DigitalX’s Bitcoin Fund sees 4.5% decline as crypto markets brace for Binance lawsuit

A quick recap for anyone who is out of the crypto whirlpool: Last year, FTX (one of the largest crypto exchanges) collapsed, crypto prices crashed and inflation rose. Now, the US Securities and Exchange Commission (SEC) is suing the world’s largest crypto exchange, Binance, for mishandling consumer funds, misleading consumers and creating a “web of deception” by diverting user funds to external entities. 

In 2018, Binance CEO Changpeng Zhao had told a compliance officer, “We are operating as a … unlicensed securities exchange in the USA bro.” From the looks of it, bro didn’t do much about it. 

In response to the SEC’s filing, investors pulled out over $1.5 million from Binance in about 24 hours, causing Bitcoin’s value to fall by 6%. And as is often the case with crypto, Bitcoin’s price decline caused a domino effect leading to other cryptocurrencies also losing value. Bearing the brunt of this is FinTech company DigitalX (ASX: DCC) – the only dedicated Bitcoin fund listed on the ASX courtesy of their early-stage investments before the Australian regulator cracked down on crypto. They have some other fintech operations too. 

In its monthly update for May, it noted that the DigitalX Bitcoin Fund experienced a decrease of 4.5% during the month, while the DigitalX Fund declined by 1.8%. In comparison, the S&P Cryptocurrency Top 10 Equal Weight Index fell by 3.3%. The DigitalX Fund maintained higher allocations in Bitcoin and Ethereum and its performance aligned with the Index. This was supported by a 1.7% devaluation of the Australian Dollar.

DigitalX Chief Executive Officer, Lisa Wade, commented, “Digital asset prices took a slight breather in May following their positive year to date performance. In our core crypto sectors, we continued to see increased activity and innovation around themes we capture in the DigitalX Fund, including Web3 infrastructure, AI, core infrastructure enablers such as digital identity, wallet integrations and real world asset tokenisation. Our team maintains its focus on a safe pair of hands approach by undertaking consistent and rigorous analysis in the positions we hold in the portfolio.”

If that wasn’t enough, in May, Binance’s Australian arm suspended the use of the Australian fiat dollar to trade after its third party payment service provider Zepto was asked to halt its support. People could still trade using their credit cards.

Losing the support of an Aussie payment service provider might pale in comparison to facing SEC charges for Binance, but it has impacted Australian crypto trading companies all the same. This is the most serious action the SEC has taken against Binance, but the exchange maintains that it did nothing wrong. In fact, Bitcoin’s value has been rebounding slowly since the fall.

As at the end of May 2023, DigitalX’s Bitcoin and digital asset holdings stand at $18.5 million. Besides gold, all of its asset classes have taken a plunge in May. The ongoing volatility must be all the more stressful for the Company, which incurred over $6 million in losses in H1 FY23, had to sell off 15% of its Bitcoin holdings after the FTX collapse and deal with the tremors of the Silicon Valley Bank collapse.