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The recovery, initiated last week after the apparent cooling of American inflation, has gained momentum this week as markets continue to fuel off the shock news of BlackRock, the world’s largest asset manager, submitting an application to the SEC for a Bitcoin ETF. If any company has a chance of getting an ETF approved, it’s BlackRock. The firm manages an impressive $9 trillion in assets and has a victorious record of 575 to 1 regarding the approval of ETFs by the SEC.
In this wave of optimism, bitcoin surpassed the $31,000 mark and has so far found support above the crucial $30,000 threshold. Will the consolidation of the past few days serve as a springboard towards the next bullish push? There’s reason to be optimistic. Indeed, according to Eric Balchunas, senior ETF analyst at Bloomberg, BlackRock has a 50% chance of getting approval for its Bitcoin ETF. This prediction follows an observation by Elliott Stein, senior litigation analyst for Bloomberg Intelligence, who now estimates Grayscale’s chances of victory in its case against the Securities and Exchange Commission (SEC) at 70%. Balchunas suggests that the SEC might favor BlackRock’s ETF application to preserve its image by authorizing an ETF from a reputable traditional financial company, rather than Grayscale. Since Grayscale appealed the rejection of its application by the SEC in June 2022, a legal battle has ensued, punctuated by legal filings and oral testimony before three American federal appeal judges. Stein added that Grayscale’s chances have increased from 40% to 70% after the end of the hearings, as “the three judges seem to lean towards Grayscale” according to their questions. Bloomberg expects a verdict in August.
Meanwhile, the SEC approved, last Friday, the first exchange-traded fund on leveraged Bitcoin futures. The Volatility Shares 2x Bitcoin Strategy ETF (BITX) was set to be launched on the Chicago Options Exchange (CBOE) BZX this Tuesday. According to the SEC filing, the BITX aims to achieve investment results that correspond to twice the profitability of the daily future contract index on Bitcoin from the Chicago Mercantile Exchange (CME). One day after the launch, the latter recorded $4.2M in transactions. According to Bloomberg, $500,000 of this amount were traded in the first 15 minutes of the session. The first ETF backed by Bitcoin futures to be launched was ProShares’ BITO, which recorded a trading volume of about $1 billion on its first listing day in 2021, according to ProShares, and collected around $570 million in assets.
The International Monetary Fund (IMF) has modified its (drastic) position on cryptocurrencies. After suggesting other countries should consider banning cryptocurrencies, the organization now believes that could be a mistake. On Thursday, IMF economists released a report examining the use of cryptocurrencies in Latin America and the Caribbean. Acceptance of these currencies varies in the region, with some countries like El Salvador being more open to their adoption, while others are more wary of perceived risks. In their report, the economists showed more favor towards the adoption of cryptocurrencies, but within a well-regulated framework. “Although some countries have completely banned cryptographic assets because of their risks, this approach may not be effective in the long term,” the economists stated in the report’s conclusion. This marks a rapid change of position for the IMF, which had suggested a few months ago in another report that countries should consider banning cryptocurrencies. In yesterday’s report, IMF economists said that cryptocurrency offers several advantages to its adopters, including protection against macroeconomic uncertainty, promotion of financial inclusion and faster payments, among others. They also analyzed recent efforts in Latin America to develop Central Bank Digital Currencies (CBDC). According to a survey conducted among officials in the region, the IMF found that half of the respondents were considering CBDC options for retail and institutional trade. They also see CBDCs as a way to promote resilience in communities vulnerable to natural disasters and to boost financial inclusion in more isolated areas.
Sam Bankman-Fried, the founder of the cryptocurrency exchange platform FTX, is facing a lawsuit after his request for criminal charges to be dismissed was rejected by U.S. Judge Lewis Kaplan. Accused of diverting billions of dollars of client funds to cover losses at his hedge fund, Alameda Research, and of misleading investors and lenders, Bankman-Fried continues to proclaim his innocence. Despite his attempts to have several of the charges dismissed, the judge upheld the validity of the charges, paving the way for a trial scheduled for October 2. Bankman-Fried’s crypto empire collapsed in November 2022 following revelations about Alameda’s balance sheet, which triggered a rush of FTX clients to withdraw their funds and Bankman-Fried’s resignation.
A U.S. District Court judge rejected a motion by Binance to prevent the SEC from making public statements about their ongoing case. Binance had filed a motion on June 21, alleging inappropriate behavior on the part of the SEC in a press release. The SEC had previously accused Binance and its CEO, Changpang ‘CZ’ Zhao, of mixing client assets. Binance had responded that the regulator had “no evidence” of such malfeasance. Judge Amy Berman Jackson also set the hearing dates for the SEC’s case against Binance and its CEO. Binance is expected to present its defense on September 21, followed by the SEC’s argumentation on November 7. The judge’s swift decision was commented on as a sign of the “frivolous” nature of Binance’s accusations against the SEC.
Riot Platforms, one of the world’s largest Bitcoin mining companies, plans to increase its hash rate capacity by purchasing 33,280 mining machines from MicroBT for a total amount of $162.9 million. However, the machines will not be delivered until December 2023 and will not be deployed until the first quarter of 2024. The company has also secured an option to purchase an additional 66,560 miners by the end of next year. If this option is executed, Riot’s hash rate capacity could increase to up to 35.4 EH/s. According to Jason Les, Riot’s CEO, next year’s deployment will improve the efficiency of their machine park before the next Bitcoin reward halving, scheduled for April 2024.
Despite Bitcoin’s price consolidation in the spot markets, asset managers are increasing their long positions in the derivative markets, suggesting ongoing optimism. According to the Commitment of Traders (COT) report, asset managers increased their open long positions by 495 contracts last week. Leveraged funds, by comparison, increased their long positions by 1,449 contracts. Currently, asset managers with reportable positions are 94.87% long on Bitcoin. The COT report is a proxy for market sentiment, as it indicates the direction of traders’ positions on Bitcoin futures contracts. This increase in long positions follows anticipation of potential approval of a Bitcoin spot ETF. Although this does not guarantee the future direction of prices, the lack of bearish bets after a 20% increase indicates that investors are not looking to sell following the recent increase.
After a failed rally attempt above $31,000 on June 23, Bitcoin held the $30,300 support level for the following three days. Investors are now wondering if the $30,000 support for Bitcoin is solid. Some attribute the recent gains to BlackRock’s application for a spot Bitcoin ETF. However, other events could have fueled the cryptocurrency’s gains, such as HSBC Bank in Hong Kong introducing its first local cryptocurrency services using three listed crypto ETFs. Also, the ProShares Bitcoin Strategy ETF, a Bitcoin futures fund, had its largest weekly inflow in a year at $65 million, with assets surpassing $1 billion. The regulation of cryptocurrencies in the U.S. also seems to be improving.
We will also finally see if the future rhymes with the past. Bullish Bitcoin investors are preparing for a “seasonal rise,” as the world’s largest cryptocurrency tends to climb during the month of July, according to a report published Wednesday by crypto service provider Matrixport. Over the past decade, Bitcoin has increased by more than 11% on average in July, with 7 out of 10 months showing positive returns, the report said. The past three years have seen returns of around 27%, 20%, and 24% respectively in July, according to the note.
“While summer tends to be a period of consolidation for Bitcoin, a strong July is typically followed by an average August and a sell-off in September,” wrote Markus Thielen, Head of Research. Matrixport predicts that Bitcoin will rise to $35,000 before selling off and retracing to $30,000. It then predicts another move upwards towards the $40,000 level. The year-end target for Bitcoin is $45,000, Matrixport added.
We often stress the need to “zoom out” to discern the true long-term trend of Bitcoin. For the crypto asset, it couldn’t be clearer. The lifetime chart of Bitcoin with the 30 moving average on three-month candlesticks shows how, despite its volatility over periods that can last more than a year, the true progressive upward trend is clear and striking. Few assets have such an enticing technical picture!
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of June 28th, 2023, 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.
