Bitcoin ETF Inflows | Trump Vows To Block Digital Dollar

Huge spot bitcoin ETF has seen more than $1 billion in outflows in its first week.

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Nina Bambysheva Senior Reporter, Forbes Money & Markets
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Steven Ehrlich Director, Forbes Digital Assets
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RIVAL BITCOIN ETFS ADD ASSETS AS GRAYSCALE SLIMS DOWN

Assets of exchange-traded funds that invest directly in bitcoin grew in their second week of trading, even if the pace of inflows is slowing. BlackRock’s iShares Bitcoin Trust (IBIT) had just under $2 billion of assets by Thursday and Fidelity’s Wise Origin Bitcoin Fund (FBTC)
reached $1.75 billion. The nine new funds have accumulated more than $5 billion of assets. But outflows continue to pour from Grayscale’s Bitcoin Trust (GBTC), the largest ETF by a wide margin, with assets sliding to just below $20 billion from more than $28 billion before it became an ETF.

Investor departures from Grayscale may be keeping a lid on the price of bitcoin, which is hovering around $41,000 after cresting above $48,000 earlier this month in anticipation of permission being
granted for the new class of exchange-traded funds. The Grayscale fund existed as a trust before the Securities and Exchange Commission allowed spot bitcoin ETFs, which began trading on January 11. In its earlier incarnation, GBTC carried a 2% expense ratio, which it reduced to 1.5% in the new format. But that’s more than three times the next-highest fee among its nine newly created ETF competitors, most of which have waived all their fees for the time being. Some investors may be leaving Grayscale and moving to its cheaper rivals or direct bitcoin investments, but part of the outflow may reflect a permanent departure from the cryptocurrency.

Many questions remain about bitcoin ETFs, including how investors
can be sure the issuers have entirely backed up every share with crypto that is segregated from their other operations. After all, nobody wants to repeat the FTX experience. As registered products with the SEC, the ETFs are required to keep sufficient assets at qualified custodians (for most issuers in this case that means Coinbase). Bitwise, the issuer behind the $537 million BITB is going one step further. On Wednesday the company published the address holding its bitcoin for anyone to see. Forbes contributor Abubakar Nil Khalil writes, “we can expect that this will have reverberations as a precedent other ETF providers will likely lean into to instill investor confidence.” The practice may serve as an industry standard for ETFs with other kinds of digital assets.

CBDC-SEE YA?

The prospects for a digital dollar in the foreseeable future, already not great, have become even dimmer. A central bank digital currency (CBDC) has potential appeal for various reasons, including instantaneous transactions, low-cost banking and as a tool to prevent illegal activities. A handful of countries, including China and India, have already instituted such currencies, and many more have pilot programs.

The United States is unlikely to join the ranks. Republican lawmakers like Representatives Tom Emmer (R-Minn.) and Warren Davidson (R-Ohio) and former presidential hopefuls such as Ron DeSantis and
Vivek Ramaswamy, have made full-throated proclamations against ever allowing one, citing privacy rights and protection against government overreach.

Now Donald Trump says he'd block the creation of a U.S. CBDC if he retakes the White House this year. Tonight, I am also making another promise to protect Americans from government tyranny," Trump said during a campaign speech in New Hampshire. "As your president, I will never allow the creation of a CBDC.”

The other side of the congressional aisle appears more amenable to
the idea of a digital dollar. In fact, lawmakers such as Representative Stephen Lynch (D-Mass.) have introduced legislation mandating studies to determine the feasibility of such a project. However, none have come close to passing out of committee. President Joe Biden has also requested studies be done in a March 2022 executive order, but nothing concrete has emerged.

CURRENT PRICE OF TOP 5 COINS (7-Day % Change)

Coin

Price

Percent Change

Bitcoin (BTC)

$42,025.84

0.4%

Ether (ETH)

$2258

9.3%

Tether (USDT)

$1.00

0%

Binance Coin (BNB)

$302

3.5%

Solana (SOL)

$93

1.1%

Sources: Forbes Digital Assets, CoinGecko. Prices as of 3:00 p.m. on January 26, 2024.

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DON’T MESS WITH THE TAX MAN

The U.S. Internal Revenue Service has issued a reminder that
taxpayers must answer a digital asset question on 2023 tax returns, as well as report all crypto-related income when they file their 2023 federal income tax returns. The question appears on various versions of the 1040 and other tax forms and was revised this year to update wording.

In recent years, the IRS has worked hard to track down crypto traders who fail to report taxable capital gains. Although these unreported earnings may not have been a major issue during the bearish 2022 for crypto, sizable gains throughout 2023 will likely put the IRS on full
alert.

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