A Very Crypto Christmas

KEY TAKEAWAYS 

  • The Mt. Gox overhang sees muted market reaction 
  • A 35,000 BTC forced buyback by GBTC premium arbitrageurs lends support to recent rally
  • Growing confidence is seen in mainstream adoption 
  • All in all, a good opportunity to take profit before the Christmas holidays

Talk about a Christmas fortune! In less than a week, Bitcoin broke through the key $20,000 resistance level, surpassing $23,000 just days after. It’s now on track to further venture into uncharted waters with many analysts claiming that it could even hit $25,000 by the end of the year. With an abundance of joy and cheers to go around, the real question remains: Will this rally continue into the new year? 

Crypto Roundtable 

Traditional investors that have never understood the intrinsic value of BTC appear to have established long positions since the historic breakout last Wednesday. 

Bitcoin broke through a key $19,400 resistance level on December 16 and sleighed its way to new historic highs in the days that followed. The current bull momentum remains indifferent, at least for the time being, to the anticipated Mt. Gox overhang on December 15. That event was expected to curb market strength. Owing to the Great Wealth Rotation in the U.S., and possibly the imminent shift from gold to Bitcoin, many analysts believe that BTC has the potential to claim more ground, reaching price levels as high as $100,000 in the coming year. 

Mt. Gox Resistance 

An examination of what happened during the week would expose a few discordant notes in the otherwise harmonious chorus of euphoria. For one, the Mt. Gox trustee filed the rehabilitation plan to the Tokyo District Court on December 15, heralding the final act of a six-year saga. Although the rehabilitation process is pending Court review, the unravelling of around 140,000 BTC is undoubtedly a bearish signal in the short run — an impact which may take the market months to absorb. Yet, somehow, the alert for correction seems to be neglected by many market participants, especially those driven by FOMO.

Fed to the Teeth 

The correction would have been brief, as the U.S. Federal Reserve reiterated that it would continue to maintain loose monetary policy for the next three years. In the meantime, Congress struck a long-sought stimulus deal to provide $900 billion in aid. Unsurprising as the result may be, it serves as yet another reminder of the debasement of the U.S. dollar, and that cash is depreciating fast under the current market conditions. USD has descended below the key support level at 90 (and could potentially slide further to 80), whereas gold price moved above the $1,880 level alongside Bitcoin.  

Source: TradingView

Shades of Grayscale

Grayscale is another market-moving factor that deserves consideration. GBTC’s primary subscription has surpassed $350 million since mid-May. This implies that if any institutional investor is arbitraging GBTC’s premium using borrowed BTC (to do in-kind contributions in exchange for GBTC shares), their shares should be unlocked by now, and they could unwind their positions by dumping GBTC shares and buying back BTC to return to the lenders. If we assume in-kind contribution from borrowed BTC represents around 70% of GBTC total inflow (which is possible given historically the percentage of in-kind from borrowed BTC ranges from 43% to 79%), it then implies a buyback of roughly 35,000 BTC, considering the price of BTC has tripled its price since June. The buyback may stretch demand pressure further, and in turn create greater room of growth for Bitcoin. 

Source: Grayscale

The Big Boys Have Arrived 

Recently, the market witnessed a greater variety of institutional investors venturing into the crypto space. MicroStrategy raised $635 million in CB offerings to buy BTC, which is indicative of buying interests of at least another 30,000 BTC. Other mainstream investors, including One River Digital Asset Management, are also piling into the market. The firm is expected to own approximately $1 billion in ETH and BTC by the first half of next year, and has already accumulated roughly $600 million worth of Bitcoin, according to a Bloomberg report published on December 16. Alan Howard, billionaire and co-founder of Brevan Howard Asset Management, is also heavily involved in the endeavor. What is more fascinating is that One River’s acquisition of $600 million in BTC and ETH was a move played close to its chest without stirring public hype. As Bitcoin returns to a tight trading range, it would be helpful to monitor institutional movements to discern the market’s next step. 

Microstrategy Bitcoin Buying Spree
Source: Messari

Post-Christmas: Fatigue or Fortification? 

If we are talking about short-term strategies, then pay close attention to the release of Mt. Gox coins which could present a correction opportunity. Also, let’s not forget long weekends tend to expose some kind of market weakness. It is possible to consider profit-taking before Christmas. Looking beyond the festivities, 2021 might just bring forth a bigger and brighter Bitcoin. But until then, who’s in for a little bit of a “Boxing Day Discount”? Happy shopping, friends!