Communications

Crypto bulletin

October 18th, 2023

Crypto Bulletin – Week 305

We’ve had a particularly interesting week in terms of price action for bitcoin. After a judgment against the SEC in its decision to prevent Grayscale from converting GBTC into a spot ETF, the price quickly approached $28,000. Then, on Monday, the erroneous announcement of the acceptance of such a spot ETF via social media sent prices soaring before the announcement was revised. This situation has been very enlightening.

The weekend’s progress initially came after a small legal victory last week, where it was reported that the Securities and Exchange Commission (SEC) would not contest an August court decision related to its initial refusal of Grayscale’s ETF application. The court had found that the SEC had acted in an “arbitrary and capricious” manner in rejecting Grayscale’s request to convert its Bitcoin fund (GBTC) into a Bitcoin spot ETF, thus indicating that the SEC will likely have to reconsider the application.

The price of Bitcoin subsequently saw a significant rise on Monday, nearing $30,000 following unfounded rumors about the approval of an exchange-traded fund by BlackRock. This increase is attributed to a tweet from the crypto publication Cointelegraph, which claimed that the SEC had approved BlackRock’s Bitcoin Trust iShares ETF. However, this claim turned out to be false; Cointelegraph has since deleted the tweet and apologized, admitting to having spread inaccurate information. BlackRock confirmed that its ETF is still under review by the SEC.

This confusion led to rapid volatility in the price of Bitcoin and massive liquidations of positions in the market. According to data from CoinGlass, nearly $79 million in short positions were liquidated in the hours following the tweet, and $136.5 million in positions were liquidated over the last 24 hours. The intense interest from investors in a Bitcoin ETF is due to the ease of access it would offer to the asset without the complex storage issues. The SEC, however, has delayed its decision on several Bitcoin ETF applications, citing concerns such as market manipulation.

This market action is particularly encouraging for the future acceptance of such an ETF. Indeed, contrary to the opinion of some analysts, it is clear that this conclusion is not at all priced in according to the action observed on Monday. Moreover, when good news is accompanied by a market rise, it proves that we are in a bull market context for the asset. It is also evident that there are funds waiting for such acceptance to be deployed in the market. In short, we may have had a brief glimpse of what genuine acceptance could mean for markets in the future.

Larry Fink, CEO of BlackRock, agrees with this perspective. For Fink, this reaction illustrates the massive interest in cryptocurrency. “It’s just an example of the accumulated interest in cryptos,” he said on Fox Business, interpreting the day’s events in a surprisingly positive way.

According to a recent report from data analysis firm CryptoQuant, the approval of Bitcoin exchange-traded funds could increase the market capitalization of the cryptocurrency market by $1 trillion, propelling Bitcoin as a $900 billion asset. The firm suggests that the next wave of institutional adoption could come from financial institutions offering their clients access to Bitcoin through spot ETFs. The report indicates that the potential inflows from ETFs would be considerably larger than the funds that were invested in the Grayscale Bitcoin Trust (GBTC) during the last market bull cycle. If the issuers who have applied for Bitcoin ETF listings dedicate 1% of their assets under management, about $155 billion could flow into the Bitcoin market, potentially pushing its price between $50,000 and $73,000. The company also notes that, historically, Bitcoin’s market capitalization has increased by 3 to 5 times more than its realized capitalization, suggesting a strong market reaction to new investments. This optimistic outlook is bolstered by the continuous reduction in the GBTC discount, which is at its lowest level in nearly two years.

The difficulty of Bitcoin mining has reached a historic high, increasing by 6.47% on Monday, making the discovery of new blocks even more challenging for miners. According to CoinWarz, following the latest update, the Bitcoin mining difficulty, which represents the estimated number of hashes needed to mine a block, is now 61.03 trillion. This is the third consecutive increase, with the difficulty having almost doubled since October of last year. Bitcoin mining difficulty is adjusted every 2,016 blocks, or approximately every two weeks, allowing the network to assess how quickly miners find new blocks compared to the 10-minute per block target. If blocks are mined too quickly, the difficulty increases; it decreases if the process takes more than 10 minutes. This increase in difficulty means that miners must allocate more computing power to successfully mine a block, indicating that more and more miners are joining the network, making mining more computationally intensive.

 

 

Fidelity, a financial giant managing $4.5 trillion in assets, recently highlighted Bitcoin’s robustness and sustainability in its study “Bitcoin First Revisited,” advising its 43 million clients to consider investing in this cryptocurrency. Comparing Bitcoin to the fundamental internet protocol, TCP/IP, Fidelity emphasizes Bitcoin’s position not only as a resilient survivor in the face of multiple challenges but also as a fundamental force in the digital asset ecosystem, insisting on its intrinsic value and utility. The study underscores Bitcoin’s exceptional security, requiring unparalleled computational power to alter its consensus, placing it well above its competitors using proof-of-work. Fidelity notes that the high processing power, or “hashrate,” is crucial for the security of the blockchain network, making attacks increasingly unfeasible. Moreover, owning Bitcoin, according to Fidelity, is like holding a share of the internet’s indispensable base layer, thus highlighting its profound and inherent value.

Caroline Ellison, former executive at Alameda Research, revealed in October that she was instructed by Sam Bankman-Fried of FTX to sell Bitcoin if its price exceeded $20,000. This market manipulation attempt, which occurred shortly before the collapse of Alameda and FTX, caused great surprise in the cryptocurrency sector. However, the real impact of this strategy is debatable. Data shows that FTX’s Bitcoin reserves were significantly lower than those of other major exchanges, limiting their ability to influence prices in the long term. Even if FTX sold a large amount of Bitcoin, it would only have represented a small fraction of the total trading volume. Additionally, similar-sized transactions in the past, such as those by MicroStrategy and Tesla, have not had lasting effects on prices. Ultimately, Alameda’s and FTX’s action may have caused a temporary decline, but their influence was probably too limited to keep prices low over an extended period. However, this attempt to suppress prices will certainly not improve investors’ affection towards Sam Bankman-Fried.

Ferrari recently announced that it would begin accepting cryptocurrencies as a means of payment for its luxury sports cars in the United States, an initiative that will later be extended to Europe. This decision comes in response to the demand of its wealthy clients, a mix of traditional investors and young wealthy individuals who have built their wealth through cryptocurrencies. Although volatility and environmental concerns have deterred many companies from accepting cryptocurrencies, Ferrari highlights the efforts made in the crypto industry to reduce its carbon footprint. The company is partnering with BitPay to process these transactions, which will convert cryptocurrency payments into traditional currency to protect Ferrari and its dealers from price fluctuations. The initiative will be extended to other regions legally accepting cryptocurrencies following its launch in Europe scheduled for the first quarter of next year. Despite criticism over the energy use of certain cryptocurrencies, Ferrari remains committed to achieving carbon neutrality by 2030 and sees this advancement as an opportunity to connect with a new potential clientele.

Interest in Ethereum “staking” appears to be waning, as evidenced by the recent drop in demand for new validators on the network. While the queue to add new validators briefly dropped to zero, it has since risen to 996, but remains well below its peak in June when more than 96,500 validators were waiting. This decline in interest is partly attributed to the decrease in rewards, dropping from 5.2% in June to 3.5% today. Experts suggest that this decline could be due to a temporary market slowdown, accentuated by bearish conditions and reduced staking rewards. As it is possible to obtain higher risk-free returns on traditional financial markets, the temporary drop in interest towards the ETH network is easily understood.

According to several analytical models, the price of Bitcoin could reach or exceed $128,000 by the end of 2025, with a potential target of around $130,000. This optimistic forecast comes despite divergent opinions on how BTC’s price will react to the next halving of the block subsidy in 2024. Popular analyst and trader CryptoCon shared on X his latest BTC price estimates, concluding a two-year target of around $130,000. He explained that his experiments on Bitcoin’s price cycle highs continue to converge towards a price around $130,000. A chart accompanying his post highlights the “early tops” in each price cycle and the new cycle highs, which set new historical records.

 

According to the timing of these models, 2025 should be the year when the next cycle peak occurs, nearly double the current record set in 2021. However, it’s important to note that cryptocurrency markets are notoriously volatile and unpredictable, and these predictions should be taken with caution.

Furthermore, analyst Rekt Capital pointed out that the year preceding the halving, 2023, could see new local lows before the bull market reaches its full strength. He even warned that the highs of $32,000 seen earlier this year could end up creating a double-top structure, fueling a prolonged drop in BTC’s price. Rekt Capital added that any new low “should be treated as a re-accumulation opportunity.” While these analyses provide an interesting perspective, investors need to exercise due diligence and understand the risks associated with investing in cryptocurrency.

One thing is certain in the short term; technically speaking, bitcoin has managed to close above its crucial 200-day moving average, and importantly, it has done so three consecutive times. The last two attempts in recent months had resulted in a return below this moving average the following day. If we remain in a consolidation channel, the indicators are also currently flashing green.

 

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of October 18th, 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. 

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