Communications

Crypto bulletin

January 3rd, 2024

Crypto Bulletin – Week 316

The year 2024 has started strongly for Bitcoin, with its price soaring more than 7% in 24 hours, nearing $46,000, the highest level since April 2022. This surge is mainly attributed to the anticipation of approval by the U.S. Securities and Exchange Commission (SEC) for several spot Bitcoin ETFs. A Reuters report suggested that the SEC could begin approving ETF applications as early as yesterday, which apparently did not happen.

However, Bitcoin reminds us of its potential volatility with a sharp and sudden correction this morning. While the situation is relative, the gains of January 1st have been wiped out. Many investors wonder if there are imminent bad news to be announced. Others rightly consider that the scenario was perfect to take advantage of the many long investors on margin in an attempt to trigger a long squeeze.

Eric Balchunas, an ETF analyst at Bloomberg, believes that the SEC’s rejection of a spot Bitcoin ETF this month would likely be due to the agency needing “more time” rather than an outright refusal. Although the probability is low, Balchunas and his colleague, ETF analyst James Seyffart, maintain a 90% chance of approval by January 10th, not exceeding this percentage due to this concern. Balchunas points out that if approval is not observed in the next two weeks, it would indicate the SEC’s need for more time, rather than a total rejection. However, according to Balchunas, the effort and time invested by the SEC and Bitcoin ETF issuers make a total and sudden rejection unlikely. Vetle Lunde, an analyst at K33 Research, shares a similar perspective, assessing the probability of a rejection at only 5%. Balchunas thinks that if the SEC issues a total rejection, fund issuers might file separate lawsuits against the regulator, similar to crypto asset manager Grayscale. Public comments continue to be submitted to the SEC, some arguing for a complete rejection of Bitcoin ETFs, citing Bitcoin’s decentralized nature and its ability to bypass traditional financial channels as potential attractions for authoritarian regimes seeking to avoid sanctions.

On a lighter note, some do not look further than blaming Jim Cramer for this morning’s correction. Cramer, a former hedge fund manager and host of CNBC’s Mad Money, backtracked on his bearish stance on Bitcoin before the U.S. regulatory authorities’ approval of a spot ETF. “Bitcoin is a technological marvel and I think people need to start recognizing that it’s here to stay,” Cramer noted. He also mentioned another famous Bitcoin skeptic, the late Charlie Munger, saying he “was blind to it.” However, over the past few years, Cramer has gained an unenviable reputation for seemingly being on the wrong side of the positions he defends. Regarding Bitcoin, he had advised investors to sell when prices hit rock bottom following the FTX bankruptcy saga.

Regarding a possible spot ETF for Bitcoin by next week, it’s noteworthy that BlackRock recently modified its filing, designating JP Morgan Securities and trading firm Jane Street as authorized participants. These participants play a key role in the creation and redemption of fund shares, thereby allowing investors to realize profits. According to experts, this step could be the last in the application process for this much-anticipated product, which has already undergone various revisions and amendments. Last week, BlackRock also modified its filing to allow redemptions only in cash.

Grayscale, on the other hand, recently modified its ETF filing with the SEC but omitted a crucial element. Unlike other firms, Grayscale did not reveal the identity of its partner as an authorized participant, a key entity in the creation and redemption of fund shares for investors. Usually, the SEC does not require issuers of traditional asset-linked ETFs to explicitly name these participants in their applications. However, this is considered an important step for firms wanting to launch a Bitcoin ETF. Several analysts believe this is likely the last phase of the application process for this highly anticipated product, after several revisions and modifications. Last week, major firms like BlackRock and Valkyrie announced their authorized participating partners. Grayscale also did not specify the fees associated with its proposed ETF, unlike other candidates. For example, Fidelity offers fees of only 0.39%, while BlackRock plans to charge 0.47%. Grayscale’s application stands out for its intention to transform its Bitcoin Trust into a spot ETF, after a long legal battle. A Bitcoin ETF would differ from the Grayscale Bitcoin Trust (GBTC) by allowing investors to redeem their shares. The GBTC was initially accessible only to accredited investors, while a Bitcoin ETF would be openly traded like stocks.

While the focus is currently on the short-term prospects of Bitcoin ETFs, it’s important to remember that in 2024, the cryptocurrency world is anticipating another major event: the halving of Bitcoin mining rewards, known as “Bitcoin halving.” This event, occurring every four years, will reduce the mining reward from 6.25 to 3.125 BTC. Historically, each halving has been followed by a strong bull market for Bitcoin. Key players in Bitcoin mining emphasize the importance of efficiency to remain profitable after this event. Jaime Leverton, CEO of Hut8, mentions that miners will need to improve their operational efficiency to continue mining. This includes adopting specific software and, in the case of Hut8, purchasing power plants in Ontario to power their operations. On the other hand, Taras Kulyk, founder of SunnySide Digital, and Colin Harper of Luxor, highlight the direct impact of reward reduction on Bitcoin’s price and transaction fees. They suggest that if the increase in Bitcoin’s price or transaction fees does not offset the reduction in rewards, less efficient miners might have to cease their operations. This situation underscores the importance of a rise in Bitcoin’s price to maintain profitability, especially for smaller miners. In essence, this event will force miners to adapt and innovate to stay competitive in an ever-evolving environment.

Michael Saylor, co-founder of MicroStrategy, intends to sell $216 million worth of his company’s stock options. This sale, disclosed in a filing with the U.S. SEC, aims to fund additional Bitcoin purchases for his personal portfolio. The options, granted in 2014, must be exercised before next April to avoid expiration. Saylor plans to sell about 5,000 shares each business day, starting from January 2nd until April 25th, subject to a minimum price condition. Saylor, a staunch Bitcoin advocate, has significantly changed his stance since 2013 when he predicted the imminent end of the cryptocurrency. Since then, MicroStrategy has amassed a large number of Bitcoins, currently holding 189,150 BTC, valued at over $8.5 billion. Additionally, Saylor personally owns 17,732 BTC, acquired at an average price of $9,882 per unit. His Bitcoin holdings, valued at around $800 million, rank him among the top 103 Bitcoin addresses, according to BitInfoCharts.

Finally, it’s important to note that starting in 2024, new U.S. tax regulations will require cryptocurrency transactions worth over $10,000 to be reported to the Internal Revenue Service (IRS). This measure is part of the infrastructure bill signed by President Joe Biden in 2021, which mandates crypto brokers to report significant transactions to the IRS. Jerry Brito, executive director of Coin Center, expresses concerns about the feasibility of these directives, highlighting potential challenges for users to comply without clear guidance from the IRS. The law requires brokers to provide personal information of transactions, including the name, address, and social security number of the recipient, within 15 days of the transaction. This requirement, aimed at reducing the tax gap in the U.S., was initially set to take effect in January 2023, with reports to be submitted to the IRS in 2024. However, the precise nature of the information to be reported remains unclear, especially in cases like mining rewards or decentralized cryptocurrency exchanges. Coin Center has suggested that the IRS establish a de minimis exemption for cryptocurrency transactions to clarify the guidelines and avoid imposing difficult requirements on parties involved in cryptocurrency transactions. These new extended obligations could make the reporting process complex and challenging for many users in 2024.

Aside from the recent buzz, it’s the 30-day exponential moving average (in yellow) that continues to hold our attention and respect. Respected since October, we consider remaining in a bull market as long as there is no closure below it.
 

 

Needless to say, the coming days will be particularly interesting with the SEC’s mandatory decision by next week. We look forward to our next communication!

We extend our best wishes for health, happiness, and prosperity to all our readers for the New Year.

The presented information is as of January 3rd, 2024, 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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