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Bitcoin enjoyed an interesting rebound over the weekend following the announcement of a deal to raise the US debt ceiling. However, as opposition in the House grew, stock markets failed to follow suit yesterday, slowing bitcoin’s bullish fervor in the process. Bitcoin then retreated $27,000 overnight as the Fed’s Loretta Mester affirmed her support for continued tightening of U.S. monetary policy. “I don’t really see any compelling reason to suspend rate hikes,” said Ms. Master, validating the recent upward revision of interest rate expectations in the US.
Speaking of this debt ceiling deal, one notable element seems to have stalled certain taxes proposed by the Biden administration, notably the excise tax on digital asset mining energy. If passed, this tax would impose a 30% levy on cryptocurrency mining companies, a measure the Biden administration supported as necessary to limit the environmental and societal damage caused by cryptocurrency mining operations. Pierre Rochard, vice president of research at Riot Platforms, questioned whether the administration’s excise tax proposal had disappeared, given that the text of the bill, called the “Fiscal Responsibility Act 5 of 2023”, made no mention of Bitcoin mining. Republican U.S. Representative Warren Davidson responded in a tweet that one of the successes was indeed blocking the proposed taxes.
FTX founder Sam Bankman-Fried could see some charges against him dropped if the Bahamas object. Prosecutors conceded that some charges could be dropped if the Bahamas refuses, but asked the court to reject Bankman-Fried’s request to have several charges dismissed. Bankman-Fried had been charged with eight counts last December, with additional charges subsequently added. Prosecutors are currently seeking a waiver from the Bahamas, but in the meantime are asking that the motion to dismiss the charges be denied.
In relation to this same saga, a diary belonging to Caroline Ellison, ex-CEO of Alameda Research and former girlfriend of Sam Bankman-Fried, is emerging as a key piece of evidence in the upcoming fraud trial of FTX’s discredited founder. Prosecutors have compiled a vast array of documents, including Ellison’s diary filled with handwritten observations and electronic documents written by her, which at times express personal and professional resentment towards Bankman-Fried. Ellison, who has pleaded guilty to charges of fraud, will testify against Bankman-Fried at the trial scheduled for October. In addition, attention focused on Ellison’s personal writings, including her tweets about her regular use of amphetamines in 2021, as well as her Tumblr blog referring to polyamory. Prosecutors obtained more than six million pages of emails, Slack messages and other digital records, constituting a significant pile of evidence. This cooperation and testimony from other former FTX executives will support charges that Bankman-Fried, Ellison and other associates used FTX customer funds to support risky bets at Alameda. Bankman-Fried faces a maximum sentence of 115 years in prison, but Ellison’s cooperation could enable her to personally lighten her sentence.
Less than two weeks after being released on bail and placed under house arrest, Terraform Labs co-founder Do Kwon is back in custody in Montenegro. The Supreme Court of Montenegro in Podgorica has overturned a decision taken two weeks ago to release Kwon and former Terraform CFO Han Chong-joon on bail of €400,000 ($436,000) each. At the time, the court ordered that the men be placed under house arrest in Montenegro pending trial. According to Bloomberg, Kwon “remains in jail” following today’s decision. The bail revocation also applies to Chong-joon, a court spokesman told the media outlet. After the lower court granted bail to Kwon and Chong-joon, the prosecution appealed the decision. Court spokeswoman Marija Rakovic told Bloomberg that the case will be sent back to the lower court. Kwon and Chong-joon are accused of falsifying official documents after attempting to travel to Dubai from Podgorica in March on allegedly false Belgian and Costa Rican passports. In their court appearances to date, both men have maintained that the passports are genuine. In addition to the forgery charges, Kwon also faces criminal charges in the USA and South Korea. South Korea has issued an arrest warrant for Kwon since September, accusing him of violating capital market laws.
The author of “The Bitcoin Standard”, Saifedean Ammous, has become the new economic advisor to El Salvador’s National Bitcoin Office, and has expressed confidence that the country will be debt-free in five to ten years. Ammous will work remotely as an advisor to the country’s president, bringing an additional voice to the country’s rapid growth as “Bitcoin Country”. In an interview with local newspaper Diario El Salvador, he expressed his support for the country’s Bitcoin strategy and highlighted El Salvador’s potential as a center of innovation. He also praised President Nayib Bukele’s initiatives, such as the absence of taxes for technology companies, which make the country very attractive compared to other nations taking opposite measures, perhaps in reference to recent discussions on cryptocurrency taxation in the US, UK, Portugal and Italy. The National Bitcoin Office has clarified that Ammous has asked not to be remunerated for the role and will only serve as an advisor to the president.
Roger Ver, an early Bitcoin investor and Bitcoin Cash supporter, recently stated that he believes Ethereum, not Bitcoin, will attract the majority of new users to crypto. During an episode of the podcast Show Me The Crypto on May 31, Ver, nicknamed “Bitcoin Jesus” for his early advocacy of Bitcoin, claimed that despite Ethereum’s scaling problems and the other Layer 1 clones that have subsequently emerged, the Ethereum ecosystem is still where the action is: “Even though Ethereum doesn’t have the largest market capitalization compared to Bitcoin, I think Ethereum is leading the way in driving global adoption.” Ver hailed the rise of Ethereum virtual machine-compatible blockchains and Layer 2 scaling solutions, such as Polygon, which can lighten the load on the main chain. Disagreements over the use of smart contracts and a move away from the idea that blockchains are used solely as currencies or stores of value ultimately led Buterin to develop Ethereum, Ver pointed out: “All this would have been built on Bitcoin if the scaling war hadn’t happened. These core Bitcoin developers hate Vitalik, and they essentially pushed him out of the project to create Ethereum, and I give him my full support for that.”
The number of Ethereum on centralized exchange platforms is close to a five-year low, representing 14.85% of the total token supply. This decline, which is also being observed for Bitcoin, is seen as a bullish sign by investors. The drop in the number of Ethereum tokens on the exchanges is due in part to the collapse of FTX, followed by a wave of withdrawals on other major platforms. In addition, the increase in Ethereum staking seems to have contributed to withdrawals from exchanges. Ether performed well against bitcoin in May.
The Bitcoin network continues to show solid fundamentals, with a new imminent record. Mining difficulty is set to increase by 2.5% today, surpassing 50 trillion for the first time in its history. This increase is also accompanied by a rise in the hash rate, reaching record levels. Miners also increased their holdings of BTC, keeping more of their earnings rather than selling them. At the same time, long-term hodlers continue to accumulate Bitcoin, reducing the supply available on the market. The number of Bitcoin wallets with a non-zero address has also reached a new record, exceeding 47 million. These indicators underline the confidence of miners and long-term investors in Bitcoin’s long-term value.
According to Glassnode analyst James Check, on-chain data suggests that an upcoming Bitcoin rally could push its price as high as $32,000, and that this could be imminent. This price level corresponds to Bitcoin’s “real basic cost”, Check explained. To calculate Bitcoin’s average cost basis – that is, the average price at which BTC was purchased – Check and his team excluded forever-lost coins from the calculation and focused on active Bitcoin investors. “That’s where the reversion to the mean would be, so a rally to that level, honestly, wouldn’t surprise me,” he said. Despite this bullish scenario, Check also pointed out that many investors are probably tired of the bear market and are waiting for Bitcoin to reach this level before selling, which would put pressure on the price. “This is an area where resistance is starting to show up more,” he added.
In the short term, it’s the $28,500 threshold that will need to be breached to halt the series of “higher lows”. On the bearish side, the 200-week moving average continues to offer expected support around $26,300.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of May 31st, 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.
