It’s been a week of consolidation in the cryptocurrency market, with the price of a bitcoin essentially the same as it was seven days ago, at least as of this writing. This calm, however, may be short-lived. While 2022 has been a year in which all assets have primarily been influenced by major macroeconomic trends, all investors are now awaiting the U.S. Fed’s decision on its interest rate hike this afternoon.

Last year, the U.S. Federal Reserve initiated an aggressive interest rate hike strategy, with four successive 75 basis point increases. However, the pace slowed after that, with only one 50 basis point increase. Market forecasts indicate an even more moderate increase for this period, with most analysts predicting an increase of only 25 basis points. As is traditionally the case with the Fed, it is not so much the size of the hike that is likely to influence the markets, but rather Jerome Powell’s comments on what to expect in the coming months of the year.

On Jan. 31, court-appointed forensic examiner Shoba Pillay delivered her final report on certain operations of the crypto lending platform Celsius. The comprehensive document, which includes 470 main pages and 31 appendices, was commissioned on September 29. The picture painted is anything but rosy. In her report, Pillay examined several key aspects of Celsius’ operations, including the storage of customer cryptocurrencies, the loyalty of the company’s public representations, the use of new deposits to repay existing customers, the status of the company’s mining business, and tax compliance. “Celsius presented itself as an altruistic organization,” Ms. Pillay wrote. However, “behind the scenes, Celsius conducted its business in a radically different manner than it presented itself to its customers in all key respects.” She denotes that from the initial token offering, Celsius did not report to the community its inability to raise the desired $50M, instead generating $32M. In addition, Ms. Pillay documented how the company and its founder, Mr. Mashinsky, exerted control over the price of the native Celsius token (CEL). However, these efforts were partially compromised by accounting deficiencies. As a result, Celsius was unable to generate enough return on its cryptoasset investments to fully fund the CEL redemptions. Thus, the company had to use bitcoin and ether deposited by customers to fund its CEL purchases.

You don’t have to look that far to understand the accounting loopholes. We learn through the same report that Celsius was using Quickbooks for its accounting management. FTX was doing the same. While the software is certainly good enough for a small business, it is certainly not suitable for those who claimed to be multinationals just last year. When Pillay began reconstructing Celsius’ financials, the reviewer found significant discrepancies between the account balances in the Quickbooks files downloaded from Celsius’ account and those used to create the consolidated statements submitted by the lender.

On a related note, let’s point out that a court document states that “on or about February 15, 2023,” a group of users will be notified of their eligibility and begin the process of withdrawing their funds from the now-failed platform. It’s important to note that these users will only be able to withdraw 94% of their trapped cryptocurrency. Not so bad after all. Who will be part of this group though? Users who had deposited their funds into the “Custodial Program” or “Celsius Holding Accounts” are targeted if those funds had “never been in” the Custodial Program or had been transferred into it from interest-bearing or loan accounts within the 90 days prior to the application, and if they were worth less than $7,575.

On the FTX side, federal prosecutors are trying to stop indicted FTX co-founder Sam Bankman-Fried from using a crypto messaging app, citing efforts that could “constitute witness tampering.” The government says Bankman-Fried wrote to Ryne Miller via Signal, a crypto-messaging app, on Jan. 15, days after the cryptocurrency exchange’s bankruptcy officials revealed the recovery of more than $5 billion in FTX assets. Miller is the current legal counsel for FTX US, and a former partner at Kirkland & Ellis. In addition, at least some of Sam Bankman-Fried’s immediate family is not cooperating with the investigation into the exchange’s collapse and should be cross-examined in court, the company’s lawyers said in a legal filing Wednesday. The FTX founder’s brother, mother and father were his advisers and should be subpoenaed along with the company’s former executives as the company’s new management seeks to learn what happened to the allegedly misappropriated funds, according to the filing. “The debtors and their advisors have worked tirelessly over the past 70-plus days … to implement controls, recover and protect the estate’s assets,” said the legal filing jointly conducted by FTX and the creditors’ representatives. “However, critical questions remain regarding many aspects of the debtors’ finances and transactions,” the document continued.

In this whole 2nd half of 2022 bankruptcy cascade, let’s finally point out that defunct cryptocurrency lender BlockFi has received court approval to sell its remaining assets. This includes a $250 million line of credit in June 2022, intended to strengthen its balance sheet. An auction of the assets will be held on February 28. Creditor representatives have until March 16 to object to the sale of the assets. According to a Bloomberg report last week, the company was considering getting rid of 8,000 Bitcoin mining machines in exchange for up to $160 million in loans.

Speaking of mining, let’s point out that this week again, the bitcoin network is still doing better than at any time in its past history. Bitcoin’s mining difficulty hit a new all-time high, rising about 4.68 percent from 37.59 trillion on Sunday to 39.35 trillion at press time. Meanwhile, bitcoin’s hash rate, which measures the amount of computing power devoted to mining the cryptocurrency, currently stands at 305.81 ExaHashes per second (EH/s). This is still below the all-time high of 348.7 EH/s recorded on January 6.

Another day, another denial by the Securities and Exchange Commission to allow the launch of a bitcoin spot ETF in the United States. The latest rejected proposal came from Cathie Wood’s ARK Invest and global cryptocurrency ETF provider 21Shares, which for the second time joined forces to try to launch the ARK 21Shares Bitcoin ETF. The SEC made the decision based on the same reasons as before: Ark failed to prove that its exchange regulations were sufficient to protect public investors from fraudulent and manipulative acts and practices.

Tesla suffered a $140 million loss investing in bitcoin last year, as reported in a filing made with the U.S. Securities and Exchange Commission on Monday. The electric car maker recorded a $204 million impairment charge while making a $64 million gain by converting bitcoin in 2022. An impairment charge describes a reduction or loss in the value of an asset. Recall that Tesla had invested $1.5B in bitcoins in February 2021. “As with any investment and consistent with how we manage cash and cash equivalent accounts in fiat currency, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions,” the company said in the filing Monday.

Who is interested in acquiring bitcoin? Unlike the mainstream media, which often associates cryptocurrencies with young, novice investors, a report from DeVere Group shows that it’s society’s wealthiest who are looking into it the most. Despite a tough year for cryptocurrencies, 82 percent of millionaire clients have considered investing in digital assets such as bitcoin. Nigel Green, CEO and founder of DeVere Group, said that while the group surveyed is generally more conservative, he believes the interest stems from bitcoin’s core values of “digital, global, borderless, decentralized and tamper-proof.” The firm’s previous years’ research has shown a trend of growing interest in crypto investments among wealthy investors.

For many, BTC’s price action is still tied to bitcoin’s four-year halving reward cycles. The resulting price pattern offers one “peak year” out of four, with the next being 2025. It must be said that these cycles have been followed to the letter so far.

Analysts are attempting to use the historical data from these cycles to predict what the next bull market might look like. This is the exercise that has been conducted by the speculator “TardiGrade” using the Bitcoin Stochastic Oscillator, which synchronizes with the ups and downs of the BTC/USD cycle. Currently, the indicator is printing its last low, and if history is any guide, so will the price behavior. The stochastic oscillator is a volatility tool, comparing closing prices to historical averages. “Bitcoin’s well-formed structure with stochastic behavior indicates that the next high will be at 200K and the next low will be at 70K,” summarizes the analyst next to an illustrative chart.

If this were to be the case, bitcoin’s current price levels could, in retrospect at least, represent an enticing opportunity to enter the market.

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of February 1st, 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.