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As a new year is about to conclude, it’s safe to say that 2021 was anything but boring on the cryptocurrency market. After a Christmas bounce that has been fading for the past few days, it’s important to take a step back to paint an honest picture of the year. 2021 will indeed have painted a new all-time high for the price of bitcoin, with the latter flirting with the $70,000 mark. While the price has been in clear retreat since that threshold, it has nonetheless managed to do what it is known for, which is to offer significantly higher returns than most of traditional financial assets. Indeed, as we celebrated the arrival of 2021, it was at $29,219.10 / coin that the mother of all cryptocurrencies was trading. It was at $7,212.63 a year earlier, at the turn of the decade.
Today, no one dares to deny the impact of the cryptocurrency industry on the financial system. This was in fact the opinion shared by the Bank of England this week. The Bank of England’s deputy governor for financial stability warned that cryptocurrencies such as bitcoin are quickly reaching the threshold of “The point, I think, at which one worries is when it becomes integrated into the financial system, when a big price correction could really affect other markets and affect established financial market players,” he said. The latter insists on the need for tighter market regulation, a comment that will surprise no one from large banking institution.
Yet, we see year after year how cryptocurrencies are seen as a lifeline when central national decisions lead to the crumbling of fiat currencies, impoverishing citizens through no personal fault of their own. Turkey was the most obvious example of this reality in 2021. The Turkish lira fell by more than 30% in 2021, continuing a trend of nearly a decade. The policies of Erdogan’s government are no stranger to this, as he is pushing for an easing of economic policies in the midst of hyperinflation. While the central bank is targeting an inflation rate of 5%, economists expect it could reach 30% by 2022.
Despite the crisis, the madness continues. Turkey is now taking legal action against anyone who publicly criticizes its economic policies. Seeing many citizens turn to cryptocurrencies to protect their savings, the Turkish parliament is now moving to regulate these digital assets. “We will take a step right away and send [the draft bill] to the parliament,” Erdogan said. Although Erdogan didn’t disclose much details on how he will do it, he said in September that the government “has absolutely no intention of embracing cryptocurrencies.” Erdogan said at the time that the country would “move forward with our own currency that has its own identity.”
According to lawyer Mertcan Bayraktar, “The status of cryptocurrency exchanges is important, as Turks are increasingly using them to sell the Turkish lira against stable currencies pegged to the U.S. dollar. […] Although older Turks use banks and currency exchanges to buy the U.S. dollar, crypto exchanges are very popular with people under 40 [to buy stablecoins pegged to the dollar]. They treat crypto exchanges as online and more convenient alternatives to old-school currency exchanges.”
If you think cryptocurrencies are too volatile, this December action for the Turkish lira shows how the same can be true for national currency when everything goes to hell!
This is an opinion shared by Mexico’s third richest billionaire, Ricardo Salinas Pliego. The latter advised people to stay away from fiat currencies, such as the dollar and the euro, and invest in bitcoin instead. Calling fiat currencies “fake money made of paper and lies,” he pointed out that “central banks are printing more money than ever.” Salinas is the founder and chairman of the Salinas Group, a group of companies with interests in telecommunications, media, financial services and retail stores. According to Forbes’ list of billionaires, his net worth is currently $13 billion.
Not all reasons to attack cryptocurrencies are political. Just look at Iran, which has just banned cryptocurrency mining – though allowed in the country – until March 6th, 2022. The aim is to save energy and avoid power outages this winter. The decision may hurt Iran’s finances, as the country uses locally mined cryptocurrencies to boost its revenue amidst tough international sanctions.
It has come to our attention that a money services business under the name of BINANCE CANADA was listed in the Canadian registry this week. The physical location of the company is in Calgary. Binance is as of today the largest cryptocurrency exchange in the world. While we don’t have any additional information on the subject at this time, this is something we will be following closely in the new next year.
We told you about companies rising from their ashes last week with the RadioShack brand making a surprise entry into the decentralized finance space. Will another giant from the 90’s follow suit? At least that’s the plan for a new decentralized autonomous organization (DAO). BlockbusterDAO seeks to govern the Blockbuster brand and turn it into a decentralized movie streaming service – with plans for eventual movie financing and production. To achieve its goals, BlockbusterDAO intends to raise $5 million to buy Blockbuster from Dish Network, a U.S. television provider that bought the movie rental company in 2011. BlockbusterDAO aims to raise the funds by selling BlockbusterDAO NFTs for ETH 0.13 (about USD 530).
Raoul Pal, CEO of Real Vision, believes that the recent volatility in the bitcoin price is due to institutions selling to help shore up their year-end profits. The latter went into a relevant and objective analysis on his twitter feed yesterday. Pal explains that while a lot has happened in the cryptocurrency industry in 2021, this is not necessarily the case on the side of the players on the markets. He shows that trading volume and active wallets are stagnant for bitcoin, data that remains on the rise for ETH, however. “If Metcalfe’s law applies, the network is currently growing very slowly, hence the slow price. The same is true for ETH, but a different factor comes into play here, hence the outperformance.”
According to the latter, it is the retail investors who are currently missing from the market. That would be due to wages rising at a slower pace than inflation. “The cost of living has increased dramatically and that has driven the marginal investor away from crypto. They simply can’t afford the disposable income.” As a result, the same capital is moving sideways from one crypto project to another, with no real capital inflow. “All assets that rely on network effects need the network to grow to rise in value. That’s why you see a price explosion in projects that suddenly benefit from network effects, because the market decides what has real traction and what doesn’t.”
As a result, he expects the institutional market to drive the market in the near term. “I don’t see stable economic growth and lower inflation for some time. So we’re going to have to rely on institutions and hedge funds to allocate significant capital. I think that’s going to happen and the first quarter should confirm that. New capital will flow in over time and a broader rally, when it occurs, will bring in retail investors and a reflex loop of institutional investors FOMO’ing.” He concludes with this wise advice: “The best advice I ever received was from Paul Tudor Jones, who once told me that the best investors he knew were those whose investment horizon matched the horizon of their idea. If your model is based on Metlcalfe’s Law for all decentralized assets, you need to think in years, not weeks or months.”
The change of year could indeed turn a page and start over on a new horizon. The expiration of $6 billion in options this Friday will close the year for many institutional investors, who will then have a blank page for 2022 and subsequent decisions. The expiration of such contracts often brings the price close to the point of maximum pain, the strike price at which the largest number of open option contracts expire worthless. This creates maximum losses – called maximum pain – for option buyers. The maximum pain point for Friday’s option expiration is $48,000.
According to data collected by glassnode, the total supply currently held at a loss is 3.480M BTC, or 18.34% of the outstanding supply. Long-term holders have added 1.846M BTC to their holdings, while the supply of short-term holders has decreased by 1.428M BTC. The mining hash rate ended 2021 up 27% on the year, having fully recovered from the great migration where about 53% of miners were shut down almost overnight. Meanwhile, overall miner revenue is up 58% year-to-date, and over 440% since the halving event in May 2020.
One thing is certain, bitcoin, like the entire cryptocurrency industry, is turning the corner of the year with more maturity, resilience and adoption than ever before. In uncertain economic times when inflation is hitting all corners of the world, the predictability of the network’s blocks, the associated rewards and the economic model it creates are more relevant than ever. There is no doubt that the opportunities will be multiplied for 2022.
From all of us at Rivemont, please accept our best wishes for health, happiness and prosperity for the New Year!
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of December 29th, 2021, 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.
