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After a lackluster third quarter to say the least, we are finally getting some action on the markets. The price of bitcoin, like most cryptocurrencies, has been on the rise for the past 48 hours. For bitcoin, this means a price that hasn’t been visited in six weeks. It’s also a break of resistance around $20,500, at least if the price can close above that area later today.
While bitcoin is looking for a breakout above $21,000 at the time of writing, crypto market liquidations over the past day have exceeded $1 billion. October has been a consistently positive month for the leading cryptocurrency, with monthly gains recorded ten times in the last 13 years. Ether’s price surge is even more impressive, with the 2nd largest crypto by capitalization spiking 14% over a 24-hour period. We told you to watch ETH’s price closely in our recent posts. We capitalized on the opportunity, taking large positions at the very beginning of the rally. About half of the fund’s assets are currently exposed to Ether.
Last day’s liquidations, which are essentially the forced closure of short positions in the largest cryptocurrencies, have reached record levels dating back to July.
The correlation between bitcoin and the major U.S. stock markets continues to attract attention. In fact, this price surge has paralleled a rise in those markets. To that end, it is encouraging that bitcoin’s 20-day rolling volatility, a metric that measures daily changes in the price of bitcoin, has fallen below the Nasdaq and S&P 500 for the first time in two years.
The current correlation is at about 0.5 with the S&P. For the past few weeks, bitcoin now (finally) seems to act as a sort of buffer against macroeconomic uncertainties. The divergence in market activity for the two asset classes suggests that cryptocurrencies are more resilient to recent volatility-inducing macro events. In short, the indicators show a recent dissociation. The real question is whether this will uphold in the face of upcoming macro events, including the US interest rate hikes on November 2nd.
October saw a sharp increase in bitcoin’s hash rate, which saw the measure reach a new record average of 263 exahashes per second. This means, at the same time, that the difficulty of the network has been on the rise since July 2022. Indeed, competition among bitcoin miners has reached a new record high, with the network’s mining difficulty rising another 3.44 percent on Sunday to a new all-time high of 36.835 trillion hashes.
Outside of the macroeconomic factors driving the overall markets right now, it is precisely this trend that keeps us relentlessly certain of a rosy future for bitcoin. As Metcalfe’s law explains, the value of a network is determined by the number of connections and its overall resilience. Robert Metcalfe made the mathematical assumption that “the utility of a network is proportional to the square of the number of its users.” Now, there is no doubt that there are more participants in the bitcoin network than ever before.
Historically, the hash rate has been a leading indicator of a price surge. If you believe in this fundamental proposition in assessing the value of a bitcoin, the arbitrage opportunity has never been more enticing.
The network has given us two examples this week, both of its strength and the risks of a fully decentralized financial structure. On Sunday, a user transferred a whopping 5,000 BTC ($103M) for a fee of 208 sats… or about $0.04. All in just a few minutes, of course. Try such a feat via your bank! On a side note, one user got a reminder that the fees to be paid are chosen by the user, not a third party. In one transaction that went into Bitcoin block 760,077, a user paid 1,136,000 satoshis (0.0136 BTC or $220.52 at the time of the transaction) to move 3.8 BTC ($63,000). This extraordinarily high fee is 1,000 times higher than Bitcoin’s usual transaction fee, as at block level 760,077, the average transaction fee was about $0.20.
The next week leading up to next Wednesday’s Fed announcement will be filled with challenges – and opportunities – for the crypto market. Will ETH be able to continue its sudden reversal and ratio rise against bitcoin? Will bitcoin itself be able to confirm the break of $20,500 resistance and attempt to climb to the top of its channel of recent months? We are looking at a first resistance around $23,000, a second at $24,000 formed by the 200-week moving average, and finally the August high at $25,200. A convincing breach of the latter would be a clear indicator of a bear market exit and could definitely lead to fireworks.
The fund currently has a 50% exposure to BTC, 45% to ETH and 5% to MATIC.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of October 26th, 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.
