Last week, digital asset investment products experienced outflows of $32 million, mostly from Bitcoin investments. Short-Bitcoin investment products were the only exception with inflows of $3.7 million.
Despite the outflows, the prices of Bitcoin and other cryptocurrencies rose, pushing total assets under management to $30 billion, the highest since August 2022. In addition, blockchain equities had inflows totaling $9.6 million for the week and have seen six consecutive weeks of inflows, indicating a positive sentiment among investors.
However, the real story last week was the battle lines drawn by financial regulators in the US. Two major elements of the crypto market, staking, and stablecoins have been targeted in the past two weeks in high-profile cases with massive financial implications.
However, just as one-week ends and another begins, the news of the regulatory crackdown in the US was swiftly followed up with great news for crypto regulation in Hong Kong. Here are the day's biggest stories.
1 - Hong Kong is planning to allow retail investors to trade larger cryptocurrencies such as Bitcoin and Ether on exchanges licensed by the Securities and Futures Commission (SFC). The SFC stated that safeguards, including knowledge tests, risk profiles, and reasonable exposure limits, must be in place for retail investors.
The regulator did not specify which tokens would be permitted but said they should be included in at least two acceptable, investible indexes from independent providers, one of which should have experience in the traditional financial sector. Hong Kong aims to become a crypto hub and restore the city's credentials as a financial center. The objective is to allow retail trading in the new licensing regime for crypto exchanges due on June 1. This news unsurprisingly follows a partnership between two major brokerages, Interactive Brokers and OSL, who will target the Hong Kong market with digital asset trading products.
2 - The native token of Bitcoin layer 2 Stacks Network, STX, has surged almost 50% in the past 24 hours and has taken the week-to-date gain to over 125%. The surge in the token's value comes after the arrival of the Ordinals protocol, unleashing a new narrative of non-fungible tokens and smart contracts on the Bitcoin blockchain. Stacks Network is a Bitcoin layer 2 for smart contracts that allows developers to build applications similar to those on Ethereum and Solana. Meanwhile, the growth in the popularity of Ordinals has resulted in increased network congestion on the Bitcoin blockchain.
3 - CryptoQuant has published a Proof-of-Reserves report for February 2023, which shows $8.6 billion in clean assets for OKX. The report indicates that OKX is overcollateralized with a reserve ratio of 104% for BTC, 104% for ETH, and 102% for USDT.
According to CryptoQuant, OKX's reserves are 100% clean, while Binance and Huobi have 94% and 61% clean reserves, respectively. OKX's native token, OKB, was designed to engage its most active customers and offer discounts through activity on the platform, rather than finance the company. As of writing, OKB is trading at $52.35, up 28.4% on-week.
4 - The Financial Stability Board (FSB) is set to release high-level recommendations for regulating crypto and stablecoins in July 2023. FSB Chair Klaas Knot has stated that many existing stablecoins would not meet these recommendations. The recommendations focus on governance frameworks, redemption rights, and stabilization mechanisms.
Regulators around the world have been increasing efforts to oversee the crypto sector due to concerns about financial stability risks. The FSB is also working with other bodies to determine how DeFi should be regulated and are planning a paper with the International Monetary Fund (IMF) on regulatory issues associated with crypto.
5 - Galois Capital, a hedge fund that was managing about $200mn in assets, has closed after half its assets were trapped on the collapsed cryptocurrency exchange FTX. The fund's closure will see clients receive 90% of the money not trapped on FTX. The remaining 10% is temporarily held back until discussions with the administrators and auditor are finalized.
Galois co-founder Kevin Zhou indicated in a letter to investors his preference for selling the fund's claim on FTX, rather than going through a lengthy legal process. FTX's founder, Sam Bankman-Fried, is due to face trial in October on fraud charges, to which he has pleaded not guilty.
6 - An unidentified crypto trader made over $100,000 in profit by buying $208,335 worth of Gains Network (GNS) tokens just 30 minutes before Binance listed the token on its global exchange. GNS soared some 51% just after the listing, and the trader offloaded their GNS position, making a profit of $106,747 in less than an hour.
However, recent trends suggest that this kind of profit may be based on insider trading or front-running. Many crypto exchanges, including Binance, have come under scrutiny for front-running allegations. Binance claims to prevent its employees from trading over short periods, but Coinbase's Wahi passed insider information about soon-to-be-listed tokens on to his brother and friend.