Client Access 
Communications
What a week can bring in the world of cryptocurrencies. Certainly, the inherent volatility is back. Bitcoin experienced a significant drop, marking its largest daily decline since the FTX exchange bankruptcy in November 2022. This drop, occurring on Tuesday, amounted to over 8%, pushing the price of Bitcoin below $62,000. This downturn follows a series of record withdrawals from Bitcoin-focused exchange-traded funds (ETFs). Preliminary data indicate significant net outflows, notably from Grayscale’s ETF. This volatile period comes as various factors converge to influence the market, including speculations about U.S. regulatory decisions regarding Ethereum ETFs. Market observers are also keenly awaiting today’s decisions by the U.S. Federal Reserve and their potential impacts on the economy.
The Bitcoin ETF dynamics have cooled down this week, particularly marked by massive capital outflows from Grayscale’s Bitcoin Trust. GBTC stands out with record outflows, the most significant for an ETF since March 2009, reaching over $12 billion. This trend is partially attributed to GBTC’s high management fees, prompting investors to switch to other ETFs offering more favorable conditions. However, the interest in Bitcoin ETFs is not waning entirely, as other funds continue to attract significant inflows. Despite the current situation of GBTC and the downward pressure on Bitcoin, the enthusiasm for Bitcoin ETFs seems to persist, highlighting a still robust market demand. Todd Sohn, an ETF strategist at Strategas Securities, concurs: “The locomotive is still chugging along, there is still big demand,” he said, adding that Bitcoin’s current downward momentum isn’t something to worry about.
Other analysts believe that the current volatility is instead explained by the upcoming Bitcoin halving. Charles Edwards, founder of the Capriole Fund, remarks that volatility around this event is normal, considering that the year following the halving could offer the best return potential for investors despite the recent drop. “It’s normal for volatility in the 1 month either side of the Bitcoin Halving. At this point, everyone who wanted to buy into the Halving mostly has. Following the Halving we have inefficient miner shutdown and other transitory effects. Somewhat like the 1 month post ETF launch was a non-event for Bitcoin. However, the realities of a much lower supply growth rate + unlocked pent up tradfi demand will then kick-in and launch 12 months of historically the best risk-reward period for Bitcoin.
Glassnode’s analysis reveals that Bitcoin’s current progression is one of the strongest in cryptocurrency history, despite the recent price correction. Since dropping to $15,500 following FTX’s collapse in November 2022, Bitcoin has not seen a decrease exceeding 20% during its rise to new heights. This week’s correction is seen as minor and normal within a bull market supported by solid demand. Glassnode notes that previous cycles all experienced temporary declines of over 30%, and sometimes even drastic corrections of more than 60%, as in March 2020, before rebounding strongly. Blockchain data show that long-term holders have recently sold off their bitcoins en masse, leading to an outflow of 735,000 BTC since December, approximately 60% of which are significant outflows from the Grayscale Bitcoin Trust. This year, with Bitcoin up 52%, the MVRV ratio, indicating investors’ latent profits, reached a level typically prompting sales. Nevertheless, the recent sell-off also increased Bitcoin’s “realized capital,” indicating that new investors are acquiring bitcoins at high prices, reflecting a significant influx of fresh and substantial capital into the cryptocurrency. According to Glassnode, these elements suggest that the Bitcoin bull market is far from over.
Ethereum’s Dencun update was launched successfully, heralding a promising era for the Ethereum blockchain in terms of reducing transaction costs on layer 2 networks. Effective since last Wednesday morning, this change is expected to gradually integrate all layer 2 networks within one to two months. Developers anticipate that this integration will immediately reduce transaction fees by about 75%. This reduction could render these fees nearly obsolete on layer 2 networks, stated Terence Tsao, a developer of the Arbitrum network. The Dencun deployment includes significant improvements in how data is organized and transmitted across the network, symbolized by the debut of an ASCII artwork “blob” during the update’s launch. Ethereum developers view the Dencun update as a major advancement, potentially the most impactful for users among all updates to date, surpassing prior updates like the 2022 merge and the 2023 Shanghai update. Dencun aims to drastically lower transaction costs on layer 2 networks, significantly expanding Ethereum’s capacity to handle a high volume of transactions, thus lowering barriers to project development, transaction execution, and on-chain data transfer.
Don’t fall off your chair. A British judge recently ruled that Dr. Craig Wright is not the inventor of Bitcoin, nor the person hiding behind the pseudonym Satoshi Nakamoto. For several years, Wright claimed the paternity of Bitcoin and the intellectual property of its white paper. However, Judge Mellor dismissed these claims, stating clearly that Dr. Wright was neither the author of the Bitcoin white paper, the creator of the Bitcoin system, nor even the author of the first versions of the Bitcoin software. This decision comes after a series of legal disputes that began in 2021 between Wright, the Crypto Open Patent Alliance (COPA) supported by Jack Dorsey, and a group of Bitcoin Core developers regarding these allegations. Before the trial, Wright had attempted to settle the intellectual property dispute with COPA amicably, aiming to avoid a trial and the associated legal costs, an offer that was refused by COPA.
The Government Pension Investment Fund of Japan (GPIF), the world’s largest pension fund, is considering studying Bitcoin as a potential diversification tool. In an official statement on March 19, the GPIF announced the development of new long-term investment policies to respond to major economic and social changes as well as rapid technological progress. As part of its innovation and risk management strategy, the GPIF is launching a five-year research plan to explore diversification methods in investing, with a focus on sustainability. This exploration includes collecting data on various diversification instruments, including “illiquid” assets that GPIF does not currently hold, such as cryptocurrencies like Bitcoin and other assets like gold. This inquiry does not guarantee that the GPIF will indeed invest in new assets like Bitcoin, but it will serve as a basis to determine if further research will be conducted. Established in 2006, the GPIF primarily invests in essential infrastructure funds and diversifies its investments in traditional assets such as stocks and bonds, both domestic and international, as well as in alternative assets. As of December 31, 2023, the GPIF managed a total of 225 trillion Japanese yen ($1.54 trillion), making it the largest pension fund in the world. Some global institutions have already incorporated Bitcoin-related assets, like the National Pension Service of South Korea, which acquired shares of the US-based Coinbase in November 2023.
MicroStrategy has recently strengthened its position in Bitcoin, purchasing an additional 9,245 BTC, bringing its total portfolio to 214,245 BTC, equivalent to more than 1% of the total cryptocurrency supply. This acquisition, reported to the United States Securities and Exchange Commission, represents a value of approximately $13.6 billion. The business analytics company financed this purchase through the issuance of $500 million in convertible bonds. With this addition, MicroStrategy consolidates its position as the main holder of Bitcoin compared to its competitors, having acquired all its BTC at an average price of $35,160 per unit, as shared by Michael Saylor, co-founder and executive chairman of the company, on Twitter.
Genesis, a bankrupt cryptocurrency lender owned by the Digital Currency Group (DCG), agreed to pay a $21 million civil fine to settle charges from the U.S. Securities and Exchange Commission (SEC) without admitting or denying the allegations against it. This agreement concludes the allegations that Genesis had offered and sold unregistered securities through its cryptocurrency asset lending program, Gemini Earn. Announcing this settlement, the SEC reiterated its commitment to enforcing securities laws in the cryptocurrency space, highlighting that Genesis failed to register its lending product before offering it to the public, thus omitting essential disclosure requirements necessary to protect investors. The settlement also includes a permanent injunction preventing Genesis from violating Section 5 of the Securities Act. It is important to note that the SEC will only receive its portion of the fine after Genesis has repaid its creditors and clients, including claims from individual investors in the Gemini Earn program. Founded in 2013, Genesis offered various services, such as over-the-counter trading, lending, and cryptocurrency custody, primarily to institutional clients and wealthy individuals. However, in January 2023, the company filed for bankruptcy under Chapter 11, with $150 million in cash and at least $3.4 billion in debt to its creditors and clients. The SEC’s complaint specified that the Gemini Earn program, promising returns on cryptocurrency deposits lent to Genesis, constituted an offer of unregistered securities. Following the instability of the cryptocurrency asset market, Genesis froze withdrawals for Gemini Earn clients in November 2022 due to a lack of sufficient liquid assets. Genesis’s bankruptcy was primarily triggered by the collapse of FTX and the ensuing crisis in the digital asset market, exacerbated by disputes with Gemini and problems with its parent company, DCG.
Despite the turmoil of recent days, Standard Chartered Bank has revised its forecast for the price of Bitcoin upward, now projecting it to reach $150,000 by the end of the year, up from the previous $100,000 estimate. This new estimate is based on the sustained momentum of inflows into the recently launched U.S. spot Bitcoin exchange-traded funds (ETFs), as well as the positive appreciation of Bitcoin’s price, among other factors. If the massive inflows into Bitcoin ETFs continue, and/or if foreign exchange reserve managers begin purchasing Bitcoin this year, the bank even considers a potential rise to $250,000 by 2025. The bank’s analysts also maintain their end-of-2025 Bitcoin price target at $200,000, based on the analogy with gold price movements after the introduction of gold ETFs in the U.S. and a portfolio optimization recommending 80% gold and 20% Bitcoin. They specify that if major reserve managers announce Bitcoin purchases in 2024, this could reinforce the bullish outlook for Bitcoin.
The presented information is as of March 20th, 2024, 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.
