Month: February 2024

NASHVILLE, TN – February 12th, 2024 – Bitcoin Magazine is excited to announce a new partnership with Unchained, the leader in Bitcoin financial services, making them our Official Collaborative Custody and IRA partner in the United States

Traditionally, institutional and enterprise investors, whether acquiring bitcoin itself or its derivatives, have turned to large, publicly-traded custodians to manage their bitcoin. Relying on a single custodian both nullifies most of the asset’s benefits while increasing risk of catastrophic loss that has been all too common throughout Bitcoin’s history.

Together, we understand that bitcoin, properly held, will be at the core of the global financial system. Unchained offers a better way to interact with Bitcoin through collaborative custody. Providing investors with the right tool to eliminate custodial risk by taking ownership of their assets or distributing control among multiple trusted parties. This method has gained traction as a superior risk management strategy.

Bitcoin Magazine and Unchained will co-produce Bitcoin-only educational content. With the goal of helping new and current Bitcoin investors access the best tools and methods to achieve their financial goals, this content will focus on financial literacy, security, planning (including 401k, IRA, and inheritance), and best-in-class market research. As part of these educational efforts, Bitcoin Magazine and Unchained will release an Institutional Adoption Roadmap to show financial institutions how, and why, to interact with the Bitcoin network through collaborative custody.

Bitcoin Magazine customers will enjoy exclusive discounts on Unchained’s vault custody product, Bitcoin IRA services and Signature – Unchained’s full suite financial services package. Unchained’s vault clients will receive complimentary access to Bitcoin Magazine Pro, our premier market research subscription, issues of our printed Bitcoin Magazine publications, discounts on passes to The Bitcoin Conference and access to invite-only events.

Joe Kelly, CEO of Unchained, commented, “We believe that bitcoin is the most important thing to happen to money in hundreds of years. It enables a level of control and sovereignty over one’s finances that has never been available before. However, leaving your bitcoin on a single custodian (whether you hold physical bitcoin or the ETF) nullifies most of bitcoin’s advantages. We founded Unchained to fix that! We wanted to create a way for people to prevent single points of failure. Bitcoin Magazine is the main entry point for so many people into this exciting market and we’re happy to partner with them to educate people on the ways to avoid mistakes that caused people to lose so much value in the events of 2022.”

Mike Germano, President of Bitcoin Magazine, expressed his enthusiasm for the partnership:

“Bitcoin is hitting an inflection point with a new wave of retail and institutional investors entering the space. Because of that, we believe it’s more important than ever to educate people on how to best interact with this technology. Currently, the world has a unique opportunity to re-architect the financial system with Bitcoin as the foundation, and we believe Unchained’s custody model is the right way for people to make Bitcoin a part of their portfolio. We believe Unchained stands apart with their superior approach to bitcoin as demonstrated by their track-record and reputation, and we could not be more excited for this partnership to educate the market on why bitcoin, properly held, should be the standard for investors and institutions participating in capital markets.”

Together, Bitcoin Magazine and Unchained envision Bitcoin as a revolutionary monetary system set to reshape global finance. To realize this vision, users require robust tools for secure and efficient capital management. Unchained’s unparalleled services are pivotal in empowering Bitcoin as a necessary asset for all investors, from institutions to individuals. Now is the time to make this vision a reality.

For more information, please visit unchained.bitcoinmagazine.com

About Bitcoin Magazine:

Bitcoin Magazine, the world’s first publication covering Bitcoin, serves its international readership with innovative ideas, breaking news, and global impact at the intersection of finance, technology, and Bitcoin. Operating from Nashville, Tennessee, Bitcoin Magazine is published by BTC Media. For the latest in Bitcoin news, visit BitcoinMagazine.com.

About Unchained:

Unchained is the leader in bitcoin financial services. Founded in 2016, Unchained is a top 5 bitcoin platform by assets secured (>$4 billion of bitcoin) and has helped thousands of individuals and businesses truly own their wealth by holding bitcoin keys. Unchained’s collaborative custody model allows clients to access a wide suite of financial services while continuing to have the benefits of self-custody, the ultimate consumer protection in these uncertain times. For more information on Unchained, please visit www.unchained.com. 

Founders Fund, the venture capital firm founded by billionaire Peter Thiel, has invested $100 million in bitcoin, sources exclusively informed Reuters. The firm allocated $200 million to acquire Bitcoin and another cryptocurrency, evenly split between the two. This maneuver further highlights the return of institutional investors to Bitcoin.

Founders Fund, an early institutional investor in bitcoin, initially bought BTC in 2014 but liquidated its holdings before the 2022 crash, earning approximately $1.8 billion. The firm resumed its bitcoin investments last summer, strategically acquiring bitcoin and another cryptocurrency when price was below $30,000.

Thiel, known for his libertarian views and co-founding PayPal and Palantir, has publicly endorsed bitcoin, praising its attributes as a store of value and hedge against central bank policies. With assets exceeding $12 billion under management, Founders Fund continues to expand its investment portfolio, with a renewed focus on crypto ventures.

This resurgence comes after a challenging period for the Bitcoin market in 2022, marked by the collapse of major players like crypto exchange FTX. Despite bitcoin’s price plunging to nearly $15,000, its lowest since 2020, the Bitcoin market has seen a gradual recovery, with bitcoin recently hitting $50,000 for the first time in over two years, albeit still below its peak of $69,000 in November 2021.

The Biden Administration has intensified oversight on the U.S. bitcoin mining sector through an Energy Information Agency (EIA) emergency survey, portraying electricity usage by miners as a significant threat to national grid stability. This move, which demands detailed disclosures from miners, mirrors actions in Venezuela that led to mining confiscations, signaling a concerning trend towards a full registry of mining activities. The article advocates for the bitcoin mining community to unite against this overreach, emphasizing the positive impact miners have on grid stability through demand response programs. It critiques the EIA’s legal and procedural justifications, highlighting potential legal challenges and the necessity for industry solidarity to protect mining autonomy against regulatory encroachment.

The emergency authorization claimed by the EIA for the mining survey is woefully inadequate, and doesn’t meet the bare minimum requirements imposed by the enabling statutes.There are technical defects in the EIA’s authorization surrounding the collection of Personally Identifiable Information. Also, the EIA has not done enough to clarify who the required respondents are.While an affected miner and an industry group can sue to block this action, there is a strong argument that a sovereign State, particularly Texas because of ERCOT, could also have standing to sue because the EIA’s action directly oversteps state sovereignty concerns.A lawsuit should easily meet the requirements for a preliminary injunction, and, if successful, a permanent injunction on the use of the emergency claim here.Speed is a top concern, as the timeframe for this survey is extremely short.

Part 1: Intro

The EIA finds itself at the center of a contentious debate due to its hurried and mandatory survey of cryptocurrency mining operations. The core issue is the EIA’s use of emergency powers to require data collection from cryptocurrency miners, justified by misplaced concerns over energy consumption and system reliability amid rising Bitcoin prices and environmental concerns.

This article explores the legal, procedural, and practical dimensions of the EIA’s actions, examining the agency’s rationale and its implications for public engagement in regulatory processes. By examining the legal frameworks that govern such emergency rulemakings, including the Administrative Procedure Act (APA) and the nuances of “good cause” exemptions, as well as the Paperwork Reduction Act (PRA), this analysis lays bare the EIA’s deficient process in pushing forward with this action. This piece then outlines a potential set of legal arguments that could be used to challenge the survey, and who can bring forth the challenge.

For further details on the EIA and the survey itself, see this piece by Charlie Spears and Storm Rund, as well as this piece by Marty Bent.

At its base, the Energy Information Agency does indeed possess the power under statute to collect the data they want to collect in this survey. 15 USC §772. (I will not argue here whether or not that power is itself legitimate, and there are good arguments that it may not be. Rather, I take aim at the process used by the EIA in order to show an expedient route to block the current action.)

Data collection like this should only be done through a traditional notice-and-comment process, where the public has adequate notice that the agency intends to take an action, and both the public and the agency isn’t forced to hurry with a response. Recall the FinCEN rulemaking which ended a few weeks ago. The public was allowed three months to examine it, and generate comments, such as the awesome one drafted by Samourai Wallet and signed by 25 other Bitcoin companies.

The APA requires that agencies follow procedures such as notice-and-comment to afford the public, including those with “highly relevant expertise in the subject,” the opportunity to participate in rulemaking through submitted comments.

Desirée LeClercq, Judicial Review of Emergency Administration, 72 Am. U. L. Rev. 143, 165 (2022-2023) (emphasis added)

As you can see, the EIA is not operating with access to “highly relevant expertise”:

Several cryptocurrencies, most notably Bitcoin, use a proof of work approach that requires cryptocurrency miners to validate blocks of transactions by solving complex cryptographic puzzles that require significant computational power.

EIA Supplemental Materials (emphasis added)

An agency may short-circuit the normal notice-and-comment process “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest”. 5 USC §553(b)(4)(B). Similarly, under the PRA, an agency may expedite certain procedures when “the agency cannot reasonably comply with the provisions of this subchapter because…public harm is reasonably likely to result if normal clearance procedures are followed”. 44 USC §3507(j)(1)(B)(i).

BUT, and it’s an absurdly massive “but”, the emergency procedure they’re operating under is comically tenuous.

Agencies have a long history of invoking the “good cause” exception of the Administrative Procedure Act (APA) in order to short-circuit public involvement, and the courts have increasingly become suspicious of such extremely loose uses of emergency rules. “The need for public participation in administrative rulemaking is ‘axiomatic.'” Ernest Gellhorn, Public Participation in Administrative Proceedings, 81 YALE L.J. 359, 369 (1972).

Several cases through the COVID era have begun to show judicial impatience with agencies applying emergency powers in situations where there is no legitimate rationale to do so.

The EIA’s justifications here for their emergency data collection can be summarized as:

Bitcoin’s price has gone up.Higher prices incentivize more mining.It’s cold outside right now.Something bad happened five years ago.We actually don’t really know if it’s that bad.But we feel like it might be, so we need to collect data NOW NOW NOW.

As evidence, the price of Bitcoin has increased roughly 50% in the last three months, and higher prices incentivize more cryptomining activity, which in turn increases electricity consumption. At the time of this writing, much of the central United States is in the grip of a major cold snap that has resulted in high electricity demand. The combined effects of increased cryptomining and stressed electricity systems create heightened uncertainty in electric power markets, which could result in demand peaks that affect system operations and consumer prices, as happened in Plattsburgh, New York in 2018. Such conditions can materialize and dissipate rapidly. Given the emerging and rapidly changing nature of this issue and because we cannot quantitatively assess the likelihood of public harm, EIA feels a sense of urgency to generate credible data that would provide insight into this unfolding issue.”

The OMB’s Statement of the EIA Justification for emergency action (Emphasis Added)

This justification is shockingly flimsy for the extraordinary power of an emergency action, and courts have blocked agencies for not having sufficient “good cause” when they had significantly stronger justifications than the EIA does here. See, i.e., Chamber of Commerce of the United States v. U.S. Department of Homeland Security, 504 F. Supp. 3d 1077 (N.D. Cal. 2020).

If challenged, a court should block the EIA’s data collection action (ie: grant an injunction preventing the EIA from enforcing it). Below we go into greater detail as to how such a challenge could look, and who can bring it.

Part 2: Standing

The initial component of any case analysis is a determination of who can bring a lawsuit. The basic requirements for standing are that a plaintiff must personally have:

suffered some actual or threatened injury;the injury can fairly be traced to the challenged action of the defendant; andthat the injury is likely to be redressed by a favorable decision.

See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992).

Clearly, any miner that has received a letter from the EIA falls within that category. According to their OMB statement, the EIA has a list of 82 miners in mind that they intend to demand information from, and any of those 82 would be able to sue here.

What about a miner that is not part of those 82? That’s a harder case. First of all, at present the list of 82 miners has not been made available, so a miner might not yet know if they are required to respond or not. Furthermore, it’s not immediately clear if a miner who doesn’t receive the letter and is not on the list of 82 target miners is required to respond. The EIA form itself states that those “who are required to complete this form are all commercial cryptocurrency mining facilities in the United States.” (emphasis added). A “commercial cryptocurrency mining facility” is not clearly defined, so a miner operating on a commercial site could reasonably believe that they are required to respond.

Another level of standing is organizational and associational standing. Here, an industry group can assert organizational standing when its mission is directly impacted by the agency action. See, i.e. PETA v. USDA, 797 F.3d 1087 (D.C. Cir. 2015) (holding that the USDA’s challenged non-action plainly impaired PETA’s activities in a non-speculative manner by requiring PETA to divert and redirect its limited resources to counteract and offset the defendant’s unlawful conduct and omissions.) Alternatively, an organization can assert associational standing “to bring suit on behalf of its members when: (a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted, nor the relief requested, requires the participation of individual members in the lawsuit.” See Hunt v. Washington State Apple Advertising Comm’n, 432 U.S. 333, 343 (1977); see also Ass’n of Am. Physicians & Surgeons v. Tex. Med. Bd., 627 F.3d 547, 550 (5th Cir. 2010); and Ctr. for Biological Diversity v. EPA, 937 F.3d 533, 536 (5th Cir. 2019).

It is conceivable that an organization which represents miners could potentially have both components of standing, but clearly associational standing will be met. The most contentious element would be where a specific member need not be directly involved with the lawsuit, however as this is an action to ensure that a regulatory agency follows proper procedure, and that the relief is to enjoin the agency from proceeding, it seems unlikely that a specific miner would be required to be a party here.

But there is one additional litigant that could bring this suit, and it would be an extremely interesting one: a State. Under the doctrine of parens patriae, a State has the ability to maintain a lawsuit on behalf of its citizens if it can meet additional burdens. See Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U. S. 592, 607 (1982) (“In order to maintain [a parens patriae action], the State must articulate an interest apart from the interests of particular private parties, i.e., the State must be more than a nominal party. The State must express a quasi-sovereign interest.”). In Massachusetts v. EPA, the Supreme Court elaborated on parens patriae by extending Massachusetts special solicitude to sue, based on that state’s quasi-sovereign interest in protecting its environment. 549 U.S. 497, 518 (2007) (“Well before the creation of the modern administrative state, we recognized that States are not normal litigants for the purposes of invoking federal jurisdiction.”). See also, Lexi Zerrillo, Who’s Your Sovereign?: The Standing Doctrine of Parens Patriae & State Lawsuits Defending Sanctuary Policies, 27 Wm. & Mary Bill Rts. J. 573 (2018); Tara L. Grove, When Can a State Sue the United States, 101 Cornell L. Rev. 851 (2016).

Using the State of Texas as an example, I believe there is a reasonable argument that Texas itself, and perhaps other states, would be able to achieve standing in this specific situation under parens patriae and special solicitude. ERCOT is a Texas quasi-governmental agency which is tasked with regulating the energy sector within the State of Texas. Indeed, in 2023, the Texas Supreme Court recognized ERCOT as having sovereign immunity, holding “that ERCOT is entitled to sovereign immunity because PURA “evinces clear legislative intent” to vest it with the ” ‘nature, purposes, and powers’ of an ‘arm of the State government’.” CPS Energy v. Elec. Reliability Council of Tex., 671 S.W.3d 605, 628 (Tex. 2023).

The EIA’s action here, using emergency powers as they have, represents a specific insult to Texas, as it deprives ERCOT the ability to engage with the agency process as experts in their domain. Indeed, ERCOT leads the country on the use of Bitcoin miners as large flexible loads, and so not only has the EIA’s emergency action deprived Texas of the ability to comment on the thrust of the action, it has deprived the rest of the country the benefit for ERCOT’s expertise in this field.

Furthermore, the EIA’s emergency action also impacts the ability of Texas to engage in the proper regulation of their internal grid, through ERCOT, which being entirely internal to the State of Texas, is not covered by the Commerce Clause, and is outside of much of the jurisdiction of the Federal Energy Regulatory Commission. When a State’s regulatory framework is at risk due to a Federal regulation, such as it is here, the special standing of a State has been upheld. See, i.e., Wyoming v. United States, 539 F.3d 1236, 1241-42 (10th Cir. 2008)(“In light of the “special solicitude” the Massachusetts Court afforded to states in our standing analysis, id., and because our discussion below demonstrates that Wyoming’s stake in this controversy is sufficiently adverse, we conclude that Wyoming has Article III standing.”).

The State of Texas has a unique and specifically identifiable quasi-sovereign interest here, and we believe that they would be an ideal plaintiff or co-plaintiff on this matter.

Part 3: General Background on “Good Cause” Emergency Rulemaking

The Administrative Procedure Act (APA) governs the process by which federal agencies develop and issue regulations, including a critical mechanism known as “emergency rulemaking.” This process allows agencies to implement rules without adhering to the typical notice-and-comment requirements under certain circumstances, notably when there is “good cause.” However, the invocation of this exception has been a contentious issue, particularly when agencies’ justifications are deemed insufficient.

Understanding APA’s Emergency Rulemaking and the “Good Cause” Exception

The APA aims to guarantee public participation, transparency, and accountability in federal rulemaking. Under 5 USC §553. agencies are generally required to provide notice of proposed rulemaking and allow the public to comment. However, §553(b)(4)(B) articulates a “good cause” exception, permitting agencies to bypass these procedures if they find that notice and comment are “impracticable, unnecessary, or contrary to the public interest.”

“Good cause” is predicated on the necessity for swift action by the agency under emergency circumstances or when the rule’s immediate implementation is critical to the public good. The exception is meant to be applied narrowly, reflecting Congress’s intention to maintain the participatory nature of rulemaking while acknowledging the need for flexibility in genuine emergencies.

Legal Standards for “Good Cause”

The APA’s requirement of notice and comment is ” ‘designed to assure due deliberation of agency regulations’ and ‘foster the fairness and deliberation of a pronouncement of such force.’ ” E. Bay Sanctuary Covenant v. Trump, 932 F.3d 742, 745 (9th Cir. 2018)(quoting United States v. Mead Corp., 533 U.S. 218, 230 (2001), quoting Smiley v. Citibank (S.D.), N.A., 517 U.S. 735, 741 (1996)). The good cause exception, in turn, “is essentially an emergency procedure[.]” United States v. Valverde, 628 F.3d 1159, 1165 (9th Cir. 2010) (quoting Buschmann v. Schweiker, 676 F.2d 352, 357 (9th Cir. 1982)). The exception also is “narrowly construed” and “reluctantly countenanced.” California v. Azar, 911 F.3d 558, 575 (9th Cir. 2018) (quoting Alcaraz v. Block, 746 F.2d 593, 612 (9th Cir. 1984)).

Chamber of Commerce of U.S. v. U.S. Dep’t of Homeland Sec., 504 F. Supp. 3d 1077, 1080 (N.D. Cal. 2020)(Some internal citations omitted)

The courts’ interpretations of what constitutes “good cause” have varied, leading to an evolving jurisprudential landscape. The determination of good cause hinges on the agency’s ability to convincingly demonstrate that the circumstances necessitating the rule are urgent enough to justify forgoing the usual procedural requirements. This justification must be more than mere assertions; it requires substantial evidence that adhering to the normal rulemaking process would be impracticable, harmful, or contrary to public interest.

Historically, courts have applied a deferential arbitrary-and-capricious review to agency assertions of good cause. Beginning in 2014, and cemented by cases related to COVID, courts began adopting a significantly more stringent de novo review standard. De novo review entails a thorough examination of the agency’s justification without deferring to the agency’s expertise or discretion. This evolution in judicial scrutiny underscores the growing concern with increasingly perfunctory and pretextual emergency determinations. “The declaration of emergency becomes a ‘self-fulfilling prophecy’ in which the executive has judged a situation an emergency and frames its response in such a way as to construct a new emergency reality. Emergency administration, if left unchecked, becomes the norm.” Desirée LeClercq, Judicial Review of Emergency Administration, 72 Am. U. L. Rev. 143, 170 (2022-2023) (emphasis added).

Going back to Chamber of Commerce, there the court found that even considering the extreme situation of the COVID pandemic, and its undeniable impact on domestic employment, the Agency could not justify using an emergency rule to make changes to the H1-B visa program.

Another case, Ass’n of Cmty. Cancer Ctrs. v. Azar, 509 F.Supp. 3d 482 (D. Md. 2020), found that an agency’s justification for an emergency action, which attempted to regulate allegedly runaway drug prices during COVID, fell far short of the requirements needed here:

The purported justification for invoking the good cause exception in this case falls flat. First, like the factually deficient justifications cited in Tennessee Gas Pipeline and Sorenson Communications, CMS here relies more on speculation than on evidence to establish that the COVID-19 pandemic has created an emergency in Medicare Part B drug pricing sufficient to justify dispensing with valuable notice and comment procedures.

…

While it may be that the anticipated benefits of the rule eventually would be borne out by empirical study, CMS’s conclusory and speculative assertions do not provide, particularly in the short term, a reasoned basis sufficient to justify denying to the public the beneficial requirements of the sixty-day notice and comment period. An agency may not rely solely on its own expertise to establish good cause; findings of fact are required.

Ass’n of Cmty. Cancer Ctrs. v. Azar, 509 F.Supp. 3d 482 (D. Md. 2020)(citing Sorenson Commc’ns Inc. v. Fed. Commc’ns Comm’n, 755 F.3d 702, 706 (D.C. Cir. 2014) and Tennessee Gas Pipeline Co. v. FERC, 969 F.2d 1141, 1145 (D.C. Cir. 1992))

Finally, in ITServe All., Inc. v. Scalia, the court didn’t apply the de novo standard because the agency was so deficient in its evidence and analysis that there was no need even to consider the standard. “For these reasons, even under the arbitrary and capricious standard, Plaintiffs are likely to succeed in showing that no emergency existed in the context of the H-1B program, and therefore, that the Department’s argument that it was impracticable to comply with the standard rulemaking procedure was insufficient. ” ITServe All., Inc. v. Scalia, Civil Action No. 20-14604 (SRC), 14 (D.N.J. Dec. 3, 2020)

The PRA Angle

The EIA might argue that the Paperwork Reduction Act (PRA) is the only aspect that controls here, and attempt to frame the argument solely in that realm. As I stated above, the relevant standard under the PRA is when an “agency cannot reasonably comply with the provisions of this subchapter because…public harm is reasonably likely to result if normal clearance procedures are followed”. 44 USC §3507(j)(1)(B)(i). This power is explicitly invoked by the EIA under 5 CFR §1320.13.

While there’s essentially no case law that interprets this section, looking broadly at §3507 you see that it mirrors the APA in many ways, requiring that the agency engage in a similar notice-and-comment procedure. The emergency standard isn’t explicitly the same “good cause” standard of the APA, it’s not so different as to need a completely different analysis. The first argument here would be for the courts to apply the “good cause” de novo review to this emergency action, based on the analogous situation and purposes of the PRA and APA.

However, like the situation in ITServe above, even if the courts were to apply a weaker “arbitrary and capricious” standard, the total bankruptcy of the EIA’s evidence as laid out in Part 4 below, their unwarranted delay, and the plain language of their “justification” does not rationally approach a finding of “public harm is reasonably likely” required by that statute.

The EIA may also attempt to argue that 44 USC §3507(d)(6) blocks judicial review of the information collection action. This argument fails as that section is narrowly construed. “For example, it does not prohibit judicial review of an OMB decision to approve collections that are not contained in an agency rule.” Hyatt v. Office of Mgmt. & Budget, 908 F.3d 1165, 1171 (9th Cir. 2018). Furthermore, “the statute precludes judicial review only of a decision by the OMB to approve, whether through express approval or a failure to act upon, a collection within an agency rule. Any other decision remains subject to judicial review.” Id. Finally, the judicial review bar is constrained further in that it “shall apply only when an agency publishes a notice of proposed rulemaking and requests public comments.” 44 USC §3507(d)(5).

Associated Rulemaking Information

RIN: Stage of Rulemaking: Federal Register Citation: Date:

    Not associated with rulemaking

Federal Register Notices & Comments

    Did the Agency receive public comments on this ICR? No

The OMB’s Statement of the EIA Justification for emergency rulemaking (Emphasis Added)

By their own admission, the EIA’s collection is neither incidental to a parallel or prior rulemaking, nor was a notice issued or public comments received.

Furthermore, the use of the emergency power of §3507(j) lies outside the scope of §3507(d), so the (d)(6) bar does not apply. See Silvers v. Sony Pictures Entm’t, Inc., 402 F.3d 881, 885 (9th Cir .2005) (en banc) (‘‘The doctrine of expressio unius est exclusio alterius ‘as applied to statutory interpretation creates a presumption that when a statute designates certain persons, things, or manners of operation, all omissions should be understood as exclusions.’ ’’ (quoting Boudette v. Barnette, 923 F.2d 754, 756–57 (9th Cir. 1991)).

Part 4: The EIA’s Overreach

Returning to the EIA’s justifications, there are several avenues of attack.

Attack 1: Unwarranted Delay

Plaintiffs argue that Defendants unduly delayed in taking action and forfeited the ability to rely on the good cause exception. “Good cause cannot arise as a result of the agency’s own delay[.]” Nat’l Educ. Ass’n, 379 F. Supp. 3d at 1020-21 (internal bracket omitted, quoting Nat’l Res. Def. Council v. Nat’l Highway Traffic Safety Adm’n, 894 F.3d 95, 114 (2d Cir. 2018)); see also Nat’l Venture Ass’n v. Duke, 291 F. Supp. 3d 5, 16 (D.D.C. 2017) (quoting Wash. All. of Tech. Workers v. U.S. Dep’t of Homeland Sec., 202 F. Supp. 3d 20, 26 (D.D.C. 2016), aff’d, 857 F.3d 907 (D.C. Cir. 2017)). “Otherwise, an agency unwilling to provide notice or an opportunity to comment could simply wait until the eve of a statutory, judicial, or administrative deadline, then raise up the ‘good cause’ banner and promulgate rules without following APA procedures.” Nat’l Res. Def. Council, 894 F.3d at 114-15 (quoting Council of S. Mtns. v. Donovan, 653 F.2d 573, 581 (D.C. Cir. 1981))

Chamber of Commerce of U.S. v. U.S. Dep’t of Homeland Sec., 504 F. Supp. 3d 1077, 1087 (N.D. Cal. 2020)

The only actual datapoint that the EIA cites in their “justification” is an incident in Plattsburgh, New York, in 2018. The EIA doesn’t cite any details, except to state that the mining “could result in demand peaks that affect system operations and consumer prices, as happened in Plattsburgh, New York in 2018”. Ignoring the fact that it is unclear if there was actually any appreciable negative impact to either system operations or consumer prices in that case, the simple fact that the Agency has delayed six years in seeking to address the situation shows that there is absolutely no need to avoid a few month notice-and-comment period to provide for robust and complete public input.

Attack 2: Insufficiency of Evidence

The combined effects … could result in demand peaks that affect system operations and consumer prices … [and the] EIA feels a sense of urgency to generate credible data that would provide insight into this unfolding issue.

The OMB’s Statement of the EIA Justification for emergency action (Emphasis Added)

In Sorenson, the court took a rather dim view of such a speculative harm. We’ll just leave this here:

Curiously, however, there were no factual findings supporting the reality of the threat. Instead, the agency speculatively stated “absent Commission action, there could be insufficient funds available … to meet the needs of the Fund.” Interim Order, 28 FCC Rcd. at 707 (emphasis added) … Cause for concern? Perhaps. But hardly a crisis. … Lacking record support proving the emergency, we hold the Commission erred in promulgating the Interim Order without notice and comment.

Sorenson Commc’ns Inc. v. Fed. Commc’ns Comm’n, 755 F.3d 702, 706 (D.C. Cir. 2014)

Attack 3: Disconnect Between Cause and Effect

The EIA has provided no specific evidence regarding the connection between higher bitcoin prices and how that translates into the intensity of mining (and the subsequent power use). While we don’t dispute that such a connection exists, the short term impact is much more complex than the EIA’s assumed “Number Go Up therefore Mining Go Up!” conclusory statement. As any professional bitcoin miner knows, adding significant capacity is a complicated industrial construction process, involving permits, international shipping, supply chains, local electric workers, and many other aspects which add a significant delay to the NGU -> MGU equation.

Further, every miner also is aware that the halving is imminent, and that will likely cause a retraction in mining intensity, unless NGU fully overwhelms the halving of the block subsidy. The EIA makes no mention of this, and actually appears to want to rush the review while they know the data will be skewed high, pre-halving.

Attack 4: Technical Defects

On the OMB’s announcement, the OMB and the EIA make the following disclosure:

Does this ICR request any personally identifiable information (see OMB Circular No. A-130 for an explanation of this term)? Please consult with your agency’s privacy program when making this determination. No

The OMB’s Statement of the EIA Justification for emergency rulemaking (Emphasis Added)

In the cited OMB Circular No. A-130, “‘Personally identifiable information’ means information that can be used to distinguish or trace an individual’s identity, either alone or when combined with other information that is linked or linkable to a specific individual.”

On the survey form itself, in Schedule 1 the survey clearly asks for the name and contact information for a survey contact and that individual’s supervisor’s name and contact information. Under 2 CFR §200.79, PII “includes, for example, first and last name, address, work telephone number, email address”. While §200.79 defines that as so-called public PII, the OMB Circular No. A-130 does not make that distinction, so the disclosure is deficient as to how that PII will be managed. It’s just more evidence that the EIA and the OMB rushed this survey through without proper vetting, and is one more example that proper notice-and-comment procedures should have been followed.

Additionally, the EIA, in their rush to push this out NOW NOW NOW, created uncertainty in the public as to who is actually required to respond to their action. Are only the entities who receive a letter required to respond, or are “all commercial cryptocurrency mining facilities in the United States” covered, as they state in their authorization? If the latter, who specifically qualifies? Are off-grid miners included, even though they don’t have any interaction with grid infrastructure under the EIA’s purview? If the EIA had simply engaged in the proper notice-and-comment procedure, again, these plain confusions would have been caught and addressed by the process.

Part 5: Standard for an Injunction

A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.

Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)

We believe that an injunction is clearly warranted, and likely to be granted. But for completeness, we’ll analyze all four elements. The detailed injunction analysis present in Azar is quite thorough for our purposes here. See Ass’n of Cmty. Cancer Ctrs. v. Azar, 509 F.Supp. 3d 482 (D. Md. 2020).

Prong 1: Likely to Succeed on the Merits

This is where all the action will be, and essentially is covered by the above analysis in Part 3. But in sum, the EIA’s attempt to employ an emergency process here is clearly and facially illegitimate, and so the EIA is likely to lose on the merits, either under the de novo standard or the arbitrary and capricious standard.

Prong 2: Likely to Suffer Irreparable Harm in the Absence of Preliminary Relief

The specific harm here is the fact that the EIA has avoided the required notice-and-comment provisions of the APA and/or the PRA. If the agency is allowed to proceed with their data collection, there will be no way to remedy the agency action. As discussed in detail in Azar, a “violation of the APA cannot be fully cured by later remedial action.” Azar, 509 F.Supp. 3d at 501.

Prong 3 & 4: The Balance of the Equities Support The Injunction, and it is in the Public Interest

Again we look to the excellent language in Azar, stating that “Of course, Congress has also determined, in passing the APA, that it is in the public interest to allow the public to comment on proposed regulations prior to their promulgation. And given the limited duration of a temporary restraining order, it would be more accurate to say—at least at this stage of the proceedings—that the court would be delaying the implementation of the rule rather than preventing it. The court acknowledges and gives weight to CMS’s desire to lower drug prices to benefit seniors, but CMS has adduced no evidence that any harm will result if its seven-year test does not commence on January 1.” Azar, 509 F.Supp. 3d at 502 (internal citation omitted).

Similarly, given the six year delay that the EIA has already tacitly condoned, there is no serious additional harm to the EIA here by delaying the data collection, while there is significant harm to those affected by their actions. And the public interest is clearly served by forcing them to hew to proper APA procedure.

Part 6: Conclusion

We submit that a properly crafted lawsuit has a strong chance of success in at least delaying the EIA’s survey, compelling them to initiate a proper notice-and-comment process that promises a narrower, more thoughtfully designed survey. This action is not only a legal recourse but a necessary step towards ensuring a fair and transparent regulatory process. We provide these citations with the hope that members of our industry can swiftly move to secure a preliminary injunction against the EIA.

At this pivotal moment, it is crucial for legal professionals, miners, and bitcoin industry experts to unite against the EIA’s intrusive survey. This collective effort is essential as we confront this regulatory overreach and advocate for the principles of transparency and due process. Legal experts can dissect the EIA’s emergency survey’s foundations, ensuring compliance with statutory requirements, while miners offer firsthand accounts of the survey’s impact, highlighting the real-world implications of such regulatory measures.

As we stand together, our unified response can champion the cause of Bitcoin and protect our industry from undue regulatory burdens. Bitcoin professionals, with their deep understanding of the ecosystem’s nuances, are instrumental in shaping public discourse and influencing policy. Now is the time to leverage our collective expertise, influence, and passion to advocate for regulation that nurtures innovation and growth. Our industry is currently seen as a softer target, but others will be next, and showing that we can and will fight, while also scoring a victory against regulatory malfeasance, benefits not only Bitcoin, but all Americans. By engaging with policymakers and contributing to public commentary, we can forge a future for our industry that is both prosperous and fair.

The author would like to thank Storm Rund and several anonymous contributors all of whom provided significant assistance in editing and finalizing this article.

This is a guest post by Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Bitcoin has surged past the $50,000 mark today, according to CoinMarketCap data, reaching this milestone for the first time since December 2021. 

CoinMarketCap

The breakthrough marks a significant recovery for Bitcoin, which faced massive volatility and fluctuations over the last couple years, reaching lows of around $16,000. Bitcoin’s resilience and upward trajectory underscore its status as a store of value and a hedge against inflation in todays grim economic landscape.

Investors are closely monitoring Bitcoin’s price movements, with many viewing the $50,000 level as a crucial psychological barrier. The surge in Bitcoin’s price reflects renewed confidence in the asset’s long-term potential and its ability to attract institutional investment.

This year’s upward price movement has been mainly fueled by spot Bitcoin ETF demand, which is seeing adoption by mainstream financial institutions and increasing retail investor participation. The immense amount of selling pressure by Grayscale’s Bitcoin ETF, in addition to miners selling off coins, appears to now be almost exhausted. So now with the inflows for all the other spot Bitcoin ETFs accelerating, buying demand is far exceeding any current selling pressure.

Also, with the halving event quickly approaching for Bitcoin, market participants have been vocal about eagerly buying up BTC before the mining reward gets cut in half, which is expected to create a supply shock later in the year. 

Introduction

We live in a highly digitalized world, but most of humanity still uses physical goods to store value. The most used store of value in the world is real estate. It is estimated that approximately 67% of global wealth is held in property. Recently, however, macroeconomic and geopolitical headwinds have highlighted the weaknesses of real estate as a physical store of value. What to do if a war breaks out? What happens if a home that was used as a store of value is destroyed?

In German, real estate translates to “Immobilie,” which literally means “to be immobile.” Owning real estate creates a local dependency that can pose a problem in a world of ever-increasing conflict and radicalization. In the event of war, you cannot take real estate with you and it can be easily destroyed.

This may sound like a dystopia, but I believe that if you are serious about long-term wealth management, you should consider the worst-case scenario and the possible global impact.

War And Destruction Of Wealth

Since the beginning of the 21st century, war has never cost humanity so much. Over 238,000 people were killed in conflict last year. Syria, Sudan, Ukraine, Palestine, Israel, Lebanon – the global sources of conflict are increasing. Some of these areas have already suffered massive destruction. There are no more properties there and the value stored in them has literally evaporated. It’s hard to imagine the financial setbacks people have had to endure, apart from the suffering and grief that war brings.

Syria 2017 © Eddy Van Wessel

Real estate is used as a store of value around the world, although there are some exceptions, such as Japan. With the threat of destruction increasing, the fruits of the labour of millions, possibly billions, of people are at stake. Alongside inflation and taxation, physical wealth destruction has historically been one of the greatest threats to overall prosperity. Already in ancient times, armies ruthlessly plundered cities and destroyed the residents’ belongings.

Physical vs. Digital Store Of Value

Fortunately, with Bitcoin there is a solution to the threat of destruction of wealth stored in physical assets. As a digital, near-perfect mobile store of value, it is difficult to destroy and easy to move.

The introduction of Bitcoin in 2009 challenged the role of real estate as humanity’s preferred store of value, as it represents a better alternative that allows people worldwide to protect their wealth with relative ease.

You can buy very small denominations of bitcoin, the smallest being 1 satoshi (1/100,000,000 of a bitcoin) for as little as ≈ $ 0.0002616 (on 2/12/2024). All you need to store it safely is a basic computer without internet access and a BIP39 Key generator — or just buy a hardware wallet for $50. In case you need to relocate, you can memorise 12 words, the backup (seed phrase) for your wallet, and “take” your bitcoin with you

Digitalization

Digitization optimises almost all value-preserving functions. Bitcoin is rarer, more accessible, cheaper to maintain, more liquid and most importantly, it allows you to move your wealth in times of crisis.

Bitcoin is wealth that truly belongs to you. With the threat of war looming around the world, I believe it is better to hold wealth in a digital asset like bitcoin than in physical assets like real estate, gold or art, which can easily be taxed, destroyed or confiscated.

Property Confiscation

If we look at history, it is clear that physical stores of value have left people vulnerable to government overreach. A historical example is the expropriation of Jews in Nazi Germany. Unfortunately, these repressions were not an isolated case in history. It happens all the time. Many lost their property in Cuba when Fidel Castro took over, as Michael Saylor likes to point out.

These painful history lessons underscore the significance of safeguarding wealth in a digital asset such as bitcoin, which proves challenging to confiscate, tax or destroy and easy to move.

The Socialist Revolutionary Leader Fidel Castro (Source).

Macroeconomic Changes

Additionally, shifts in the macroeconomic landscape can swiftly devalue real estate. Typically, real estate is purchased through a loan. Therefore, elevated interest rates translate to diminished affordability for financing, resulting in a decreased demand and subsequently lowering property prices. We can see this scenario playing out globally right now, the conjunction of increased interest rates and reduced demand is contributing to the decline in property values around the globe.

Bitcoin vs. Real Estate

​​Bitcoin is less affected by the problems of the traditional fiat financial system than real estate. Since it operates independently of the system. Variables such as interest rates, central bank decisions, and arbitrary governmental actions have limited influence on bitcoin. The price is predominantly determined by its supply, issuance schedule and adoption rate.

Bitcoin follows a disinflationary model that implies a gradual reduction in its supply over time until a hard limit is reached in 2140. Approximately every four years, the bitcoin awarded to miners for successfully ordering transactions (every 10 minutes) are halved.

The upcoming halving, set for Friday, April 19, 2024, is expected to halve the block reward from 6.25 bitcoin to 3.125, which translates to a daily issuance of 450 bitcoin instead of 900.

Currently, bitcoin has an annual inflation rate of around 1.8%, which is expected to drop to 0.9% after the upcoming halving. After that, the inflation rate will be almost negligible. In addition, a large number of bitcoin were lost and we can expect that many will be lost in the future. The continuous decline in finite supply increases the deflationary pressure of the Bitcoin network. As more and more people (and machines) are using bitcoin, increasing demand is countered by decreasing supply.

This extremely strong deflationary movement cannot be observed in real estate. Although real estate is also scarce due to the limited supply of building land, there is no hard cap. New building land can be developed and zoning laws can, for example, enable the construction of higher floors.

Absolute Scarcity

For most, it is difficult to imagine the impact of a fixed supply on the price of an asset. Prior to Bitcoin, there was no concept of an inherently scarce commodity. Even gold possesses an elastic supply. Increased demand prompts more intensive mining efforts, a flexibility not applicable to bitcoin.

Consequently, with each halving event, signifying a reduction in supply, the price of bitcoin ascends and continues to do so perpetually. This permanent increase persists as long as there is a corresponding demand, a likelihood attributed to bitcoin’s exceptional monetary properties.

This dynamic is expected to continue even in the midst of a global economic crisis. The supply of bitcoin will continue to decrease and the price will most likely continue to rise. Due to the expected continued demand in times of crisis, as explained. Even inflation can have a positive impact on the price of bitcoin as it leads to increased availability of fiat currencies that can be invested in Bitcoin.

Conclusion

In a world marked by growing radicalization and a financial system undergoing a profound crisis, bitcoin emerges as a superior choice for storing value, especially during periods of macroeconomic fluctuations. The significance of bitcoin is anticipated to rise during these turbulent times, potentially overtaking real estate as humanity’s preferred store of value in the distant future.

The aspiration is that an increasing number of individuals will recognize the advantages of Bitcoin, not only for wealth preservation but, in extreme circumstances, for securing their livelihood.

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This is a guest post by Leon Wankum. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Over the past months, Bitcoin ETFs dominated the cryptocurrency, finance, and investing discourse. A flurry of attention-focused articles on the latest wave of spot Bitcoin ETF applications captured the collective interest. Stakeholders speculated on their implications. Following heightened anticipation at the beginning of 2024, the Securities and Exchange Commission of the United States (US SEC) finally green-lit the new securities.

As financial heavyweights like BlackRock, Fidelity, Valkyrie, ArkInvest, VanEck, Wisdom Tree, Bitwise, Invesco Galaxy, and others join the fray, they spearhead a new era in Bitcoin investments.

The road to Bitcoin ETFs and their recent approvals has been far from smooth. Over the past decade, advocates for long-term Bitcoin ETFs faced numerous challenges. In Bitcoin’s 15th year, we examine its phenomenal journey from niche experimental currency to formal security backed by the world’s most prominent asset managers.

How did the world’s first decentralized asset, created to minimize the role of central authorities, become the most-awaited investment news of early 2024? What events shaped the current unprecedented wave of institutional interest? What swayed the US SEC on its position and compelled it to approve the latest wave of spot ETF filings?

Bitcoin ETFs promise to bridge the experimental and largely decentralized world of cryptocurrencies with traditional finance structures. They are an unprecedented hybrid technological and regulatory innovation poised to transform how people view and invest in digital assets. They are not just new investment vehicles but also evolutionary catalysts for US financial markets and beyond.

Spot Bitcoin ETFs: A Better Way To Invest In The Cryptocurrency?

Exchange-traded funds, or ETFs, are a $7.7 trillion industry. Their sheer size implies they are among the world’s most favored and familiar investment methods. ETFs have existed for thirty years and represent a profoundly ingrained investment instrument on Wall Street.

ETFs were designed to buy and sell more complex instruments, similar to how one would buy and sell company stock. In the last decade, Bitcoin entrepreneurs and proponents have tried to sell the idea of a Bitcoin-related ETF for the same purpose—to simplify and formalize investment in the digital currency. Before the recent approvals, no one succeeded except for Bitcoin futures ETFs—derivatives-based ETFs related to but not directly tied to Bitcoin.

After many years of trying, efforts to launch spot Bitcoin ETFs had finally lost steam. Yet, over the past year or so, market discussions around possible new Bitcoin ETFs came alive again. Finance publications announced more spot Bitcoin ETF applications, this time headlining with the names of trillion-dollar asset managers such as BlackRock and Fidelity. The filings implied the possibility of greater institutional interest.

According to pre-approval predictions, the potential of new institutional interest in Bitcoin ETFs could draw about $14 billion to the crypto market within a year of a BlackRock ETF launch. They said BlackRock, a holder of $10 trillion in assets, would consider a $14 billion pocket change and a highly feasible goal. With the Blackrock IShares ETF in place alongside strong competitors, the $14 billion influx prophecy is one to watch in 2025.

With a hypothetical $14 billion influx into the market, Bitcoin price could be driven up to $141,000, according to George Tung, founder of CryptosRUs with over 600,000 followers on YouTube. Moreover, the head of research at CoinShares estimates that as much as $31.34 billion could flow into crypto markets this year. CoinShares has a higher price target, anticipating Bitcoin price to skyrocket to $265,437—an over 600% boost compared to its current range.

Rate cut announcements from the Federal Reserve may boost confidence further. We have already seen such statements influence markets during the holidays.

The new wave of spot ETFs simplifies access to Bitcoin and the growth opportunities it presents, as predicted by some analysts. Whether it’s a better way to invest in the asset is disputed—some advocate for holding actual Bitcoin. To them, it is a disadvantage that ETFs don’t put actual cryptocurrency in your account.

The Bitcoin in ETFs, therefore, cannot be used for any other purpose, as investment does not equate to ownership of the actual currency. Moreover, ETFs will not provide the same pseudonymity or even anonymity that trading in the crypto or DeFi space does—an attribute that may discourage native crypto investors.

However, ETFs offer the advantage of easy tradability. An ETF or exchange-traded fund is a convenient way to invest in a single or group of assets like gold or junk bonds without purchasing those assets directly. In addition, unlike traditional mutual funds, ETFs offer round-the-clock buying and selling, just like stocks.

Those seeking to invest in Bitcoin without learning the nuances of direct purchase and ownership will find ETFs appealing. Thus, spot Bitcoin ETFs open the door to new investors who are not native to crypto and don’t want to take the additional steps of opening accounts in crypto trading platforms and learning the nuances of hot and cold wallets.

Current Events Impacting Bitcoin ETFs

To understand Bitcoin ETFs better, we must examine their history and evolution. The path has been a bumpy one, full of regulatory roadblocks.

It has been nearly eleven years since the Winklevoss twins submitted the first filing for a Bitcoin ETF in 2013. It was called the Winklevoss Bitcoin Trust. In those days, Bitcoin traded at $90—a far cry from today’s prices.

The Winklevoss twins were never able to capitalize on their first-mover advantage. The United States SEC had rejected them twice over concerns about the risks of the once-nascent crypto market.

The Winklevoss Bitcoin Trust ETF would have traded under the ticker “COIN”—now since claimed by the most significant US crypto exchange, Coinbase.

Since the Winklevoss attempt, several ETF applications followed, soon trailed by about a dozen rejections. The succeeding applications were rejected because of inadequate investor protection in the bitcoin market.

The rejected ETF applications, however, varied in their nature and structure. Some were spot ETFs—bitcoin funds that directly owned the cryptocurrency. Others were futures-based investment products.

The futures ETFs held derivative contracts on the Chicago Mercantile Exchange (CME) to long-only funds to leveraged and inverse products. None of such proposals passed the scrutiny of the US SEC at the time.

The Clayton Era Of Regulation

The “Clayton era” marked a time when Bitcoin ETFs were at their lowest point. In the summer of 2018, the SEC rejected a shocking nine proposed Bitcoin ETFs in a single sweep—one day, to be exact.

Former SEC Chair Jay Clayton headed the commission from 2017 to 2020. He explained that the “rules and surveillance to prevent manipulative techniques” did not exist on all exchange venues wherein digital currencies were traded.

Moreover, custody was another sticking point. The former SEC Chair believed that ETF risk should only be confined to the underlying asset’s value and must not include other risks like untraceable disappearance or theft of the digital asset.

Bitcoin futures markets, which were in their infancy, were also a damaging strike against the spot ETFs. The SEC mentioned that while the CBOE and CME were regulated markets for bitcoin derivatives at the time, there was no basis in the record for the commission to conclude that those regulated markets were of a significant size.

In addition, in 2018, the United States SEC wrote that as bitcoin futures were trading on the CBOE and CME just recently—since December of 2017—the commission lacked a basis for predicting how such markets developed over time. The record was also considered insufficient for predicting their future success or size.

The Slow Winds Of Change: Events That Drove A Shift In Sentiment

Even with the SEC’s consistent rejection of spot ETF applications, Bitcoin ETFs were gaining unprecedented momentum if one cared to look under the hood.

Technological acceleration, geopolitical change, institutional interest, and economic drivers converged to create the perfect climate for an ETF approval. What drove regulators to shift gears and become receptive to the current set of Bitcoin ETF applications? Persistence, luck, grit, and the boldness of one player in particular.

Photo by Annie Spratt on Unsplash

Technological Drivers

Being open source, Bitcoin is an evolving protocol. New developments in the Bitcoin protocol contribute to its value and relevance. However, the Bitcoin community does not take such changes lightly. Since Bitcoin is open to all, the fastidiousness of its core developers and overall slowness to change contributed to its reputation as a stable asset.

Taproot, implemented in 2021, is the most significant upgrade since SegWit in 2017. Taproot broadens Bitcoin’s potential applications and makes it better capable of supporting more complex smart contracts.

This development implies it becomes more competitive with its closest rival in market cap, Ethereum, regarding flexibility and capability. It also enhances Bitcoin’s privacy by obscuring the type of transactions executed. Such improvements to Bitcoin’s capabilities and features contribute to its value and continued relevance to cryptocurrency enthusiasts.

Being decentralized and without a CEO or founder, Bitcoin has benefited from Satoshi Nakamoto’s pseudonymity and eventual disappearance from Bitcoin’s development and decision-making. Without a founder to benefit from the markets, it has gained credibility as a decentralized coin.

The Bitcoin community remains fiercely protective of its original design and principles—decentralization and fixed supply. The decentralization attribute has proven it resistant to being labeled as a security.

Bitcoin does not fulfill the requirements of the Howey test and thus fails to be a security. While the US SEC cracked down on ICOs and other token offerings, declaring them securities, Bitcoin remained a non-security and decentralized currency.

The drastic changes to Bitcoin’s biggest rival, Ethereum, have yet to result in a significant spike in ETH’s price. Instead, the protocol’s shift in incentives, including its veering away from mining and movement to staking, has caused some investors and participants to waver.

True to its design, Bitcoin halves its mining rewards at exact points in its lifetime. The next Bitcoin halving is just around the corner. The upcoming halving on April 22 will further reduce miners’ rewards and the rate at which new BTC is created.

The reduced rate of new supply coupled with potential new Bitcoin ETF approvals could lead to a bullish sentiment. Both milestones could converge and heighten interest in Bitcoin ETFs further.

The development of custody technology and investment-grade protocols for exchanges and institutions to ensure the security of digital asset stores has also contributed to an increased perception of trustworthiness in Bitcoin and the products borne out of these custodians.

Economic And Geopolitical Factors

The recent announcement of the Fed about upcoming rate cuts drove markets to a year-end frenzy in 2023, indicating how influential such announcements are in driving up sentiment. The new year is starting on a similar note. While inflation fears marked the narrative in previous years, the Fed has declared that inflation has eased, though it remains elevated.

More importantly, the announcements end the US central bank’s successive rounds of 11 interest rate hikes beginning in March 2022. Today, the Fed is starting its retreat from its previously restrictive approach to monetary policy. This shift in policy could be a boon to risk assets like Bitcoin and, thus, Bitcoin ETFs.

Post-pandemic, markets were in a slump. The downturn has affected venture capital and, along with it, startups. Closures and layoffs in tech have become rampant. With tech companies downsizing, there is less enthusiasm for new crypto projects and startups, leaving Bitcoin as the “last man standing” in a leveled field of crypto experiments. This positions Bitcoin as a resilient asset, better able to withstand downturns than other crypto projects.

One key factor fueling the discussion around Bitcoin ETFs is the increased interest and involvement among institutional investors. Institutional participation has traditionally been a significant driver of mainstream financial products. Bitcoin is no exception to this phenomenon.

Notably, the recent piling of high-profile companies and institutional investors in cryptocurrency signals a shift in the perception of Bitcoin as a legitimate digital asset class. Institutional acknowledgment of Bitcoin’s potential as a store-of-value asset and the assurance of better digital custody capability has created new tradable products.

Companies like MicroStrategy have made headlines by including Bitcoin in their treasury. In previous years, high-profile companies like Tesla, Square, and Grayscale have also made public announcements about their Bitcoin purchases and stores. The confidence of such companies in Bitcoin as both a store of value and a hedge against inflation contributes to its legitimacy, thus influencing the consideration of Bitcoin ETFs.

The pessimistic news around FTX, Three Arrows Capital, and the Terra-Luna debacle appear to be fading. Today, they are little more than a postscript, and their effect on markets has waned. The string of legal actions and prosecutions against these companies’ financial irregularities has strengthened faith in the system and, over time, has separated them from the legitimacy of Bitcoin as an asset. A change in the sentiment around Bitcoin has contributed to a renewed interest among investors.

Governments Warming Up To Digital Currencies And Blockchain

BRICS countries have taken a stand against dollar hegemony. This stance has led to increased receptiveness to cryptocurrencies and blockchain technology applications in creating new currencies. They use blockchain as a foundational tech for experimental alternatives to the US dollar.

CBDCs—Central Bank Digital Currencies—are the digital fiat equivalent of crypto. As the name suggests, such currencies are government-controlled and centralized. However, they improve the perception of blockchain tech and crypto coins among the general public, indicating a new chapter of maturity as the technology is assimilated into fiat or government-issued currency.

War and government sanctions have further led to the exploration of Bitcoin and other crypto as accepted forms of payment in severely restricted countries and regions. Political unrest and the restriction of human rights in different parts of the world have given rise to discussions about using cryptocurrency to achieve financial freedom.

Governments like El Salvador have led the way in declaring Bitcoin as legal tender and conducting mining operations in their country. This news has added to Bitcoin’s image as a credible store of value and as an alternative option for developing economies instead of gold.

Recent US crackdowns on exchanges like FTX and declarations of ICOs as securities have increased confidence in Bitcoin, which the US SEC views as the only truly decentralized currency.

Ethereum and Ethereum-based tokens have taken a plunge, but Bitcoin has traded steadily—sideways—for months, indicating its relative stability compared to potential securities. Confidence has flocked to Bitcoin even as it has wavered for other types of crypto.

Such events have brought Bitcoin to the forefront of various political discussions. Most of the feedback has favored bitcoin holders, boosting the currency and increasing the trust in its independence.

Regulatory Milestones

Under former SEC Chair Jay Clayton, as mentioned, the regulator rejected over 20 exchange rule filings for spot Bitcoin ETPs. Grayscale’s filing—which proposed the conversion of the Grayscale Bitcoin Trust to an ETP— was among those disapproved.

Grayscale’s Landmark US Legal Win

Crypto asset manager Grayscale Investments LLC scored a landmark legal victory against the US SEC in August 2023. In its effort to develop and launch a US-listed Bitcoin exchange-traded fund, it won a critical legal fight on the road to Bitcoin ETF acceptance.

The SEC previously denied Grayscale’s application to convert its spot GBTC (Grayscale Bitcoin Trust) into an ETF. While the agency approved bitcoin futures ETFs, it stood firm on its rejection of Grayscale’s spot ETF conversion, saying that the spot ETF application did not meet its bar. Grayscale then sued the SEC. Because the defendant was a regulator, the case went straight to appeals court.

A federal appeals court, composed of a three-judge panel, ruled that the US Securities and Exchange Commission was mistaken in rejecting the application to convert Grayscale’s flagship vehicle—GBTC—to an ETF.

Grayscale’s argument focused on the comparability of bitcoin futures and spot ETFs. Grayscale argued that the surveillance arrangements on Bitcoin futures ETFs should suffice for its GBTC spot ETF as both products track or rely on the price of the same underlying asset.

Bitcoin futures ETFs track bitcoin futures trading on the CME or Chicago Mercantile Exchange. The CME is considered the chief venue for the approved ETF products. According to the SEC, the CME prevents price distortions by surveilling real-time futures market conditions and price movements. These price distortions may be caused by manipulation and must be urgently detected.

Adopting the same reasoning, Grayscale’s lead counsel argued that a spot Bitcoin ETF offered better protection for investors because of the benefit of CME’s market oversight. The SEC disagreed, saying Grayscale lacked enough data to prove whether the surveillance on CME futures could accurately detect suspicious trading or manipulation in spot markets.

The court agreed with Grayscale’s finding that the proposed spot Bitcoin ETF was materially similar to the existing approved futures ETFs. It found the underlying assets—Bitcoin futures and Bitcoin—to be “closely correlated.”

Moreover, the surveillance-sharing arrangements with the CME were found to be identical and have similar probabilities of fraud or manipulation detection in Bitcoin markets.

The court ruled that the US SEC was “arbitrary and capricious” in rejecting the spot ETF filing. It failed to explain how Grayscale’s ownership of Bitcoin rather than Bitcoin futures made a material difference in the CME’s ability to detect fraudulent activities. The three-judge panel on the District of Columbia Circuit Court of Appeals vacated the SEC’s decision to block the spot ETF.

The unprecedented victory paved the way for the eventual success of other ETF applicants such as Blackrock, Fidelity, WisdomTree, VanEck, Bitwise, and Invesco. It boosted confidence in the instruments and ensured that the SEC could not use the argument again when rejecting a new Bitcoin ETF application.

Gensler, Under Pressure, Approves ETFs

The court decision put significant pressure on Gary Gensler, the SEC Chair, who, during his term, issued a blitz of enforcement actions against crypto industry players. Demand for a spot Bitcoin ETF also grew, with traditional players trying to break into the sector.

On January 10, 2024, Gensler’s statement opened: “Today, the Commission (SEC) approved the listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares.”

Amid A Lukewarm Approval, A Major Win For Wall Street

The year 2024 may reshape the digital financial world for several reasons. First is the evolution of crypto assets into mainstream investable products, backed by the world’s largest institutions and under the guardianship of government-registered entities.

Photo by Kanchanara on Unsplash

Second is the parallel maturation of Coinbase, the largest crypto exchange in the world. As global competitors like Binance appear to be retreating from the US, Coinbase is the last man standing in the crypto exchange race.

They are poised to play an essential role as the custodian of physically-backed Bitcoin ETPs, including those by ARK, Invesco, Valkyrie, Global X, Franklin Templeton, and Bitwise. Grayscale, the current owner of the world’s largest Bitcoin fund, plans to continue to use Coinbase to manage its BTC stash upon its planned transition to an ETF.

Third, we see a change in perspective among traders as Bitcoin moves mainstream. Sentiment will change and propel new demand for the coin. Fourth, the upcoming Bitcoin halving in Q1 2024 will further squeeze Bitcoin supply. The synergistic effect of reduced supply plus increased demand pressure from institutions could propel Bitcoin’s price to new heights.

Remember that to execute a spot ETF successfully, each major player must store millions—if not billions—of dollars worth of Bitcoin in its treasury. These scarcity-inducing events would make the asset highly appealing to institutions and the investing public.

Newly-approved Bitcoin ETFs Begin Trading, Fee Wars Emerge

On their first day of trading, the US-listed Bitcoin ETFs recorded an astonishing $4.6 billion in shares changing hands. Eleven newly approved spot Bitcoin ETFs launched a fierce competition for market share as they started trading. The ETFs included BlackRock’s iShares Bitcoin Trust (IBIT.O), ARK 21 Shares Bitcoin ETF (ARKB.Z), and Grayscale Bitcoin Trust (GBTC.P), among others.

According to LSEG data, BlackRock, Grayscale, and Fidelity dominated trading volumes. However, GBTC trading was mostly outflows—caused by traders who wanted to dispose of their GBTC holdings that had been stuck for a long time.

Despite the bullish predictions at the beginning of the year, Bitcoin showed a bearish trend. It dropped from $46,000 on January 11 to sub-$45,000 the following day. It fluctuated between $40,000 and $44,000 and hit a low of monthly $38,000 last January 23.

It may have been a case of “buy the rumor, sell the fact.” However, steadfast proponents believe this is temporary as GBTC outflows decline. With GBTC largely offloaded, Bitcoin reflected a post-shedding surge of 5%.

As a result of these financial giants competing for the top spot, a Bitcoin ETF fees war has ensued. The newly-minted spot Bitcoin ETFs from Grayscale, Blackrock, Fidelity, Ark/21 Shares, Bitwise, Invesco, VanEck, Valkyrie, Franklin Templeton, and WisdomTree sport fees that range from 0.19 percent to 0.39 percent, with Grayscale being an outlier at 1.5 percent.

Bitcoin ETFs: A Watershed Moment In Bitcoin Investing

After the Bitcoin ETF approval hype, clarity is emerging in the markets. Bitcoin ETF proponents warn not to overestimate the impact of such products in the short term and underestimate their influence in the long term.

The new breed of spot ETFs deepens the connections between Bitcoin and mainstream finance. Wall Street is now officially selling Bitcoin to Main Street, legitimizing it in the eyes of traditional finance. The implications of these instruments extend to new and broader risks, according to experts, as Bitcoin volatility and price dislocation now have the power to impact traditional markets directly.

The main advantage of Bitcoin ETFs is their ability to make investing in Bitcoin simpler and relatively safer for non-native investors. They combine the familiarity of a traditional trading instrument, the ease of buying and selling, and the trust of a fully regulated product with the innovation potential of the world’s most vital digital asset. 

This is a guest post by Ivan Serrano. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.