Christmas Gift for HODLers
28 Dec 2020
Market Recap
Bitcoin reached another all-time high of $28,400 on Sunday amidst thin Christmas weekend liquidity, surpassing Satori Research’s year end target of $27,000. After breaking $20,000 2 weeks ago, Bitcoin’s price has not looked back and presented very little dip-buying opportunities. Institutional backdrop continues to be supportive, ranging from corporate investment (Canadian, Nasdaq-listed fintech firm Mogo announced plans to make a corporate investment of up to CA$ 1.5mio in Bitcoin) to portfolio allocation (Skybridge Capital invested US$ 25mio in new bitcoin fund; Jefferies Investment reduced gold exposure in favour of 5% Bitcoin allocation into their global long-only portfolio for US dollar-denominated pension funds). The $8 trillion investment manager, BlackRock’s advertisement seeking to hire a VP to drive crypto-related offerings also generated a lot of buzz this week. However, there were also developments that exposed the fragility of digital assets ecosystem; SEC sued Ripple Labs and 2 of its executives for allegedly raising more than US$ 1.3bn in an unregistered digital asset securities offering, highlighting uncertain regulatory treatment of digital assets/securities; Ledger’s customer data breach was a reminder that much of the cryptocurrency ecosystem is still exposed to the same centralized risks that other industries face.
Altcoins lagged this week. XRP was unambiguosly the dog as its price dropped by more than 50%. SBI Holdings’ (TYO: 8473; biggest shareholder of Ripple Lab) stock prices also fell more than 10% following the news. Certain exchanges such as Bitstamp (XRP was ~18% of trading volume) and HK-based OSL have either delisted or halted trading/deposit for XRP; Coinbase which has filed a registration for IPO last week is still in discussion as to whether to take similar actions. The delicate balancing of maintaining profitability & trading volume, and respecting regulations continues to be a difficult task for exchanges. Most recently, DOJ’s indictment of BitMEX and police retention of OKEx CEO have highlighted how vulnerable centralized exchanges are to regulatory clampdowns.
On the macro side, financial instruments traded sideways in a shortened holiday week; market was initially spooked by a new COVID-19 strain found in the UK, which could potentially derail positive vaccine developments and normalization plans, as well as Trump’s threat to not sign the COVID-19 package that Congress has passed. Trump did sign the US$ 900bn pandemic relief package earlier today as part of a US$ 2.3tn omnibus spending bill, and there was also headline from Astrazeneca CEO that COVID vaccine is effective against new strain; market is trading risk-on to start the week.
What is Happening?
U.S. Department of the Treasury submitted a Notice of Proposed Rulemaking (NPRM) that would require financial institutions and cryptocurrency businesses to submit reports, keep records, and verify the identity of customers in relation to transactions above certain thresholds involving unhosted wallets (also known as “self-hosted” or “non-custodial” wallets). The rule would bring the cryptocurrency industry up to the standards of traditional financial institutions, but it also contains novel requirements.
A new report, “The U.S. Dollar as the World’s Dominant Reserve Currency” from the Congressional Research Service, breaks down the race to create widespread digital currencies, detailing recent efforts in the private sector and of central banks to create digital currencies. The report cites a recent Bank of International Settlements (BIS) survey that found that 80% of central banks are currently working on digital currencies.
Conclusion
With Bitcoin price increasingly drifting further from the anchor price of $20,000, we expect each dip to continue to be shallow and well-bought. Career risk of investing in Bitcoin has been slowly decreasing in the past few months, as GOATs (Greatest of All Time) such as Paul Tudor Jones and Stanley Druckenmiller threw their endorsement on the asset, and well-respected companies such as Square and Paypal support investments in Bitcoin. This has been attracting price-insensitive institutional buyers, and retail FOMO. We continue to advise our clients to stay long and stay strong. Good Luck!
