BTC Bulls: The Trend is your friend
15 Mar 2021
Market Recap
Digital asset market continued to grow strongly as Bitcoin printed yet another new all-time high ($61,880) over the weekend. Rest of the crypto complex was more mixed; Ethereum maintained its momentum in anticipation of EIP-1559, but struggled to clear previous highs; market continued to be bullish on centralised exchanges’ tokens (BNB, CRO, FTT) given their business expansions; other notable outperformers were $LUNA (+100%), as Terra-based stablecoin transaction increased with on-chain activity on Mirror Finance, and $CHZ (+400%) as NFT hype heated up.
The plethora of news on institutional participation and adoption of cryptocurrency suggests Bitcoin has derisked significantly. Unlike 2017 bubble, cryptocurrency appears to be in a movement where institutions are clamouring to gain exposure to the paradigm shift. Some are opting for direct exposures — Norwegian energy giant Aker is setting up a new unit focused on Bitcoin. The new entity would be investing both Bitcoin as a treasury asset and in the ecosystem, by investing in related companies, technologies and mining. On the other side, JPM filed to issue investments linked to equity performance of companies dealing with crypto assets (such as Microstrategy, Square, Riot Blockchain, NVIDIA), providing investors with indirect exposure to cryptocurrency. However, as institutional adoption/participation increases and perception of Bitcoin/cryptocurrency as an asset class continues to cement, we might see increase in correlation between cryptocurrencies (Bitcoin in particular) and traditional risk assets. Correlation has been increasing on both intra-day and inter-day basis (Chart 1, Chart 2);
we will continue to monitor whether the change is structural. Also, the increased institutional demand is depriving exchanges of their liquidity quickly (Chart 3), and the market could see supply squeeze. On the bearish side, CFTC is investigating Binance, world’s largest crypto exchange, over concerns on offering illegal products to US citizens, following its action against BitMEX in Oct’20.
On the macro side, S&P 500 touched a new high last week as optimisim over economic recovery continued to fuel the rally. Biden’s $1.9tn stimulus plan was passed, and mild US inflation readings, strong initial weekly jobless claims numbers, and progress in coronavirus case and vaccine counts all helped to lift the sentiments. Nonetheless, rotation from growth to value continued, and long-term US treasury yields remained at elevated levels. For this week, all eyes are on FOMC meeting/Fed Chair press conference on Thursday.
What is Happening?
NYDig, a crypto institutional-solutions firm, secured $200mio from investors including MassMutual, Morgan Stanley, Stone Ridge Holdings Group and Soros Fund Management. NYDig facilitated MassMutual’s $100mio Bitcoin purchase last year, and promised they will work with the investors as ‘partners’ on Bitcoin-related strategic initiatives spanning investment management, insurance, banking, etc. As part of the investment announcement, NYDIG also disclosed that they have exclusively facilitated >$1bn of direct and indirect exposures for “life, annuity, and property & casualty insurers”, which are held on their proprietary custody platform.
Grayscale halted GBTC inflows after trading 15% below BTC and announced that they would be buying up to $250mio in GBTC shares. We previously pointed out that Grayscale trusts trading at a discount pose systemic risk to cryptocurrency prices as it can crush levered arbitrage positions. Grayscale also started to hire ETF advisors en masse on their website, hinting either that ETF approval from US regulators is in negotiation or that they are pushing hard for the approval.
Conclusion
Historically, Bitcoin suffered from poor March seasonality. Many players are aware of this fact and booked some profit earlier this month (ourselves included). However, Bitcoin ripped back higher forcing shorts to cover (estimated >$250M short-covering over the top 5 crypto exchanges) and fast accounts to re-engage. We would not argue with the price action. The trend is your friend (until the end when it bends).
Good Luck!
