All-Time Highs Everywhere
After 3 week of consolidating in the $17,500–19,500 range, Bitcoin broke out, hitting ATH of $24,200 on Saturday with strong volume. With $20,000 now behind, anchor price has shifted from $18,000 to $20,000, and we expect dips towards the area to be well-bought, especially with the extra $650mio of BTC demand by MicroStrategy (‘MSTR’) mentioned in previous week’s report. The ease and speed at which MicroStrategy raised $650mio 0.75% p.a. convertible bond at a 37.5% stock premium (initial conversion price of ~$398 vs. market price of MicroStrategy Class A common stock of $289) is indicative of underlying institutional interest for immediate BTC exposure, even at a steep price. Grayscale’s GBTC premium popped further, and is approaching 30% range, but is looking fairer considering the premium that MSTR raised the convertible bonds at. Should MSTR adopt a similar TWAP strategy as before of ~US$ 50mio a day, this should keep BTC prices supported till roughly early-January.
The overall cryptocurrency market cap also saw strong upward momentum, increasing from a low of $521bn on 12/11 to $665bn at the time of writing. Digital assets space is leveraging on constructive narrative and price action to strike while the iron is hot — Coinbase filed for stock exchange listing in the US, a day after appointment of 2 significant figures to their Board of Directors (former Cisco CEO Kelly Kramer, and venture capitalist Marc Andreessen of Andreessen Horowitz). As the largest cryptocurrency exchanges based in the US, Coinbase floating on the stock exchange could increase the legitimacy of cryptocurrency to a wider range of investors. In the institutional space, One River Asset Management, a volatility hedge fund, has reportedly bought over US$ 600mio worth of BTC and ETH, and plans to build its position to US$ 1bn in 2021.
On the macro side, equities continued to creep higher, clearing new all-time highs. FOMC was broadly neutral and continued to stay high accommodative, and the Fed introduced qualitative, outcome-based guidance on asset purchase, effectively maintaining at least the current pace of asset purchases and no change in the weighted average maturity of purchases. US and UK have started rolling out vaccine after respective agencies issued emergency approval, but headlines have brought the reality of worsening Covid-19 outlook and the fact that virus and lockdown risks cannot be eradicated in the coming months with record number of cases and hospitalizations. The Congress also finally ~US$ 900bn economic relief package on Sunday, but futures are currently trading in the negative territories.
What is Happening?
CME Group announced creation of Ethereum futures, shortly after Ethereum began its upgrade process towards Ethereum 2.0, allowing it to scale better for institutional and enterprise adoption. Pending regulatory approval, ETH futures should go live in February 2021, 3+ years after introduction of BTC futures in late 2017.
UK-based Ruffer Investment became the latest billion-dollar institution to move some of their funds into Bitcoin as part of portfolio diversification efforts. In a performance update and manager comment on the 15th December, Ruffer noted that they had moved 2.5% of the Ruffer Multi-Strategies fund into Bitcoin to protect against an over-reliance on gold. This was equivalent to one of the largest-ever investments in cryptocurrency, as Ruffer confirmed that they bought $745m worth of Bitcoin last month. In explaining their rationale behind the move, Ruffer stated “We see this as a small but potent insurance policy against the continuing devaluation of the world’s major currencies”
Hong Kong SFC granted OSL Digital Securities Limited virtual asset specific Type 1 (dealing in securities) and Type 7 (automated trading services) licenses, becoming the first and only licensed digital asset operator in Hong Kong. OSL is perceived as one of the few legitimate, investable companies in the space. Fidelity International acquired HK$ 110.5mio (US$ 14.2mio), or 5.6% stake in BC Technology Group back in Feb’20, and we are now anticipating potential collaboration in the realm of security-token with OSL’s new Virtual Asset license.
Bitcoin is now in unchartered territories above $23,000 mark, and price of reference has now shifted to $20,000. We will continue to monitor whether $20,000 will be respected through the upcoming holidays and year-end or the recent price action has been a false breakout. However, in the meanwhile, we maintain our long bias until the tape says otherwise. Good Luck!