“Where there’s smoke, there’s fire?” The excitement surrounding a spot exchange-traded fund (ETF) has significantly stimulated the cryptocurrency market over the past seven days, breaking through the consolidation channel that has been in place for the last seven months. This sudden bullish action is particularly encouraging as it is happening during a bearish trend in the US stock indices and while gold refuses to break through its own accumulation channel in the current persistent inflationary context.

Bitcoin experienced a significant rise on Monday, reaching $34,000 after $114 million in short positions were liquidated. This increase was part of a second wave of growth for the day, resulting in a total market liquidation of $145 million across the cryptocurrency market. After an initial surge to $31,000 on Monday morning, Bitcoin experienced a second push, breaking the $34,000 mark later in the day, thus setting a new record for 2023 and reaching values not seen since May of the previous year. This series of increases was attributed to the growing anticipation surrounding the upcoming approval of spot Bitcoin ETF applications by the SEC. Earlier in the day, a judge in Washington D.C. ordered the SEC to reconsider a long-delayed and disputed spot Bitcoin ETF application from Grayscale, after the regulatory agency failed to respond to a previous judicial request. Moreover, BlackRock, a global investment giant, updated its own application, indicating it had begun the preliminary steps necessary to launch its spot Bitcoin ETF, including fund allocation and securing a stock symbol. Although these actions do not guarantee approval, they reflect confidence in future validation by the SEC.

Ethereum also experienced a significant rise, reaching its highest point since August. Meanwhile, the total market capitalization of all digital assets increased by more than $100 billion, jumping 9.3% to surpass the $1.3 trillion mark, reaching its highest value since April. More than half of this sum is now attributed to Bitcoin.

In relation to Grayscale, following the court’s decision, the SEC had 45 days to appeal but remained silent, letting the deadline pass earlier this month. This made a judicial order to reevaluate Grayscale’s application inevitable, which has now arrived. Although the SEC still has the power to reject the application, it must find a new reason to do so, one not related to its previous justification that the Bitcoin futures market is not sufficiently linked to the spot market. Other Bitcoin ETF applicants, such as Bitwise, have already prepared a series of arguments to counter such justification if the agency chooses to go down this path again.

Hester Peirce, a pro-crypto member of the US SEC, commented on Grayscale’s recent legal victory against the SEC, highlighting her incomprehension regarding the agency’s hesitation to approve a spot Bitcoin ETF. Peirce, nicknamed “Crypto Mom,” stated that although she has advocated for the approval of such a product for five years, the agency has not yet adopted a productive approach towards cryptocurrencies. The SEC recently lost its legal battle against Ripple and saw other fund managers, including BlackRock and Fidelity, adjust their ETF applications in response to its concerns. Peirce noted a growing interest from investors in these products, reflecting a change in the market’s perception of cryptocurrencies.

Among the bullish factors, the iShares Spot Bitcoin Exchange-Traded Fund, proposed by investment firm BlackRock, has been listed on the Depository Trust & Clearing Corporation (DTCC), which could indicate an upcoming approval by the US SEC. Eric Balchunas, an ETF analyst at Bloomberg, pointed out that this step was an integral part of the process to put a crypto ETF on the market, and he sees it as a positive sign for SEC approval. With a stock symbol IBTC, this ETF could be listed on the Nasdaq, which submitted a request for this in June. Balchunas speculated that BlackRock may have already received informal approval from the SEC or is preparing assuming that approval is imminent. The SEC has until January 10, 2024, to make a final decision regarding this ETF. If BlackRock’s application is approved, it could pave the way for many other crypto ETF applications currently under review by the SEC, including those from ARK Investment, Fidelity, and Valkyrie. It should be noted that this symbol has since been removed from the directory. However, the genie is already out of the bottle in this case.

According to a report by J.P. Morgan bank, it is very likely that a spot Bitcoin exchange-traded fund will be approved by the SEC before January 10, 2024, providing Wall Street with a highly anticipated financially innovative product in the coming months. Analysts at Bloomberg Intelligence even estimate a 90% probability of such approval in January.

According to a research note published by the crypto fund Galaxy Digital, physically-backed Bitcoin exchange-traded funds (ETFs) could attract at least $14.4 billion in investments during their first year of issuance, thus presenting themselves as a more advantageous investment option compared to the products currently offered, such as trusts and futures contracts, which together represent a value of more than $21 billion. Galaxy Digital estimates that the flows could increase up to $27 billion in the second year and reach $39 billion in the third year. The American wealth management industry, which collectively manages $48.3 trillion spread across securities brokers, banks, and registered investment advisors, is identified as the most directly accessible market and likely to be interested in an approved Bitcoin ETF. Physically-backed Bitcoin ETF products would offer investors the opportunity to gain exposure to Bitcoin through a list of highly regulated partners, mainly traditional funds and banks known for their consumer protection and investment offerings. Galaxy Digital highlights that the demand for this type of product is considerable, as evidenced by the recent fluctuations in the price of Bitcoin in reaction to rumors and announcements related to Bitcoin ETFs, suggesting that the approval of such products could contribute to a 74% increase in the price of Bitcoin during the first year, taking into account the liquidity and impact on prices induced by billions of dollars of investments. Additionally, Bitcoin ETFs would offer greater efficiency in terms of fees, liquidity, and price tracking compared to existing investment products, which have significant disadvantages such as high fees, low liquidity, and tracking errors.

If the ETF enthusiasm is indeed significant in the weekly price increase, it is impossible to completely dismiss the macroeconomic context in which Bitcoin operates, and above all, how it is conducive to expressing Bitcoin’s true value proposition. Arthur Hayes, former CEO of the cryptocurrency exchange platform BitMEX, recently expressed his views on Bitcoin, describing it as a “trigger” in the current global context marked by inflation and armed conflicts. In a blog post titled “The Periphery,” Hayes explains that Bitcoin is alerting markets to the economic future and highlights the growing risk of global escalation due to the involvement of the United States in two new conflicts. Hayes discusses the current economic situation, marked by persistent inflation and a halt in interest rate hikes by the U.S. Federal Reserve, and warns of the potential consequences of a “bear steepener” on the economy. According to him, if long-term Treasury bonds no longer offer security to investors, they will turn to other alternatives such as gold and especially Bitcoin, anticipating global inflation related to armed conflicts. Hayes remains optimistic about the future of Bitcoin, mentioning the possibility of reaching a price of 1 million dollars per Bitcoin, partly because of the control of the interest rate curve. He concludes by encouraging a rotation of investments, moving from short-term Treasury bonds to cryptocurrencies. These statements are made in a context where macroeconomic concerns are becoming increasingly vocal, especially with recent comments by billionaire investor Ray Dalio on the growing risks of global conflicts.

MicroStrategy, under the leadership of Michael Saylor, sees its investment in Bitcoin become profitable again as the BTC price surpasses $30,000, generating an unrealized profit of $132 million. The company holds 158,245 BTC, acquired at an average price of $29,870 each.

The Fear and Greed Index for cryptocurrencies has reached its highest level since November 2021, standing at 70.6, which could indicate that the market might pause in its current upward trend. This index, which ranges from 0 to 100, uses various metrics such as market momentum, volatility, volume, and social media to analyze and measure the market sentiment towards Bitcoin and other major cryptocurrencies. Values between 50 and 74 signal “greed” in the market, while values above 75 indicate “extreme greed,” suggesting that investors are very confident in Bitcoin’s prospects.

The relative strength index (RSI) of the main cryptocurrency suggests the same. The RSI displays a reading above 70, or in overbought territory. Overbought readings on the RSI often precede pauses in bullish markets.

However, it goes without saying that these indicators could be dismissed out of hand if other confirmations leading towards the approval of a spot ETF in the short term were to manifest.

While it was so difficult to break through the $30,000 mark, it is now hoped that this area will serve as strong support. In an ideal scenario, the $32,500 zone, which is the top of the accumulation channel of the last seven months, would serve as support. To the north, the $30,000 zone has been very rarely traded in Bitcoin’s history. If the upward momentum were to continue, it is not difficult to quickly imagine Bitcoin trading in the $40,000 range.

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of October 25th, 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.