In lieu of a preface
Last month, we saw a strong bullish breakout in market sentiment, a wave of positive news and market analysis. Performance was not disappointing either. This trend continues in June. The headlines may not be as bright as they were in May, but the climate is one of optimism for the future of cryptocurrencies in general and Bitcoin in particular.
Let’s look at June’s events, starting with the “honey” and then moving on to the “tar.”
The jar of honey…
Japan’s House of Representatives has officially approved a new bill to amend national laws that govern crypto regulation, Cointelegraph Japan reported on May 31. The bill seeks to introduce amendments to two national laws that apply to crypto assets — the Act on Settlement of Funds and the Financial Instruments and Exchange Act. Now that the bill has been passed, the revised acts are expected to take effect in April 2020.
The proposed amendments to Japan’s financial instruments and payment services laws will ostensibly tighten cryptocurrency regulation in a bid to promote user protection, regulate crypto derivatives trading more robustly, mitigate industry risks such as exchange hacks, and broadly establish a more transparent regulatory framework for the new asset class.
The world’s super-rich are buying Bitcoin through an office in west London’s upmarket Mayfair through a relatively new service, which is becoming increasingly popular among them. The Dadiani Syndicate models itself after fine art peer-to-peer networks, matching buyers and sellers. The investment “platform for maximizing digital holdings” claims to have helped clients acquire billions of dollars worth of Bitcoin:
“One of our clients approached us and said they were interested in acquiring 25% of all Bitcoin currently available. There are a number of entities who want to dominate the market.”
A quarter of all Bitcoin in circulation, including those coins that may be permanently lost, is around 4.5 million and worth a staggering $38 billion at the current rates. Eleesa Dadiani said, “This kind of accumulation is not possible to realize,” but her company has been instructed, “to scour the markets and gain access to as close to 25% as possible.”
The Dadiani Syndicate, which receives a broker’s fee, is currently making its fourth trade, which is of a “very large volume” like all the others, each taking weeks or months to complete.
A small group of deep-pocketed traders has been able to exploit market sentiment and set the trajectory for crypto prices, according to Travis Kling, Founder and Chief Investment Officer at Ikigai Asset Management. He believes that there could be sufficient momentum to take Bitcoin past its all-time high.
Based on his analysis and conversations with institutional investors, Kling hypothesizes that a small group of whales manufactured the recent market upswing. As he wrote in a note published on April 1:
“We believe a relatively small number of highly-sophisticated, well-capitalized, highly risk- tolerant market participants have been walking this crypto market higher over the last seven weeks. […] Bitcoin could soon cross the $10,000 barrier. This is not a linear market, and once that barrier is passed, Bitcoin could snowball to $20,000, or even $30,000, as euphoria sets in and reflexivity push prices still higher.”
It is Kling’s hypothesis that the Fed’s capitulation allowed the “risky whales” to take the crypto market up to higher price levels. As for the whales that started the trend, he believes that most value Bitcoin in the hundreds of thousands, if not millions. After lifting up Bitcoin from its December lows, it’s not certain whether they would take this opportunity to dump their coins or continue trying to push prices higher.
Chris Peterson, formerly a UX consultant for Google, joined Bakkt earlier this month as the firm works on rolling out a mobile application for a digital asset wallet, dubbed Bakkt Pay, sources say.
Bakkt, the brainchild of Intercontinental Exchange’s Kelly Loeffler and Jeff Sprecher, was announced with great fanfare in August 2018, promising a platform that would help people invest Bitcoin in their 401Ks. Bakkt said it would launch a physically-delivered futures product tied to Bitcoin, but regulatory headwinds have pushed the launch back by several months.
Recently, COO Adam White said that it would begin testing its Bitcoin futures product on July 22. He revealed new details about Bakkt’s platform, including its intention to ensure the custody of BTC for as much as $100 million.
Still, it is unclear when any product from Bakkt will be released, leaving market observers wondering, “When, Bakkt?”
Recent research suggests a direct relationship between hash rate and the price of BTC. Expert Max Keiser feels that this could be a signal of a continuing upside on the market. Earlier, Data Light analysts discovered a positive correlation between price and hash rate. However, we must point out that the last time the hash rate hit a record high, BTC’s price went down, and the hash rate collapsed soon after. Thus, the question remains: “Which is the leading and lagging indicator, the harsh rate or the price?
On June 17, CME Bitcoin futures trading volume hit the record of 643 contracts per session. The total amount of active contracts (open interest) stands at 5311 contracts.
Ripple CEO Brad Garlinghouse is adamant that Facebook’s unveiling of Libra will lead to big business for his banking software and cryptocurrency startup. “This is going to be a record week for Ripple,” Garlinghouse gushed during Fortune’s Brainstorm Finance conference in Montauk, N.Y.
Garlinghouse said it was a “fact” that Facebook’s Libra announcement has caused more banks to seriously consider using the company’s xCurrent banking payment software and associated XRP cryptocurrency to assist with transferring money across borders: “[It] has absolutely catalyzed contract activity. This has been a call to action.”
From our perspective, all the above reports may sound “sweet as honey,” but we should be aware that there’s also tar on the spoon.
…and the spoon of tar
In the past, we have cited excellent long-term fundamental research of the Bitcoin market by Canaccord Genuity. Since Facebook’s Libra is attracting a lot of attention, Canaccord expresses its view. In a note to clients, analyst Michael Graham wrote that the Libra Network would seemingly benefit the blockchain space, unbanked individuals, and (to some “modest” amount) Facebook’s bottom line. However, he highlighted that the project must first receive a seal of approval, or at least no resistance, from governments worldwide:
“Regulatory headwinds could be hurricane force – on one level, governments should appreciate Libra for the boost it might bring to global commerce. On another level, Libra is by far the most credible crypto threat yet to government-sponsored currencies.”
Indeed, lawmakers and regulators are already pushing back against the project. In the US, Representatives Maxine Waters and Patrick McHenry, the chair and ranking member of the House Financial Services Committee respectively, called for a hearing with Facebook executives to discuss Libra, with Waters asking Facebook to cease development at least temporarily.
Maxine Waters, the chair of the US House Financial Services Committee, doubled down on her calls for Facebook to pause development of Libra:
“It’s very important for them to stop right now what they’re doing so that we can get a handle on this. We’ve got to protect our consumers. We just can’t allow them to go to Switzerland with all of its associates and begin to compete with the dollar.”
In her CNBC interview, Waters made it clear that her concerns are more with Facebook itself than with the crypto project. She highlighted an ongoing investigation by the Federal Trade Commission into potential privacy violations concerning consumer data. She also mentioned a Department of Housing and Urban Development lawsuit that accuses Facebook of violating fair housing laws:
“And while we’re doing that, they have moved on to develop this cryptocurrency. We’re now going to move, and we’re going to move aggressively and very quickly to deal with what is going on with this new cryptocurrency.”
A SEC commissioner and Bitcoin skeptic admits the agency is experiencing internal disagreements over how to regulate crypto. Robert Jackson said the SEC will be more likely to approve crypto proposals, such as a Bitcoin ETF, once the industry matures, becomes more transparent and liquid, and adds bigger players. So, the soap opera of the approval of the first Bitcoin ETFs continues.
Some technical notes
In terms of technical analysis, some traders still think that the bear trend is not over and that the Bitcoin market could either show moderate retracement or create new lows. As examples of this outlook, we cite the following:
- MagicPooPCanon suggests that the market could drop back to $3000 near October 2019.
- Ton Vays makes the same suggestion regarding market perspective.
We do not foresee a possible drop below all-time lows but a healthy moderate retracement – this is how markets work. They gain momentum, and before a bullish trend enters its most active phase, the market faces a bearish phase. Usually, this is done by a deep retracement, which happens after the first bullish reversal swing. At present, this swing is underway. So our view suggests a pullback to the $6-7K area.
The bottom line
This month, we have not had any breakouts in terms of institutional funds. They are still either on hold or face entry barriers from government authorities and regulation. Since the discussion continues, nothing really big can be launched. There are news and rumors regarding ICE Bakkt, Fidelity ETF, Facebook, JP Morgan, and Goldman Sachs, but the fruit is still ripening on the tree.
One such rumor is that some “whales” and “super-rich” are looking to accumulate a huge amount of Bitcoin and supposedly move the market higher.
This month, we also have had several negative developments, mostly in terms of regulation that is attempting to break the natural process of market development.
In terms of our technical analysis, we can say that despite mass euphoria in anticipation of a big rally, there are still many bearish opinions. Our view is more weighted; we suggest that we are not likely to see a drop below $3K but a healthy retracement in the near future. We base our assessment on the market’s natural, inescapable mechanics.
To summarize: We see a moderately positive market sentiment but definitely not crypto fever. Since big companies have not made major breakouts, it seems that the market is being moved by investors who were out at the moment of collapse and now returning with careful buying. If this were not the case, upside action would have been much stronger, considering the market’s relatively low liquidity that will hardly be able to absorb if massive institutional investors’ interest spiked at the same time.