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For the third week in a row, bitcoin is at exactly the same stage at the time of writing. It is struggling to stay north of $20,000. Continuing on its trend, it does so when the NASDAQ is having a bullish day, while it falls back below that threshold when it is not. In short, this same correlation in a global macro picture of uncertainty continues to drive the markets.
The downturn in the cryptocurrency market in recent months continues to take its toll. Indeed, after Singapore’s giant investment fund Three Arrows Capital filed for bankruptcy last week, it’s the turn of Canadian firm Voyager to follow suit. The Toronto-based company filed for Chapter 11 bankruptcy protection on Tuesday in the Southern District of New York, estimating that it had more than 100,000 creditors and assets of between $1 billion and $10 billion. It also recorded the same range for its liabilities. The two bankruptcies are directly related. According to information gathered by Frances Coppola, Voyager’s loan portfolio accounted for nearly half of its total assets, and nearly 60 percent of that portfolio consisted of loans to Three Arrows.
Following the announcement, CEO Steven Ehrlich published that “customers with crypto in their account(s) will receive a combination of the crypto in their account(s), proceeds from the liquidation of 3AC, shares of the newly reorganized company’s common stock, and Voyager tokens in exchange.” After Celsius, CoinLoan, CoinFLEX and Voyager itself have all announced restrictions or outright halts on withdrawals in recent days.
Speaking of Celsius, according to blockchain data, the firm has repaid $183 million of its debt to the decentralized Maker exchange. The most plausible hypothesis is that the aim is thus to recover collateral related to bitcoins that would otherwise remain blocked. The transactions resulted not only in the extinguishment of the debt, but also in Maker releasing 2,000 wrapped bitcoins, worth $40 million, that had been deposited as collateral, according to the data.
Peter Schiff, a longtime advocate of gold as an investment and a major detractor of cryptocurrencies, is facing a particularly ironic situation. Indeed, the bank in Puerto Rico that he partially owned was shut down by regulators for failing to maintain minimum net capital requirements. Schiff followed up with a tirade on Twitter, criticizing the central decisions that led to this conclusion and his inability to address the situation, leaving him completely vulnerable to external actors. While acknowledging that “customers stand to lose money,” Schiff said he was unaware of regulatory minimums and that no form of legal notice was presented to him prior to the abrupt closure. The crypto community was quick to point out the incredible irony, with the economist falling victim to the structures of centralized finance, he who constantly decries its opposite.
A stable national cryptocurrency no longer seems to be a short-term priority in the United States. At a conference Tuesday on the international role of the dollar, economic advisers and Fed bigwigs discussed digital assets and whether a CBDC could benefit the country. The panelists generally agreed that the technology itself would not lead to radical changes in the global monetary ecosystem. The idea is that countries could go cashless while increasing security and speeding up payments. However, the central bank of the world’s largest economy has repeatedly said it is only in digital dollar exploration mode. Tuesday’s conference seemed to confirm that there was no urgency to develop one.
The biggest supporters of cryptocurrencies are not backing down from the recent price drop, quite the opposite. Undeterred by the losses incurred by his strategy of using public funds to invest in bitcoin, Nayib Bukele, president of El Salvador, announced last week that he had spent an additional $1.5 million to buy 80 BTC at $19,000 each. “Bitcoin is the future, thanks for selling it cheap,” he said.
The strategy of accumulating bitcoins after massive drops has also been replicated by other long-term bitcoin investors. Michael Saylor, CEO of MicroStrategy, recently announced a new $10 million purchase of bitcoins, bringing his company’s cash position to 129,699 BTC at an average price of $30,664. That’s about $1.3 billion in losses, but like Bukele, Saylor doesn’t seem too concerned about short-term fluctuations in bitcoin.
As mentioned at the beginning of the paper, macroeconomic factors currently seem to be driving the overall global markets. So what fundamentals could really affect prices? There is no doubt that the next piece of data that everyone is waiting for will be the U.S. Consumer Price Index next Wednesday, which will provide an updated look at inflation. This will be followed by the Fed’s interest rate hike decision at the end of the month. A 75-point hike is already all but announced, unless next week’s data surprises and changes the decision. Then, on July 28, the U.S. Bureau of Economic Analysis (BEA) will release an advance estimate of U.S. GDP for the second quarter of 2022. After recording a -1.6% decline in GDP in the first quarter of 2022, the Atlanta Fed’s GDPNow tracker is now forecasting a decline in GDP growth of -2.1% for the second quarter of 2022. A second consecutive quarter of GDP decline would send the U.S. into a technical recession.
Technically speaking, bitcoin is trading in a progressively narrower consolidation channel. Crossing $20,900 could quickly allow the price to retest levels around $23,000. Towards the bottom, bitcoin continues to find good buyer volume below $19,000.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of July 6th, 2022, 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.
