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In a week of trading, nine new American ETFs on Bitcoin, excluding the converted Grayscale fund, have accumulated more than 100,000 BTC under management. BlackRock’s IBIT fund leads with 40,213 BTC, closely followed by Fidelity’s FBTC with 34,152 BTC. These ETFs include BlackRock (IBIT), Fidelity (FBTC), Bitwise (BITB), Ark 21Shares (ARKB), Invesco (BTCO), VanEck (HODL), Valkyrie (BRRR), Franklin Templeton (EZBC), and WisdomTree (BTCW). In total, these new funds hold 109,221 BTC, excluding the Grayscale Bitcoin Trust (GBTC), which saw a decrease in value of $2.8 billion, dropping from 619,220 BTC to 552,680 BTC.
On January 22, on the seventh day of trading, the total volume of these ETFs reached $2.1 billion, dominated by GBTC’s $1.1 billion. BlackRock recorded the third-largest influx of funds in its history, with $272 million, while Fidelity followed with $159 million. However, a net outflow of $76 million was recorded on the same day, due to a record withdrawal of $640.5 million from the GBTC fund as Bitcoin’s price fell below $40,000 for the first time in seven weeks. This massive outflow from GBTC investors continues to fuel market correction. Bloomberg ETF analyst James Seyffart explains: “Woof. BAD day for Bitcoin ETFs overall in the Cointucky Derby. GBTC saw over $640 million flow out today. Outflows aren’t slowing — they’re picking up. This is the largest outflow yet for GBTC. Total out so far is $3.45 billion,”
Other analysts have attributed this decline not only to Grayscale but to forced liquidations and sales by FTX, which held a significant portion of GBTC before its bankruptcy. Adam Back, CEO of Blockstream, explains that selling GBTC for Bitcoin does not directly impact Bitcoin’s price, unlike sales in USD. The current sales are mainly due to forced liquidations or bankruptcy sales like those of FTX. In the context of liquidations in the market, long positions on Bitcoin have suffered considerable losses, with $110 million eliminated in two days up to January 23.
Many, however, maintain a long-term view, believing that the current downward factors will not be able to maintain indefinite pressure on the market. Bloomberg Intelligence ETF analyst Eric Balchunas highlights Bitcoin’s performance in 2023, with returns of 75% over the past 12 months, significantly outperforming popular investments like stocks. He invites a perspective shift in the face of current investor anxiety. It is possibly the pursuit of Grayscale against the SEC that finally led to the acceptance of Bitcoin spot ETFs. In short, the current period can truly be expressed as a necessary evil in an otherwise positive fundamental framework.
The cryptocurrency market is also influenced by news that Mt. Gox, a cryptocurrency exchange that ceased operations ten years ago, has begun repaying its creditors. This repayment movement follows the rehabilitation plan approved by the Tokyo court in 2018, in response to a major hack suffered by Mt. Gox, which resulted in the loss of 750,000 Bitcoins. Platform users have begun receiving payments or instructions to complete the reimbursement process. The resolution of the Mt. Gox case and the extended timeline of creditor repayments, scheduled until October 2024, remain key factors affecting market sentiment.
Cathie Wood, founder and CEO of ARK Investment Management, has shared her optimism for Bitcoin, considering it a major competitor for the global gold market. In a recent interview with Infomoney, a Brazilian financial news portal, she expressed her belief that Bitcoin could one day be worth $1 million, although this will not happen immediately. Wood sees Bitcoin as a decentralized and private alternative to traditional currencies, playing a crucial role in emerging markets as protection against unstable monetary and fiscal policies. She highlights the uniqueness of Bitcoin as the first global, digital, and decentralized monetary system, a revolutionary development since the closure of the American gold market in 1971. Wood bases her conclusions on the scarcity, security, and growing acceptance of Bitcoin in the investment community. She believes that widespread adoption of Bitcoin, especially by institutions through asset allocations or ETFs, will reduce its perception as a risky investment. Wood suggests that if cryptocurrencies become a new asset class, it could decrease their correlation with other alternative assets, thereby increasing their appeal to investors.
The Federal Court of Canada has ruled unconstitutional the use of an emergency law by the Canadian government to block funding of trucker protests, including cryptocurrency donations. Judge Richard Mosley, in his decision of January 23, ruled that the invocation of the Emergencies Act was not justified, as there was no national emergency. This law was used for the first time in February 2022
by the government of Justin Trudeau to freeze funds, including cryptocurrencies, donated to truckers protesting COVID-19 related restrictions. Cryptocurrencies played a significant role in funding the trucker protests in 2022, with organizers receiving millions of dollars, although the exact total remains uncertain due to the difficulty of tracing decentralized digital assets. Crowdfunding platforms like Tallycoin and GiveSendGo were used to collect funds, including cryptocurrencies. However, Canadian authorities also froze bank accounts linked to GiveSendGo donations. The decision to freeze digital assets by the Canadian government was criticized by cryptocurrency leaders, including Kraken founder Jesse Powell.
Tether, a major issuer of stablecoins, continues to increase its investments in Bitcoin, bringing its total holdings to more than $2.8 billion. Blockchain data indicates that a BTC address associated with Tether received 8,888 BTC, equivalent to $379 million, at the end of December. This purchase raised Tether’s total holdings to 66,465 BTC, making the company one of the largest private holders of BTC. Tether has consistently acquired BTC throughout 2023 and announced in May its intention to use its profits to buy Bitcoin to hold in its reserves, as well as to start mining Bitcoin. Tether issues USDT, the third-largest cryptocurrency after Bitcoin and Ethereum, with a market capitalization of $94.5 billion. USDT is a stablecoin, a cryptocurrency backed by a stable asset such as the US dollar, making it the most traded digital asset. However, the company has been controversial for a lack of transparency regarding the actual backing of its cryptocurrency by tangible assets. In 2021, after a two-year investigation by the New York Attorney General, Tether agreed to no longer operate in the State of New York and paid $18.5 million in fines to end the 22-month investigation into its activities. Despite controversies, Tether appears to have the support of at least one major traditional finance company. Howard Lutnick, CEO of Cantor Fitzgerald, told CNBC in December that the Wall Street broker holds a large amount of the stablecoin issuer’s treasuries, subsequently confirming to Bloomberg that Tether indeed possesses the reserves it claims to hold.
Bitcoin’s hash rate has experienced a significant drop of 25% since the weekend. This decrease results from the actions of Bitcoin miners in Texas who have reduced their energy consumption to strengthen the stability of the local electrical grid in the face of a cold wave. Texas, with its cheap electricity, is a major hub for Bitcoin mining, necessary for the operation of the blockchain network. The hash rate, a key measure of security, indicates the computing power used by miners per second. Higher computing power makes the network more secure by making it more difficult for attackers to control more than half of the Bitcoin network. Many expect new record levels by the time of the halving. The next Bitcoin halving, scheduled for April, will be the fourth since the cryptocurrency’s launch in 2008. This event will see the reward for miners, who create new coins and maintain the network, halved from 6.25 to 3.125 BTC per processed block. This reduction limits the amount of new Bitcoins issued on the market and aims to control the rate of inflation of Bitcoin, whose total supply is fixed at 21 million. Some market analysts anticipate a rise in the price of Bitcoin due to the reduction in available supply, as each halving has historically preceded a Bitcoin bull run.
Attention is focused on the price of Bitcoin in anticipation of the monthly expiration of BTC options worth $4.5 billion on January 26. This expiration could be decisive for the current bearish trend. Despite a mediocre performance of Bitcoin, the US stock market reached a historic high on January 22, suggesting that the factors influencing Bitcoin are likely independent of the macroeconomic scenario. The decline in Bitcoin since the start of ETF trading coincides with the rise in the yield of US Treasury bonds at 2 years, suggesting that investors are turning away from fixed income. According to Yahoo Finance, recent economic indicators could mean that the Federal Reserve may not adopt a less restrictive stance as quickly as expected. The “open interest” for the option expiration on January 26 amounts to $4.5 billion, but the final amount will likely be less, as traders anticipated price levels reaching $42,000 or more. If Bitcoin trades at $39,900 at the January monthly expiration, only $55 million of these call options will be available. Conversely, put options at $40,000 or more amount to $270 million, offering a significant opportunity for bears to exert short-term pressure.
We currently remain entirely exposed to bitcoin.
The presented information is as of January 24th, 2024, 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.
