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Crypto bulletin

June 29th, 2022

Crypto Bulletin – Week 237

The correlation between the U.S. stock market and bitcoin has once again been evident over the past seven days, so much in fact that it is practically the S&P 500 that can be best analyzed to fully understand and predict the behavior of BTC. As we can see, after bottoming out for the year, the stock market index has rebounded, with bitcoin doing the same in recent days. However, we remain in a clear bear market, with the price yesterday strongly rejecting the 30-day moving average. Bitcoin reacted in kind, immediately losing all its gains for the week. Ultimately, we find ourselves at the same point as last week, with bitcoin fighting for the important $20,000 area.

 

 S&P 500 index and the rejection of the 30-day moving average yesterday.

Rampant inflation around the world remains the main concern in the markets. Spain just announced a 37-year high with a 10% year-over-year increase. Wells Fargo said in a Tuesday note that a fall in equity prices was likely to “take time to repair.” In the U.S., the S&P 500 has fallen more than 20% from its December 2021 peak – putting it in a technical “bear market”. “For now, we favor patience before committing new cash to equities,” the Wells team wrote. “With the Federal Reserve just beginning the tightening cycle, we have shifted our investment preferences away from economically sensitive assets and toward more quality-oriented and defensive assets.”

Singapore-based hedge fund Three Arrows Capital was founded 10 years ago. Until recently, it was estimated to have about $10 billion under management. Now, however, the echoes of massive losses in the TERRA and LUNA saga have continued to grow in recent weeks. On Monday, cryptocurrency broker Voyager Digital, which reportedly loaned Three Arrows Capital $350 million in stablecoin USDC and 15,250 bitcoins – for a total of more than $673 million at current prices – was asking for a full refund. That request was not fulfilled, increasing fears that the fund is now insolvent.

Today, the axe officially fell. According to information gathered by Sky News, a court in the British Virgin Islands has ordered the liquidation of Three Arrows Capital. Liquidation refers to the official closure of a company due to its inability to repay its debts and other financial obligations. The company’s assets are then given to various creditors with outstanding loans. It is not yet clear which companies will have their claims satisfied and when. The numerous margin calls on the fund’s positions have certainly contributed to the downward pressure in recent weeks. Is the damage completely done or are there still many positions to be liquidated? History does not yet tell.

It’s when the tide goes out that we see who is swimming naked. We learned Tuesday that an account on CoinFLEX – held by a “person of high integrity and means” – suffered $47 million in losses after being allowed to reach negative equity without being liquidated. The platform – another one – now appears insolvent and has stopped withdrawals, at least temporarily. It quickly became clear that this person is Roger Ver, the man once known as Bitcoin Jesus. Ver said via Twitter that he had not “defaulted on a debt to a counterparty,” and alleged that it was the firm that owed him “a substantial amount of money.” CoinFLEX CEO Mark Lamb countered that the firm had a written contract with Ver “requiring him to personally guarantee any negative equity in his CoinFLEX account and to supplement his margin regularly. […] It is unfortunate that Roger Ver would need to resort to such tactics to shirk his responsibilities and obligations.”

It is likely investors who will ultimately be cheated in this story. The platform plans to remedy its liquidity shortage by issuing a new token, Recovery Value USD (rvUSD), with the aim of allowing withdrawals again as early as tomorrow. The chances of success of the strategy are highly doubtful. On the other hand, Bitcoin Cash, the bitcoin fork led by Ver in 2017, is now reaching a floor ratio with BTC. The project appears virtually dead. Ver’s decisions will certainly go down in history, and for all the wrong reasons. To think that he is one of bitcoin’s longest standing investors. It would have been so easy to just take advantage of his substantial wealth!

Are the G7 countries unwittingly defending bitcoin in their decisions this week? One thing is certain, gold’s shortcomings are becoming more evident than ever after a new move to ban Russian gold imports. According to bitcoin supporter and investor Anthony Pompliano, the decision to block Russian gold exports is just another step in the ongoing “weaponization of currencies”.  “This is another major milestone in the decades-long trend of attempted weaponization of currencies by developed nations leading to degrading trust in those very same currencies,” Pompliano wrote in his Monday newsletter. It is speculated that this G7 decision could make it more difficult to buy physical gold in Western markets, which could lead to a price divergence between paper gold and physical gold. “Even a bitcoin [maximalist] like me can see this potential shock to the gold markets, and I can’t resist riding the wave. I’ve been stockpiling some physical gold coins, hoping to sell them for bitcoin when the panic sets in,” Cash App engineer Danny Diekroeger said.

Gary Gensler, chairman of the Securities and Exchange Commission (SEC), reaffirmed on Monday the SEC’s view that bitcoin is a commodity, but refrained from extending that label to other cryptocurrencies. The regulatory framework surrounding cryptocurrencies and digital assets has focused on interpreting those that function as securities, such as stocks, and those that function as commodities, such as gold. The previous SEC administration believed that both Bitcoin and Ethereum were commodities, but Gensler only mentioned Bitcoin in his most recent comments and previously avoided answering questions specifically about Ethereum.

While decentralized cryptocurrencies are struggling in the markets, that’s not slowing down plans for a central bank digital currency in the United States. Federal Reserve Chairman Jerome Powell said Congress would eventually receive guidance from the Fed on how it could implement a central bank digital currency (CBDC). Speaking before the House Financial Services Committee, Powell said, “I think this is something we really need to explore as a country,” adding that the prospect of issuing a CBDC “should not be a partisan issue.” “We’re doing a lot of work,” he said, mentioning that once the guidance is finalized, it will be up to Congress to draft legislation authorizing its implementation in the U.S. financial system.

It is when the clouds are dark that the period of maximum opportunity often arises. Too bad it is only evident in hindsight! As analyst Will Clemente says, “Bitcoin is incredibly cheap right now. It has only traded this far below its 200-day trend and aggregate cost basis for 3% of its entire existence.”
 

 

Additional data from Glassnode shows that bitcoin’s 200-week moving average, breakeven price and delta price in its bear market floor model align with the Mayer multiple metric mentioned by Clemente.

 

 

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of June 29th, 2022, 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. 

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