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After a week that had a bearish appearance over the weekend and on Monday, the price of bitcoin rebounded in the $25,000 zone, basically trading today at the same level as during our most recent communication. This same area had served as support before a strong rebound last June. In the short term, there is certainly hope that this zone does not change from support to resistance.
To achieve this, it will first be necessary to overcome fears related to the liquidation of the remaining FTX assets. The defunct cryptocurrency exchange is waiting for regulatory approval to liquidate a cryptocurrency portfolio worth $3.4 billion. As part of this process, they have also initiated a lawsuit against the LayerZero on-chain interoperability protocol to recover $21 million in lost assets. The Delaware bankruptcy court plans to rule today on the authorization to sell these assets, a proposal that was initiated in August. If approved, Mike Novogratz’s Galaxy Digital will oversee the sale, with an initial token sales limit set at $100 million per week, a limit that could be doubled for individual tokens. FTX’s holdings include a diversified range of cryptocurrencies, many of which are held in third-party exchanges.
Despite the significant value of the assets involved, there are conflicting debates on the impact this could have on the broader market. While some expect a market crash similar to those seen during previous massive sales, others, including the cryptographic market intelligence firm Messari, note that the impact could be less than anticipated because a significant proportion of the assets are not immediately liquid on the open markets. For instance, a large portion of the SOL tokens are locked in a vesting schedule until 2025, limiting their immediate influence on market prices. In any case, the process will be complex, and the consequences of this massive sale are still uncertain, largely depending on the specific details of the liquidation implementation.
The cryptocurrency exchange platform Coinbase has announced its intention to integrate the layer 2 payment protocol, Lightning Network, to enable faster and cheaper Bitcoin transactions. This decision comes in response to the scalability challenges Bitcoin faces, offering a competitive solution against newer cryptocurrency projects promising more efficient transactions. Until recently, integrating the Lightning Network was not on the agenda for major exchange platforms, including Coinbase and Binance, as many believed it offered little financial incentive for these platforms. However, Brian Armstrong, Coinbase’s CEO, contradicted this prevailing view by confirming the future integration of the Lightning Network into Coinbase’s ecosystem. He emphasized Bitcoin’s paramount importance in the cryptocurrency world and expressed enthusiasm to facilitate faster and less expensive Bitcoin transactions. Armstrong asked for patience, noting that integration would take some time. The news was warmly welcomed by the crypto community, who see this integration as an opportunity for a larger number of users to benefit from efficient and affordable Bitcoin microtransactions.
Sam Bankman-Fried remains in jail. Judge Lewis A. Kaplan denied the request for provisional release of Sam Bankman-Fried, the founder of FTX, before his trial. In court documents made public on Tuesday, Judge Kaplan stated that Bankman-Fried’s arguments in favor of his release did not have substantial weight. The defendant had extensive access to a large part of the electronic evidence and other materials for 7 and a half months before his bail was revoked. The defense argued the lack of appropriate internet access and insufficient time to prepare for the trial, which is scheduled for October 3. Bankman-Fried is facing seven charges in connection with the collapse of the FTX cryptocurrency exchange platform, including electronic and financial fraud, conspiracy to launder money, and illegal political financing activities, charges to which he pleaded not guilty. Judge Kaplan highlighted several points to justify his decision. He noted that Bankman-Fried had unrestricted internet access while residing with his parents in Palo Alto from December 2022 to August 2023. Moreover, some of the new evidence came from Bankman-Fried’s Google accounts, suggesting he could have accessed them during this period. The judge also mentioned that the trial was set for October following the defendant’s requests, and that the latter had the opportunity to ask for a postponement, which he did not request. Finally, Kaplan dismissed the idea that Bankman-Fried should personally review all the evidence, noting that the defendant is represented by a sizable team of competent lawyers and had not clearly expressed the specific materials he claimed not to have had access to.
But what is a “flatcoin”? Coinbase CEO Brian Armstrong stated that “flatcoins” are the next generation of stablecoins. These are designed to evolve with inflation, rather than being tied to a currency or asset, which, according to some, could allow for better value preservation and offer higher returns on investment compared to traditional stablecoins. This notion of flatcoins was initially discussed on Twitter by former Coinbase CTO Balaji Srinivasan in 2021. Flatcoins follow indices such as the Consumer Price Index (CPI) to adjust their value and supply daily. Ongoing projects in this area include Nuon, which claims to be the first real flatcoin and is built on Ethereum, and Spot, which is indexed to the cost of living in the United States. There are also other projects based on diversified baskets of assets, including the Solana-based International Stable Currency (ISC) which is backed by a set of assets including bonds, treasury bills, and gold. A concept to follow in the coming months, especially in the current persistent inflationary context.
Speaking of inflation, Arthur Hayes, co-founder of BitMEX, goes against conventional wisdom regarding the impact of interest rates on Bitcoin. In a blog post, he argues that rising interest rates could boost Bitcoin, especially if central banks continue to tighten their monetary policies. According to him, traditional economic theories are not suited to handle the colossal debt of the US government. Hayes notes that although the Federal Reserve has managed to reduce inflation by raising its key rate from 0.25% to 5.25%, nominal GDP growth could continue to outpace government bond yields. He suggests that in a context of high interest rates, the government will be forced to pay higher interest to wealthy bondholders, which could stimulate spending and, consequently, GDP growth. He adds that these bondholders could be encouraged to invest in risky assets such as Bitcoin, seeking higher returns, as long as the economy continues to grow faster than the rate at which the government repays its debt. Hayes maintains that there is a positive convex relationship between central bank policy and the price of Bitcoin, implying that the effects of interest rates on Bitcoin are not linear and that the current economic situation, which he describes as extreme, could blur traditional economic rules.
Still on this theme, note that inflation data for August in the United States has just been published. It shows a bullish recovery of the index, which certainly does not bode well for a halt in interest rate hikes.
The Ethereum platform is back in an inflationary context on its token issuance, a relatively rare phenomenon since its merger in September 2022. This inflation is the result of a decrease in activity on the chain, particularly with regard to NFT sales and exchanges via Telegram bots, leading to a drop in transaction fees (gas fees) to their lowest level since 2022. Currently, the average cost of a transaction is 1.83. Over the past week, Ethereum’s supply has increased by 4,092 ETH, or about $6.6 million. Although activity picked up at the beginning of the year thanks to a craze for NFTs and an increase in the price of ETH, it has since stabilized. Analysts observe that the vast majority of gas consumers are now linked to DeFi, with NFTs becoming less predominant. They are now waiting for the next trend that will stimulate activities on the chain.
The Bitcoin market is currently in an uncertain phase, with mixed indicators on its future direction. After a recent drop to $25,000, the price of Bitcoin has rebounded, increasing by 5% and sparking cautious optimism among investors, many hoping that the market has reached a floor. Derivative analysis shows that investors are relatively confident in Bitcoin’s ability to make gains from its current level, relying on positive factors such as the prospect of a spot ETF and a reduction in new supply after the 2024 halving. The metrics of Bitcoin futures and options show stability, with annualized premiums remaining below the neutral threshold of 5%, indicating a lack of demand for leveraged long positions. Furthermore, the options market suggests that traders are currently undecided on Bitcoin’s future direction, with a balance between calls and puts. In sum, although derivatives markets have weathered the recent downturn, illustrating a degree of confidence among bullish investors, uncertainty prevails, with both bullish and bearish camps having valid reasons for holding their positions, making short-term price forecasts for Bitcoin particularly difficult.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of Septmber 13th, 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.
