Communications

Crypto bulletin

November 29th, 2023

Crypto Bulletin – Week 311

Bitcoin is regaining bullish momentum following dovish forecasts from the U.S. Federal Reserve, with an increase of over 134% this year. Currently, Bitcoin is trading above $38,000, reaching a peak of $38,223, which represents a 3.5% increase in 24 hours and nearly 3% over a week. This bullish trend is explained by a combination of optimism related to the potential approval of a Bitcoin exchange-traded fund (ETF) and recent comments from Federal Reserve Governor Christopher J. Waller. Waller indicated a more flexible stance on monetary policy, boosting investor confidence in Bitcoin, which, like other risky assets, tends to suffer from high interest rates. It should be noted that this increase is parallel to a surge in gold, further reinforcing Bitcoin’s value proposition as digital gold.

The collapse of Terra in May 2022 hit the cryptocurrency market hard, but investors now seem more confident, especially in Bitcoin, which is attracting the main attention of institutional investors. A report from CoinShares indicates that the majority of incoming capital is focused on Bitcoin. The eventual approval of a Bitcoin ETF by the SEC, which has been awaited for a decade, could provide traditional investors with easier access to cryptocurrencies and lead to a significant influx of capital into the sector.

BlackRock, the world’s largest fund manager, met with the U.S. Securities and Exchange Commission to discuss its application for a spot Bitcoin ETF. This meeting, revealed through Twitter posts, focused on the fundamentals of this investment instrument, particularly the choice between an “in-kind” or “in-cash” redemption model for investors. In the world of ETFs, the “in-kind” model offers investors leaving the fund a redemption other than cash, such as securities, while the “in-cash” model allows for receiving money. This news comes after Grayscale Investments also met with the SEC to transform its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. BlackRock, which manages nine trillion dollars in assets, filed an application for its iShares Bitcoin Trust in June, significantly increasing the price of Bitcoin and leading ETF analysts to bet on the launch of this long-awaited investment vehicle by January.

The Bitcoin market is currently marked by increasing optimism, fueled by several key factors. On one hand, the approaching halving in April, which will halve the amount of mineable Bitcoin, is raising expectations of a Bitcoin price increase, given the expected decrease in market supply. On the other hand, the increase in Bitcoin’s value is also fueled by speculation around the approval of a Bitcoin spot-traded fund by the United States Securities and Exchange Commission. This widely anticipated approval would allow easier integration of Bitcoin into traditional investor portfolios. Moreover, the improving health of the Bitcoin network, illustrated by a significant increase in hash rate, reinforces this positive trend.

In this context, the SEC plays a central role, with major players like BlackRock and Grayscale Investments engaging in discussions with the commission. Recent comments by SEC Commissioner Hester Peirce, suggesting that there is no valid reason to refuse a Bitcoin spot ETF, have also contributed to stimulating the market. However, despite this optimism, the SEC’s final decision remains uncertain, with several ETF applications pending. The prospect of a Bitcoin ETF approval, combined with upcoming events such as the halving, creates an environment conducive to investing in Bitcoin, attracting the attention of institutional investors and potentially increasing the overall value of the cryptocurrency market.

The hope of a Bitcoin ETF approval continues to generate keen interest and attract substantial investments. According to a report by CoinShares, institutional investors continue to invest heavily in crypto funds in anticipation of a Bitcoin ETF. Recently, crypto traded products have received deposits of $346 million in one week, the highest amount over nine consecutive weeks of net inflows, bringing deposits since the beginning of the year to $1.5 billion. Bitcoin-specific funds account for $312 million, or 90% of these inflows. These investments, combined with the price increase, have driven the total value of assets under management in cryptocurrency funds to $45 billion.

Coinbase’s stock has reached an annual high, outperforming Bitcoin, Ethereum, and most other cryptocurrency-related investments, raising questions about its viability as a safer investment than digital assets. Currently, COIN shares, listed on the Nasdaq, are trading at $128.46, the highest level of the year for Coinbase, surpassing its previous high of $110.15 reached in July. While this performance represents a significant increase, the stock is still far from its all-time high of $342.98. COIN’s fluctuations tend to reflect the general volatility of the cryptocurrency market and associated companies, acting as a proxy bet on cryptos. Recently, COIN shares have significantly outperformed the two main cryptocurrencies, Bitcoin and Ethereum, with an increase of 72% over the last month. This rise coincides with the recovery of Bitcoin, which recently surpassed $38,000, and Ethereum, currently trading at $2,063. Coinbase is eagerly awaiting decisions regarding spot ETFs for Bitcoin and Ethereum, hoping to be the custodian or surveillance partner for several issuers, including BlackRock. Meanwhile, Robinhood, the stock trading platform with a crypto-friendly approach, has seen its shares more closely follow the traditional stock market. Robinhood’s shares are currently trading at $8.57, reflecting a general cooling of tech stocks after a significant boom earlier in the year.

MicroStrategy’s stock, a business intelligence company, has reached its highest level in nearly two years, generating significant investor interest thanks to the profitability of its Bitcoin holdings. MicroStrategy’s shares closed above $500 on Black Friday, reaching a market capitalization of $7.33 billion, a level not seen since December 2021. The company’s long-term strategy of holding the leading cryptocurrency has paid off, despite a quarterly loss earlier in the year. MicroStrategy is one of the largest institutional holders of Bitcoin, with its founder and chairman Michael Saylor having started buying Bitcoin in August 2020 as a hedge against inflation. With the price of Bitcoin exceeding $30,000, MicroStrategy continued to increase its Bitcoin holdings, reaching 140,000 coins with an average purchase price of $29,803 per coin. Despite a $24 million Bitcoin depreciation charge in its second-quarter report, the company has become profitable again. It continued to buy BTC, bringing its holdings to about 152,800 coins, worth $4.4 billion. Although Bitcoin has experienced a recovery, the shares of companies exposed to Bitcoin have outperformed the performance of the cryptocurrency itself, already up 87% this year. In its most recent quarterly report, MicroStrategy recorded a net loss of $143.4 million, a much larger loss than the $27 million loss from the same period last year. Nonetheless, the company continued to acquire Bitcoin, adding 6,067 Bitcoin for $167 million. MicroStrategy now holds about 0.75% of the total circulating supply of Bitcoin.

The multinational British bank Standard Chartered maintains an optimistic view on Bitcoin, predicting that the main cryptocurrency will reach $100,000 by next year. This prediction, first issued in April, has been reaffirmed despite the prolonged bear market of 2023. In July, the bank’s analysts even suggested that Bitcoin could climb to $120,000 within the same timeframe. According to Standard Chartered, the rise in the price of Bitcoin could accelerate, particularly due to the faster-than-expected introduction of Bitcoin spot ETFs in the United States, which would play a catalytic role. The bank believes that this development could lead Bitcoin to cross the $100,000 threshold before the end of 2024. The ‘halving’, which halves the mining rewards of Bitcoin, is considered a bullish indicator, as it reduces the supply of new Bitcoins on the market, thus potentially increasing the demand and price of existing coins.

Please note that the author of these lines will be on vacation next week, causing a pause in our weekly communication. The next one will follow on Wednesday, December 13th.
Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of November 29th, 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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