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Let’s kick off this communication with some big news – another one – for the Rivemont Crypto Fund. After announcing on Monday that the Fund was now available for distribution through the advisors of the financial services firm MICA, we can now confirm that after several years of work towards this goal, we have obtained the authorization to trade a multitude of additional cryptocurrencies. Indeed, all tokens available for custody and trading with our partners, as long as they fit the mission of the Fund following a favorable internal due diligence, can now be held in the Fund. This gives us access to over 50 potential cryptocurrencies.
With our active management and trend-following approach, this will allow us to take advantage of the various positive divergences in altcoins and thus, if we accomplish our mission well, multiply the opportunities to create added value for the fund’s investors. This is truly a brand new page in the history of the Rivemont Crypto Fund!
On the markets, we witnessed a continued correction and especially for bitcoin. The price is at a particularly interesting level for the mother of cryptocurrencies, where two polarized situations oppose each other. On the one hand, there are some fundamental fears pulling the price down. On the other hand, however, many technical indicators are flashing dark green. More on these in the second half of the letter.
First, what’s behind the fear among investors? This week was announced the plan to rehabilitate the funds recovered from the defunct MtGox exchange. Recall that the exchange had lost 850,000 BTCs and consequently closed its doors in 2014. At that time, Bitcoin was worth about $540 per unit. The rehabilitation plan, which includes returning 150,000 BTCs to the defrauded investors, is now becoming clearer this month. In a document from lawyers connected to the case, it states:
“As we announced in the Notice of Confirmation Order of the Rehabilitation Plan on October 20, 2021, the draft rehabilitation plan (…) filed with the Tokyo District Court on February 15, 2021 was approved by a large majority of the rehabilitation creditors (…) and on November 16, 2021, the Rehabilitation Plan became final and binding. (…) [the liquidator] will make repayments to the rehabilitation creditors (…) and an announcement will be made to them on the details of the timing, procedures and amount of such repayments.”
It is expected that these bitcoins will be distributed in the 1st or 2nd quarter of 2022. Imagine having lost a dozen bitcoins eight years ago and now getting even one back, after eight years of thinking you had lost everything. Wouldn’t you be tempted to sell at least some of it? That’s the fear of investors right now, with a future wave of supply on the now tangible horizon. With regulatory concerns still looming in the U.S., there is no doubt that the speculative fervor of some has been temporarily dampened.
Besides the fears mentioned above, what else has been in the news this week? Not all is gray in the cryptocurrency world, quite the contrary. El Salvador, where bitcoin has been legal tender for a few months, announced plans to inaugurate Bitcoin City, a city whose development will be backed by $1 billion in bitcoin bonds. The development of Bitcoin City will see the proactive participation of major cryptocurrency companies, including exchanges Bitfinex and Blockstream.
President Bukele envisions Bitcoin City becoming a fully functional city with residential areas, shopping malls, restaurants, a port, “everything around bitcoin.” In addition, residents will only be subject to value-added tax, which Bukele says will be used to pay for municipal bonds, and the rest for public infrastructure and city maintenance.
The project announced Saturday promises to issue a $1 billion “bitcoin bond” with a 10-year maturity on the Liquid Network. Half of the money raised will be used to buy bitcoins and the rest will be used to fund the construction of a new “bitcoin city” along the Gulf of Fonseca, near a volcano. The bond – developed by Blockstream and processed by Bitfinex – will offer a 6.5 percent coupon, which is the annual interest payment rate. In addition, investors will receive dividends generated by the gradual liquidation of bitcoin holdings, which will begin in the sixth year. The annualized return to investors could be as high as 146 percent in year 10, according to Blockstream’s projections.
Australian retirement fund Rest Super is set to become the first fund of its kind in the country to invest in cryptocurrencies. The fund has more than $46.8 billion in assets under management and about 1.8 million members. Andrew Lill, director of communications for the firm, added that he believes providing members with exposure to crypto and blockchain technology could be a “stable source of value” at a time when investors are flocking to crypto as a hedge against fiat currency-based inflation. “I think in an era of inflation, it could be a good place to invest,” he said.
A good hedge against inflation? Talk about it to Turkish citizens. Indeed, while bitcoin is at about 20% of its historical high right now, it surpassed it yesterday if you pair it in the Turkish national currency, the Lira.
What explains the situation? Rampant inflation in Turkey, which has reached almost 20% year on year for October. The policies of President Erdogan that are amplifying the problem. Indeed, he is insisting on lower interest rates and further central bank easing rather than the economic logic of doing just the opposite. This is yet another reminder, as there are too many, of the risks of fiat currencies. Don’t think that Turkish citizens support the ridiculous economic policies of its government. But these policies, completely out of their individual control, are robbing them of their savings…
… and they are taking refuge in bitcoin, which is not exposed to the consequences of national decisions.
Earlier this month, we told you about the lawsuit between Dave Kleiman’s estate and Craig Wright, but more importantly, about the fate of a $66 billion wallet of bitcoins. Let’s just point out that the latter is over and that the ten juries are now deliberating. The jury did not agree yesterday, so the proceedings were suspended until Monday as part of the American Thanksgiving festivities. It will be interesting to see if the verdict will have an impact on the markets.
Let’s move on to the technical picture. We mentioned at the beginning of the letter that there are many, many indicators that are pushing for a price rebound at the current level, which is in contrast to the downward pressure created by some investors’ fears. Let’s elaborate on these.
Locally, the price of bitcoin has continued its correction after losing the 50-day moving average, which makes perfect technical sense. While the picture is still bullish on the higher time scales, the price is now in a short-term uncertainty zone. However, we found buying volume as soon as the $56,000 mark was breached on the downside. At the time of writing, many are hoping for a double bottom on this area before a recovery to the upside. If we were to break support downwards, there is a good chance we would find a bounce around $53,000. To the north, we would have to pass and hold $60,000 in order to truly fall back into a bull market.
On-chain, however, the indicators suggesting that we are only in a temporary correction keep multiplying. At the risk of sounding like a broken record, let’s point out that this week again, bitcoin reserves on exchanges reached a low not seen in three years.
The same is true of the number of addresses sending bitcoins to exchanges, with this total reaching a 13-month low.
The number of active wallet addresses holding bitcoins also hit a low dating back to early October, suggesting that the current distribution phase is slowing down.
The RSI and MACD oscillators are also at particularly low levels and appear poised for a bounce, pulling the price up for at least a temporary rise.
Analyst TechDev used Fibonacci retracement levels to draw similarities between the 2013 and 2017 bull cycles and the present one. He insists that this mid-cycle retracement has occurred in each instance. In fact, it preceded the frenzy phase each time.
Will the end of the fourth quarter of 2021 respect the one experienced in the last two four-year cycles? Certainly, looking at the big picture over ten years like this, there is no reason to panic right now.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of November 24th, 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.
