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The confidence that the Rivemont Crypto Fund places in Ether will have been favorable to investors this week. Indeed, if bitcoin closes the official week of the Fund down about 2%, ETH is up a few points for the same period. As a result, everything indicates that the results should remain on the green side again this week. We will come back to our positioning and what current prices are telling us in the 2nd half of this letter.
Bitcoin is only a week away from becoming legal tender in El Salvador. In fact, as of September 7, every participant in the national economy will have to accept payments in cryptocurrencies. However, its use as a customer will of course be optional. Yesterday, the country’s Congress announced the creation of a $150M fund that will facilitate the conversion between the US dollar and bitcoin. “The purpose of this law is to financially support the alternatives that the state provides, without prejudice to private initiatives, that allow the user to carry out the automatic and instantaneous convertibility of Bitcoin to the United States dollar,” reads a congressional document.
This initiative, unsurprisingly, does not please the International Monetary Fund. They reiterated their concerns about this first official adoption of bitcoin as a domestic currency. “Privately issued crypto assets like Bitcoin come with substantial risks. Making them equivalent to a national currency is an inadvisable shortcut”. The organization said back in July that the project “raises a number of macroeconomic, financial and legal issues.” This element promises to be an exciting economic experiment.
It’s no secret that Twitter CEO Jack Dorsey is a strong advocate of digital currencies. Yet, the company he leads has not been too active in this area, at least so far. That may soon change, according to astute observers who analyzed the code for the beta version of the social network called “Tip Jar”. When it was first introduced, Twitter allowed users to add Bandcamp, Cash App, Patreon, PayPal and Venmo links to their Twitter profile. According to what appears in the beta, a Bitcoin option will soon be added.
Discussions surrounding the regulation of the cryptocurrency market in the United States continue to intensify. This week, we heard Gary Gensler, chairman of the U.S. Securities and Exchange Commission, adding his two cents. He said that digital assets could not continue to exist for long without a public regulatory framework because “finance is built on trust.” “To have any relevance in five or 10 years, they [cryptocurrencies] will have to be part of a public policy framework,” he said, concluding that, “History tells you, it doesn’t last long outside [of a regulatory framework]. Finance is all about trust, ultimately.”
We’ve been mentioning the current craze surrounding non-fungible tokens (NFT) and the dizzying prices at which they are being acquired for a few weeks now. It seems that the craze is not about to fade away. We can observe quite the opposite happening. Larva Labs, the creator behind CryptoPunks NFTs, has recorded 1.18 billion in sales since 2017… including $305M last week alone! The most affordable CryptoPunk on sale right now retails $391,000. The popularity is such that the same firm has just signed a deal with Hollywood United Talent Agency. The Montreal Canadiens hockey team is also joining in the same adventure, putting on sale the first NFTs highlighting the team’s playoff run this Thursday. Will collectors answer the call?
On the technical side, we have two rather different pictures for the two crypto assets dominating the market, Bitcoin and Ether. On the bitcoin side, while the bullish picture remains intact, let’s just say that it is heavily tested after several short dips below support at $47,000. The 30-day moving average, which was broken upwards on July 27th, is now at exactly the same level as the 200-day one, around $46,000. We are seeing a battle of buyers around this area and profit takers between $48,000 and $50,000. We should soon have good indicators of which trend will prevail.
Although September has historically been a correction month for bitcoin, on-chain indicators have plenty to fuel up investor’s optimism. An example is observing the whales activity on the market. The redder on the following chart, the more these large wallets are in accumulation mode. On the opposite, blue represents a predominance of small purchases by individuals.
We can see that when the price first went above $50,000, this accumulation phase by whales lost steam, leaving only individuals as buyers at the higher levels. Currently, on the opposite, accumulation is accelerating around this same area. In short, the confidence of the larger players is strong in a new surge in prices, way beyond the highs observed last spring.
Anthony Scaramucci, CEO and founder of SkyBridge Capital, meanwhile, still believes bitcoin can reach $100,000 before the end of the year, mainly due to the exponential growth in demand each month.
“The bottom line is you have the limited and fixed supply of Bitcoin and you have every month exponentially more demand” he explained. As long as I see that, I see those prices rising. So, we’re going to stick with the $100,000 price target”.
As for ETH, the uptrend is alive and well. Indeed, the ETH/BTC ratio has broken out of its symmetrical triangle consolidation zone to reach spring highs. Such a sharp breakout in a continuation technical pattern gives hope for a push of similar height to the width of the triangle just broken. In short, it is plausible to expect a rise of up to 0.094 ETH/BTC, which would be a 40% increase.
Meanwhile, the downward trend in Ether reserves on exchanges looks set to continue. This is another bullish indicator, the latter highlighting that many investors are instead placing their assets in custody mode.
More than half of the fund’s assets are currently exposed to ETH.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of September 1st, 2021, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.
