Inflation and interest rates are the talk of the town this week. In this regard, the week was truly divided into two parts. While Bitcoin was still rising when Canada confirmed that the key interest rate dropped below 5%, its price fell to a weekly low before the release of U.S. inflation data and a scheduled Fed meeting on Tuesday. U.S. Bitcoin ETFs recorded their first net outflow in more than 19 trading days.

This drop comes after the 11 U.S. Bitcoin ETFs recorded a joint net outflow of $64.9 million on June 10, a first in a month, according to Farside Investors. The Grayscale Bitcoin Trust (GBTC) led with net outflows of $39.5 million, followed by $20.5 million for the Invesco Galaxy Bitcoin ETF (BTCO) and $3 million for the Fidelity Wise Origin Bitcoin Fund (FBTC). Meanwhile, respective inflows of $7.6 million and $6.3 million were recorded for the Bitwise and BlackRock ETFs. The U.S. Bureau of Labor Statistics is set to release May figures for its Consumer Price Index (CPI) this morning, with expected inflation rising by 0.1% after a 0.5% increase in April, bringing the annual rate to 3.4%, while core inflation is expected to rise by 0.3% in May, the same as in April, according to Morningstar. The Fed’s monetary policy will also be decided during a two-day Federal Open Market Committee (FOMC) meeting starting the same day. Research firm Zacks predicts there is no chance the Fed will cut interest rates, expecting to maintain its target rate of 5.25% to 5.5%.

Despite this decline on Monday, crypto funds added more than $2 billion in assets last week, marking the largest increase since March, with the majority of these investments in Bitcoin ETFs. According to a CoinShares report, Bitcoin ETFs attracted nearly $2 billion in BTC deposits despite a turbulent week for cryptocurrency prices. Bitcoin’s price fell below $69,000 on Friday after stabilizing following better-than-expected U.S. Department of Labor employment data. At the same time, Bitcoin ETFs recorded their third-largest daily fund inflow on June 3. In 2024, total inflows into Bitcoin ETFs reached nearly $17 billion, primarily in the U.S. Last week was the best for crypto funds since March, with more than $2 billion, most of which came from Bitcoin funds. Ethereum funds saw inflows of $69 million. CoinShares attributes this increase to weaker-than-expected U.S. macroeconomic data, raising expectations of interest rate cuts. It goes without saying that the Fed’s statements regarding interest rate direction and a possible short-term cut will draw significant interest in the second half of the week.

The European Central Bank (ECB) has reduced its three main interest rates by 25 basis points each, sparking speculation about a possible rise in Bitcoin’s price and a similar reaction from the U.S. Federal Reserve. The ECB’s new refinancing rate is 4.25%, while the marginal lending and deposit facility rates are now 4.5% and 3.75%, respectively. This decision, the first rate cut in nearly five years, comes as inflation in Europe has decreased by more than 2.5 percentage points since September 2023, allowing the ECB to moderate its monetary policy.

However, in the U.S., inflation remains stubbornly above 3%, and Fed officials maintain their 2% target. Neel Kashkari, president of the Minneapolis Federal Reserve, emphasized that the U.S. economy, supported by resilient wage and labor market growth, could tolerate high interest rates for longer. According to the CME FedWatch consensus, rate cuts could occur later this year, likely in September or November. Such a reduction would be favorable for stocks and cryptocurrencies, historically performing well in periods of low rates and monetary growth. However, Arthur Hayes, co-founder of BitMEX, believes that monetary growth and new Bitcoin highs will occur regardless of Fed decisions, due to high U.S. Treasury interest payments to bondholders.

According to a Bloomberg report, Bitcoin is currently facing a strong negative correlation with U.S. bond yields. The 30-day correlation between Bitcoin and the 10-year U.S. Treasury yield stood at -53, one of the worst results in 14 years, according to the report. According to Ki Young Ju, CEO of CryptoQuant, Bitcoin is largely hoarded as “digital gold” rather than being used as a means of payment, meaning its circulation has reached a low not seen in 13 years.

Bitcoin transaction fees have surged again, not due to Runes or Ordinals protocols, but because of an initiative by the exchange OKX to declutter its Bitcoin wallet. On June 7, a medium-priority Bitcoin transaction cost $34.08 to be processed quickly, with more than 333,400 unconfirmed transactions pending. This congestion sparked reactions on Crypto Twitter, with some criticizing Bitcoin’s low transaction processing capacity and calling for the adoption of second-layer solutions and sidechains, while others see it as a boon for Bitcoin miners. The main culprit in this situation is OKX, based in Seychelles, the third-largest crypto exchange by trading volume. According to CryptoQuant, OKX is performing internal transactions to consolidate its unspent transaction outputs (UTXOs), leading to an increase in transaction fees. UTXOs are unspent pieces of Bitcoin stored in users’ wallets, and each transfer requires fees for each UTXO, which can be costly for large transactions. Exchanges, frequently having small incoming transactions and large outgoing ones, consolidate their UTXOs to reduce overall costs when network fees are low. However, this practice, when done on a large scale by a single exchange, can increase fees for all network users, attracting criticism towards OKX for its inefficient management. The situation has since been resolved.

The Australian government has implemented a ban on using cryptocurrencies and credit cards for online gambling to protect its citizens from financial losses. This new regulation, announced on June 11, includes fines of up to AUD 234,750 for businesses not complying with the rules. This ban covers credit cards linked to digital wallets, cryptocurrencies like Bitcoin, and other forms of credit. Kai Cantwell, CEO of Responsible Wagering Australia, supports this measure, stating that it will help people better control their gambling behavior. However, he also called for the extension of this ban to other forms of gambling, noting that inconsistent protection measures could push people towards less regulated and riskier options. The gaming industry has been granted a six-month transition period, with a total ban in effect since June 11.

We mentioned last week that a hostile takeover of Bitfarms was being attempted. To prevent a potential hostile takeover by Riot Platforms, Bitcoin mining company Bitfarms has adopted a “poison pill” defense strategy. This mechanism, a shareholder rights plan, aims to make the company less attractive by diluting the potential acquirer’s stake. Riot Platforms, which has accumulated 12% of Bitfarms’ shares in recent weeks, seeks to create one of the largest Bitcoin miners in the world. According to Reuters, Bitfarms’ plan states that if an entity exceeds 15% of Bitfarms’ shares between June 20 and September 10, the company will issue new shares to dilute this stake. After September 10, this threshold will be relaxed to 20% if certain takeover conditions are met. This measure was adopted to protect shareholders’ interests and maintain the integrity of the company’s strategic review process. In April, Bitfarms rejected a nearly $1 billion acquisition offer from Riot Platforms, which proposed to buy shares at $2.30 each, a 24% premium on the one-month weighted average. Riot, having increased its stake to 12%, seeks to convene a special shareholder meeting to add new independent directors to Bitfarms’ board. Additionally, Bitfarms recently fired its former CEO Geoffrey Morphy, who has filed a $27 million lawsuit against the company.

Despite the ETH ratio continuing to fall against Bitcoin, analysts are showing a renewed wave of optimism. Ethereum-based ETFs could capture between 10% and 20% of the investment flows currently directed towards Bitcoin ETFs, according to Jag Kooner, head of derivatives at Bitfinex. However, this forecast depends on future clarification by the U.S. Securities and Exchange Commission regarding the authorization of staking for Ethereum ETFs. Kooner cites the historical example of gold ETFs to illustrate how fund managers reallocate their resources to balance their exposure. When the first gold ETF, the SPDR Gold Trust (GLD), was introduced in 2004, investments flowed into this new product, affecting flows to existing gold-related financial products. Similarly, the introduction of silver ETFs in 2006 saw investors diversify their portfolios due to the growing demand for silver for industrial uses. Kooner believes that Ethereum ETFs could attract similar interest due to Ethereum’s multiple use cases.

Asset management firm VanEck predicts that Ethereum’s price will reach $22,000 by 2030, representing a 468% increase from its current price. VanEck calls Ethereum “digital oil” and anticipates that its revenues, which were $3.4 billion last year, will reach $51 billion by 2030. VanEck considers Ethereum a unique revolutionary asset in the non-crypto financial world. The firm believes that the Ethereum network will continue to grow rapidly, attracting participants not only from traditional financial markets but also from tech giants. The network already secures more than $90 billion in stablecoins, about $7 billion in tokenized assets, and $308 billion in digital assets. According to VanEck, Ethereum could also disrupt major economic sectors such as finance, banking, payments, infrastructure, artificial intelligence, marketing, advertising, social, and gaming. The report highlights Ethereum as a programmable currency and yield-generating commodity, even calling it the “internet

‘s reserve currency.” With the recent approval of spot Ethereum ETFs by the SEC, allowing traditional investors to access this cryptocurrency, Ethereum is expected to also take market share from tech giants like Google and Apple, offering a platform for developers to create consumer-oriented applications.

The Rivemont Crypto Fund is back fully exposed to BTC.

The presented information is as of June 12th, 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.