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The picture remains rosy on cryptocurrency markets. Bitcoin reached its highest price in over a year on Monday. The value of Bitcoin increased by 2.4% during the day to reach $31,250, marking its highest level since June of the previous year. Despite a year marked by several crises, including the collapse of cryptocurrency exchange platform FTX and the historical decline of several regional banks, Bitcoin had a remarkable first half of 2023.
Last Friday, the US Securities and Exchange Commission (SEC) deemed Bitcoin ETF applications from BlackRock and Fidelity as inadequate, judging them “insufficiently clear and complete.” The SEC believes the applications received this month do not specify enough how they would handle a “surveillance-sharing agreement,” designed to prevent fraud and manipulation by ensuring market, clearing, and customer identification activities are monitored by the fund issuer. To date, the SEC has refused to approve a Bitcoin ETF, citing the possibility of Bitcoin price manipulation as one of the main reasons. However, investors are eager to access such a product, as it would allow them to engage in Bitcoin without having to manage asset custody. Despite a sudden price drop following the news, it was particularly encouraging to see that the $30,000 support held.
Following the SEC’s highlighting of gaps in its initial filing, BlackRock submitted a new application for a Bitcoin spot market ETF on Monday. If successful, it would be the first Bitcoin spot ETF to receive approval. In response to regulator concerns, BlackRock has filed an amended application for an exchange-traded fund focused on Bitcoin spot markets. In a new filing submitted via the Nasdaq exchange, BlackRock indicated that it will finalize a surveillance agreement with Coinbase, addressing one of the main objections the SEC raised when it rejected Bitcoin spot ETF applications in the past. The future ETF will rely on Coinbase, the largest cryptocurrency exchange platform in the US, for asset custody and spot market price data. Coinbase also has an agreement to provide similar services to Fidelity, which seeks to get its own Bitcoin spot ETF.
Cameron Winklevoss, co-founder of the crypto exchange Gemini, put forth what he calls a “final offer” to settle the case of the bankrupt digital asset company, Genesis, owned by the Digital Currency Group (DCG), as part of debt restructuring negotiations. He proposes a plan including $1.465 billion in deferral payments and new loans in US dollars, Bitcoin, and Ethereum. Winklevoss expresses his annoyance at DCG’s delays in setting up a satisfactory repayment plan for Genesis creditors, and accuses DCG and its founder, Barry Silbert, of fraudulent behavior. If the offer is not accepted by July 6, Gemini threatens to bring a lawsuit against DCG and Silbert personally. The offer also includes customers of Gemini’s Earn program, a high-yield investment service, of which Genesis was a main lending partner. In his final remarks, Winklevoss criticizes Silbert’s attitude in this situation, accusing him of playing the victim.
Winklevoss has also added his voice to criticize the SEC for its inaction concerning Bitcoin spot ETFs this week. He highlights that it’s been ten years since the SEC received the first Bitcoin ETF application and rejected it. The Winklevoss twins, who co-founded Gemini, filed an application for a Bitcoin spot ETF in 2013. However, their attempts were rejected by the SEC, which has since approved Bitcoin ETFs based on futures, but not the spot market. Winklevoss accuses the SEC of negligence and failure as a regulator, arguing that its inaction has deprived American investors of the best investment opportunity of the last decade. He believes that the lack of options for Bitcoin spot ETFs has pushed investors towards the Grayscale’s Bitcoin Trust. Winklevoss concludes hoping that the SEC will focus on its statutory duties rather than overstepping its competences.
Regulation on the other side of the Atlantic, however, is going at a good pace. The UK’s Financial Conduct Authority (FCA) announced strict regulation concerning companies promoting cryptocurrencies. Starting from October 8, 2023, these companies must comply with existing regulations on financial promotion. These regulations are broad and technology-neutral, encompassing websites, social media posts, mobile apps, and online advertising. To comply with the new rules, companies will need to submit a registration application to the FCA and pay fees once approved. In addition, they will have to specify the measures they have taken to comply with this new regulation. They have until August 4 to respond to this request, although the new regulations only come into effect later in the year.
In setting these new rules, the FCA has made it clear that it will not only target companies operating in the UK. Foreign-based companies whose marketing activities impact British customers will also be concerned. There will be four legal paths to communicate financial promotions, which include anti-money laundering and counter-terrorism financing (AML/KYC), as well as other important information regarding the transfer of funds through cryptocurrencies. If companies do not comply with these new rules, they could face criminal prosecutions.
While a true Bitcoin spot ETF is still awaited, cryptocurrency-related derivative products are multiplying. The Chicago Mercantile Exchange (CME) announced its intention to launch futures contracts on the Ethereum/Bitcoin (ETH/BTC) ratio on July 31, subject to regulatory approval. The ratio, symbolized by EBR, is defined as the price of Ethereum futures contracts divided by the price of Bitcoin futures contracts. Giovanni Vicioso, the global head of cryptocurrency products at CME Group, said that these futures contracts on the ratio will allow investors to capitalize on the two largest assets in the cryptocurrency industry “in one transaction, without needing to take a directional position”. He added that this new contract will help to create opportunities for a wide range of clients seeking to hedge positions or execute other trading strategies efficiently and profitably.
According to a new analysis, those who have systematically invested in Bitcoin through daily recurring purchases up to today can officially declare that their investment has become profitable. A tweet from user @w_s_bitcoin highlighted a chart showing the “weighted average cost of Bitcoin purchased,” which reveals that investors who continue to do “dollar-cost averaging” (DCA) in Bitcoin can now qualify their strategy as successful, no matter when they started investing. DCA is a regular investment strategy, regardless of asset price fluctuations. According to the chart, the weighted average cost of Bitcoin purchased was $31,233 on July 3, its highest price since June 2022. It is important to note that this does not mean that all Bitcoin holders are in profit, especially those who bought at $69,000 in November 2021 and did nothing thereafter. However, those who continued to make recurring purchases from that point compensated their losses by also buying during dips, like when Bitcoin dropped below $16,000 following FTX’s fall.
Cryptocurrency analytics firm Block Scholes reports that the correlation between Bitcoin and U.S. stock markets is now virtually zero. This 90-day correlation between Bitcoin spot price variations and those of Wall Street’s technology index, the Nasdaq, and the broader index, the S&P 500, has fallen to its lowest level in two years. “It’s now at the lowest level seen since July 2021, when BTC was between its two peaks in April and November,” said Andrew Melville, research analyst at BlockScholes. This decrease in correlation with traditional risk assets means that cryptocurrency traders focusing solely on traditional market sentiment and macroeconomic developments could be disappointed.
On the technical side, the recent consolidation of the Bitcoin price above $30,000 seems to be forming a technical analysis pattern called a bull flag, a pattern indicating that a new rise is likely to be expected. A bull flag consists of a pole and a flag. The pole represents the initial price rise, and the flag represents the subsequent consolidation resulting from temporary exhaustion of bullish sentiment and the absence of strong selling pressure. According to theory, once an asset has broken out of the flag, it tends to rise by an amount approximately equal to the length of the pole. A breakthrough is confirmed once the upper end of the flag is breached. In the case of Bitcoin, the upward movement from the June 15 low of $24,770 to the June 23 high of $31,441 represents the pole, while the subsequent consolidation represents the flag. A potential BTC breakthrough out of the flag would shift attention to the next resistance at $35,900.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of July 5th, 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.
