Back Up the Truck
Bitcoin’s 7 consecutive positive weeks came to an end with a 16% drop from $19,500 to a $16,220. As we highlighted in our previous newsletter, seven-week winning streak is quite a long stretch. On a positive note, we did observe several All-Time Highs, including highs in the 200-day moving price averages; a market cap at $354B; Futures Open Interest of more than US$7B, and one of the most active trading week on record. We believe this pullback is technical in-nature, more of a mean reversion after a very long winning streak. The market, as always likes to find an excuse to fit the narrative. Some blame the sharp correction on Coinbase CEO Brian Armstrong’s tweeted rumors of stricter KYC rules could soon be imposed on US exchanges and wallet operators. Even though Bitcoin is unambiguously the market leader and touted as the best-performing investment of the previous decade, it was easily pipped by other top altcoins over the March 13-Nov. 24 period. LINK was the altcoin leader, with a whopping 967% gain, closely followed by Cardano’s Ada (ADA) and Ethereum’s Ether (ETH) — with increases of 734% and 566% respectively. LINK’s stellar performance was partly attributed to the boom of decentralized finance and the hype surrounding blockchain oracles — as well as to its strong community and growing user base.
On the macro side this week, positive coronavirus-vaccine news helped propel Dow Jones higher, crossing the 30,000 mark for the first time and on-track to clocking the best monthly gain since January 1987. The S&P 500 and Russell 2000 both posted fresh record highs as well. Trading was cut short last week on Thanksgiving holidays. Economic data releases were light, putting the emphasis on the high-wire act investors are walking between positive vaccine news and rapidly climbing COVID-19 cases and hospitalizations.
Elsewhere, Bloomberg reports that in the six months ending September 30, Japanese investors sold the largest volume of global stocks and bought the biggest amount of JGBs since 2013. We believe that concerns over global economic conditions and investor affinity for a 60% stock/40% bond allocation are driving the rebalancing.
What is Happening?
SBI VC Trade, a subsidiary of the SBI Group announced that it is going to incorporate cryptocurrency lending; the service allows users to deposit between 0.1 BTC and 5 BTC and receive 1% fee over 1 year; the service will include ETH and XRP in the future.
Institutional investors continue to plunge into the digital asset world. Morgan Creek has filed for a Bitcoin fund called the Exos Risk-Managed Bitcoin Fund with the SEC; if approved, this fund will offer institutional investors with another avenue to allocate into cryptocurrencies; the fund will handle “technical details around trade, transfer, and custody of Bitcoin.” Elsewhere, Guggenheim Partners Macro Opportunities Fund will also invest up to $500M into Bitcoin via Grayscale Bitcoin Trust.
In China, according to a court ruling made public on Nov. 26, police have seized more than $4.2 billion worth of crypto assets in its clampdown against the Plustoken Ponzi scheme. According to a report by The Block, law enforcement confiscated a total of 194,775 bitcoin (BTC), 833,083 ether (ETH), 1.4 million litecoin (LTC), and 27.6 million EOS. Market rumors were circulating that a massive sell-off may happen once the Chinese government decides to liquidate these confiscated crypto assets.
Since 2016, there have been a total of five 7-week winning streaks and only one 8-week streak. The median decline in the week ending these runs is ~ 20%, and it typically takes approximately four weeks to recover back above the closing price of the last week. This week’s move from 19500 to 16220 (peak to trough) is in line with previous corrections. After ~$1.2B of long liquidations, market is now significantly lighter. As this round of rally was driven by institutional reallocation, we think this dip is likely to be shallower and shorter than previous sell offs as speculators and investors will take this opportunity to back up the truck. The Big Boys are coming. Good Luck!