s post explicitly states that the data used by the WSJ and US lawmakers is inaccurate, writing “there is no evidence to suggest that crypto fundraising has raised anything close to this amount [$130 million], and data provided by Elliptic and others has been misinterpreted.” Despite growing evidence that the foundation of the story was empirically false and misleading, the WSJ has yet to issue any correction or retraction.


Elliptic’s public recanting mutes the WSJ story and any statements, publications, or analysis derived from it. It is clear that crypto’s use in illicit terrorist funding is magnitudes lower than what was previously reported. What remains a mystery is why parties responsible for disseminating incorrect information remain unwilling to publicly withdraw their statements.

To be clear, we vehemently oppose the use of cryptocurrency, or any other medium, by terrorists and other bad actors. There is an urgent need to thwart crypto’s use in illicit financing and members of the blockchain industry are willing to work with governments, policymakers, and law enforcement to achieve that. In a hearing held by the House Committee on Financial Services on Wednesday, Adam Zarazinski, the founder of blockchain analytics firm Inca Digital, stated this plainly. In remarks during the Q&A (maybe cut the clip and put it here), he highlighted that an uncertain regulatory environment in the United State continues to push liquidity offshore where it is difficult to monitor, stating that “the more that we bring [liquidity] on shore, the less liquidity bad guys have to launder money globally.”

Bitcoin and other cryptocurrencies are highly traceable and transparent. This is one of their biggest value propositions. That traceability also makes them suboptimal for crime, a fact that law enforcement and intelligence officials have attested to. As mentioned last week, Hamas affiliates have independently stopped accepting crypto donations due to their traceability. Furthermore, of the $21000 donated to pro-Hamas affiliates since the attacks, $11000 has already been frozen either during attempts to cash out through exchanges or by stablecoin issuers like Tether.

Analyzing the blockchain isn't trivial. It requires technical skill and intellectual nuance. Blockchain analysis is conducted too frequently by tourists, and policymakers should rely on the experts before forming law and regulations in this space. Furthermore, policymakers should work with industry participants to ensure that proposed solutions will materially thwart the use of cryptocurrencies by bad actors. Some proposals we have seen would accomplish little in this effort, while damaging the financial innovation that can help the United States remain the world’s largest and safest capital markets. – Lucas Tcheyan

Ethereum Devs Push Back Cancun/Deneb Upgrade to Q1 2024

On Thursday, October 26, during a bi-weekly developer meeting, Ethereum protocol developers tentatively agreed to hold off on activating the Cancun/Deneb upgrade on the first public Ethereum testnet until late November, effectively pushing back any chances of a mainnet activation for the upgrade until after the holidays. On All Core Developer Execution (ACDE) Call #173, developers discussed the launch of Devnet-10, the tenth developer-focused test network for the Cancun/Deneb upgrade, which occurred on Monday, October 23. Barnabas Busa, a DevOps Engineer for the Ethereum Foundation, mentioned a few bugs were discovered in the Prysm and Teku consensus layer (CL) clients and that developers were in the process of testing MEV workflows on Devnet-10. Given the need for more testing, developers agreed to move forward with the launch of Devnet-11 sometime next week before activating the upgrade on public Ethereum testnets. Developers will activate Cancun/Deneb on three public Ethereum testnets, Goerli, Sepolia, and Holesky, before launching the upgrade on mainnet Ethereum.

Though some developers on the call were keen to schedule the Cancun/Deneb upgrade on Goerli in early November, others such as a Prysm client developer by the screenname “Potuz” were less enthusiastic. “I see very large and deep changes still being pushed to the branch,” said Potuz on ACDE #173, adding, “These things are like deep changes. This is not just one liners. I don’t see how this is going to change in a week or so.” Based on the pushback, developers agreed on the call to tentatively slate the activation of Cancun/Deneb on Goerli to late November, until after Devconnect, an Ethereum developer-focused conference in Istanbul that will be held from November 13 to 17.

Chair of the ACDE calls Tim Beiko noted that historically developers have spaced public testnet launches of Ethereum upgrades no less than two weeks apart. Therefore, if Cancun/Deneb is activated on Goerli in late November, the mainnet activation for the upgrade will likely not be able to occur before holidays. Beiko wrote in a summary thread about ACDE #173, “Realistically, with Goerli forking late November, and testnets usually requiring at least 2 weeks between them (so teams can fix any bugs and put out new releases), mainnet would happen after the holidays.”


As stated in prior newsletters, the likelihood of a mainnet activation for Cancun/Deneb by the end of this year was already looking highly unlikely after the late-minute addition of two new Ethereum Improvement Proposals (EIPs) to the upgrade back in mid-September. This week’s discussion on ACDE #173 confirms expectations that developers will not be ready to execute this upgrade until early 2024.

Since the completion of the Shanghai upgrade in April 2023, Ethereum has transitioned into a fully proof-of-stake (PoS) consensus protocol. The network now relies entirely on validator node operators staking deposits of 32 ETH for network security and consensus. The Cancun/Deneb upgrade, as the first upgrade to be tested since Ethereum’s full transition to PoS, is proving to be more complex to test than anticipated. In part, this is because of EIP 4844, which introduces a new transaction type and fee market to Ethereum. However, another large reason for the complexity in testing is because of Ethereum’s new architecture as a PoS blockchain.

Unlike before the Merge and Shanghai upgrades, Ethereum’s codebase is now composed of not one but two protocols, the execution layer and consensus layer, operating in tandem. In addition, there is tooling outside of these protocols that require testing such as the Engine API and MEV-Boost software. Because the complexity of the Ethereum protocol has increased since its transition to PoS, the technical risks of implementing new code changes to Ethereum has also increased and become more resource-intensive for developers to address. -Christine Kim

Charts of The Week

Bitcoin’s YTD Risk-Adjusted Returns

Bitcoin’s recent price appreciation puts it back at the top of the list as the world’s best performing assets even on a risk adjusted basis. In terms of total return, BTC is up 106% YTD at the time of writing

Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories, risk-adjusted returns
Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories, risk-adjusted returns

Bitcoin Supply Illiquidity

The age of BTC is growing older with more than 80% of supply not moving in at least 6 months. This represents around 15.678m of the 19.524m BTC in circulation. The majority of BTC supply falls within the 2-year to 3-year cohort, capturing 16.31% of circulating supply. An increasing age of BTC supply coincides with a rise in supply illiquidity as coins become less active and hodlers bear down.

Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories, bitcoin hodl waves
Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories, bitcoin hodl waves

Another way to look at supply liquidity is through on-chain activity. The relationship between long term holder (LTH) supply and supply last active less than 24 hours shows users are hodling coins at a steady rate as supply activity of younger coins on-chain is slowing. There is a clear divergence forming between hodled supply and daily active supply, which underscores the mounting illiquidity in BTC’s supply.

Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories, long term holder supply
Galaxy Research, Christine Kim, Charles Yu, Lucas Tcheyan, weekly top stories, long term holder supply

Other News

  • Sam Bankman-Fried takes witness stand without jury present

  • Arbitrum to integrate its Orbit stack with Celestia for data availability

  • Polygon's POL token contracts deployed on Ethereum mainnet

  • According to Chainalysis, North America leads world in crypto usage

  • Solana adds incubator to spur growth and woo founders away from rival chains

  • JPMorgan's JPM Coin payment system handles $1 billion in daily transactions

  • Developer exposed potential security issue on the Lightning Network

  • dYdX Chain officially launches on mainnet as standalone Cosmos Layer 1