Max Keiser has issued a warning about Bitcoin's vulnerability after Pavel Durov's arrest, which sparked serious discussions about the security of cryptocurrencies. Meanwhile, Bitcoin ETFs continue to experience positive inflows. U.S.-based ETFs are reaching record highs, while Hong Kong's Bitcoin ETFs have seen slower growth. Additionally, Bitcoin miners are finding ways to adapt to the challenges caused by the recent halving and rising power costs, with some diversifying into AI to maintain profitability.
Max Keiser Warns of Bitcoin’s Vulnerability
Pavel Durov, the 39-year-old entrepreneur behind Telegram, was arrested on Saturday night at Le Bourget airport. The charges against him are severe, and include terrorism, drugs, complicity, fraud, and money laundering. This could lead to a prison sentence of up to 20 years.
Naturally, the incident had a big impact on the native token TON, which is actively used in the Telegram ecosystem. The token's price plummeted by 15%, and the total value locked (TVL) in its blockchain dropped by 61.3%.
The arrest also sparked a very strong reaction across social media, and especially from the cryptocurrency community. Max Keiser, a well-known Bitcoin supporter and advisor to El Salvador's President Nayib Bukele, weighed in on the situation through a post on X.
In his post, Keiser reiterated his belief that Bitcoin (BTC) is the only truly secure cryptocurrency. He also stated that altcoins like XRP and Cardano (ADA) are much more vulnerable to legal challenges. According to Keiser, Bitcoin's anonymous creator, Satoshi Nakamoto, deliberately chose to remain incognito to avoid risks like this.
Additionally, the arrest of Durov has reignited discussions about the future of Bitcoin and other cryptocurrencies. Some believe that while Satoshi Nakamoto's anonymity has protected Bitcoin so far, the success of the authorities in the Durov case could spell trouble for Bitcoin as well. There is some speculation that if Nakamoto's identity gets somehow uncovered, he could face similar legal consequences.
Inflows Boost Bitcoin ETFs
Although there are some worries about the crypto king’s future, Bitcoin exchange-traded funds (ETFs) are on a winning streak. The combined value of U.S.-based spot Bitcoin ETFs reached its highest point in August of approximately $58.4 billion after a seven-day streak of positive inflows continued through Friday.
Bitcoin ETF flow (Source: Farside Investors)
Friday's inflows were the largest net inflow since July 22 as $252 million entered to the funds. BlackRock's IBIT, the largest spot Bitcoin ETF by total asset value, led the pack with an $87 million net inflow.
Fidelity’s FBTC followed with $64 million in inflows, while Grayscale's GBTC saw an outflow of $35 million. However, Grayscale’s Bitcoin Mini Trust (BTC) logged a $50 million inflow, making it the third highest in net inflows. Bitwise's BITB recorded $42 million in net inflows, Ark and 21Shares’ ARKB saw $24 million added, and VanEck's HODL grew by $14 million. Invesco's BTCO and Valkyrie's BRRR had smaller inflows of $3 million and $2 million, respectively, while other tradable funds saw no major change.
Ethereum ETF flow (Source: Farside Investors)
On the other hand, spot Ether ETFs were hit with a seven-day streak of net outflows. Friday alone saw $5.7 million in outflows, bringing the total outflow since Aug. 15 to almost $99 million.
Grayscale's ETHE recorded a $9.8 million outflow, though VanEck's ETHV gained $2.0 million in inflows, and Bitwise's ETHW added $1.4 million. Fidelity's FETH saw a smaller inflow of around $700,000, and other funds remained relatively unchanged. Despite these outflows, the total net assets of the combined Ether funds have reached their highest level since Aug. 2, driven by fluctuations in ETH’s price.
Hong Kong Bitcoin ETFs Surpass HK$2 Billion in AUM
Hong Kong's spot Bitcoin ETFs have reached over 2 billion Hong Kong dollars, or approximately $272 million, in assets under management (AUM). Despite this milestone, the ETFs have had a much slower start compared to their counterparts in the United States.
According to data from SoSo Value, the three spot Bitcoin ETFs in Hong Kong saw a net inflow of around 247 BTC over the past week, bringing their total holdings to about 4,450 BTC. The total AUM for these ETFs now stands at roughly HK$2.1 billion.
Hong Kong Bitcoin ETF data (Source: SoSoValue)
Two ETFs, managed by China Asset Management and Harvest Asset Management in partnership with the digital asset trading platform OSL, account for more than HK$1.3 billion, or $167 million, in AUM. The third spot Bitcoin ETF, which is not affiliated with OSL, holds HK$776 million, which is about 42% of the market.
Compared to the 11 offerings available in the U.S. market, Hong Kong investors have fewer options to gain exposure to Bitcoin. Although the recent inflows indicate some growth, Hong Kong’s spot Bitcoin ETFs have underperformed when compared to the U.S. market.
When these ETFs launched on Apr. 30, they attracted a total of $262 million in inflows during their first week, with most of this amount subscribed before the listings went live. However, actual asset inflows during that week were only $14 million. This is in sharp contrast to the billions that flowed into U.S. spot Bitcoin ETFs when they launched in January.
Bloomberg ETF analyst Rebecca Sin stated that Hong Kong’s in-kind ETF creation model presents a unique opportunity to increase AUM and trading volume, but the city still has to match the investor interest and capital inflows seen in the U.S. market.
Bitcoin Mining Firms Adapt to Halving
Bitcoin miners are facing serious challenges in maintaining profitability due to the Bitcoin network's April halving and rising power costs, according to a recent JPMorgan report. The second quarter of 2023 was particularly tough for miners, as the halving event reduced mining rewards from 6.25 BTC to 3.125 BTC. This led to lower margins and profitability across the whole industry.
The report was written by analysts Reginald Smith and Charles Pearce, and revealed that cash-rich miners like Riot Platforms and CleanSpark have responded to the profitability challenges by acquiring other miners with turn-key facilities to boost their near-term hashrate and power supply. In contrast, capital-constrained miners like IREN and Cipher have focused more on securing greenfield opportunities that require less immediate capital investment.
During the second quarter, the five publicly-traded Bitcoin miners covered by JPMorgan mined 5,854 BTC, which was a 28% decrease from the previous quarter. Marathon Digital Holdings led in production, and mined 2,056 BTC. CleanSpark gained some market share after investing $231 million in capital expenditures, earning around 27% of total Q2 revenues among the miners covered in the report. To cope with the rising demands of the industry, these five miners collectively issued approximately $1.2 billion in equity.
In response to the challenges post-halving, some miners are also diversifying their computational power into artificial intelligence applications. Hive Digital Technologies Ltd. reported a 36% increase in sales in Q2 2024 after expanding into AI services. Meanwhile, other companies like Bitdeer Technologies Group are doubling down on Bitcoin mining by investing in advanced mining equipment.
