Cryptocurrency Monthly Report | June

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Key Takeaways

Despite the pullback, institutional adoption of digital assets continues to build as macro backdrop continues to brace for rising inflationary pressures

Industry News

May saw the ‘perfect storm’ hit digital asset prices as a confluence of negative impacts saw the price of Bitcoin fall 53% from its April peak and Ethereum fell 60% in ten days during May. 

Bitcoin had looked set to benefit from a slingshot higher from Ethereum’s explosive surge at the beginning of the month.  A fund manager survey highlighting a fresh peak in hedge-fund leveraged long positions via Bitcoin futures caught the attention of institutional investors at the start of the month.[1]  

However, the fireworks began with a tweet from Elon Musk who declared Tesla had stopped taking payments in Bitcoin because of environmental concerns about the amount of fossil fuels used for mining BTC.  This was followed by news that both the US Department of Justice and the Inland Revenue Service were to probe Binance, the world’s biggest crypto exchange over Money-Laundering and Tax evasion concerns.[2]  Then fresh reports of an old story that ‘China bans financial services companies from crypto currency transactions’ hit newswires causing capitulation of leveraged longs on retail platforms.[3]  The ensuing price declines then fuelled fresh speculation about the likelihood of a further delay beyond June’s expected approval by the SEC of a number of US ETFs on Bitcoin.  

An estimated $25bn of leveraged longs were liquidated across retail platforms and futures.[4]  Inevitably, this led many to question the sustainability of the recent rally that has seen Bitcoin and Ethereum outperform all other asset classes.  However ITI, the FCA-regulated prime broker that block-trades our Ethereum ETC and Bitcoin ETC for institutional investors and asset managers observed that sophisticated investors were quick to ‘buy the dip’ when the futures funding spreads had stabilised after spectacularly going negative on the forced liquidations.  

There was much criticism of Elon Musk’s impact on the price of digital assets but ITI observes this reality is part and parcel of the dynamics of Bitcoin, in itself a manifestation of the value of the internet.  However ITI observes that in time, the relative impact of such social media influencers will dampen as markets learn to adapt to these impulses.  The largest force in markets remains the ongoing stimulus from the Fed and other G4 central banks and governments.  The Fed signalled that it has transitioned to ‘running the economy hot’.  April and May saw a much-needed consolidation in bond yields which restored confidence in multi-asset investors but nonetheless, the trend continues out of bonds and into equity for many of the biggest managers.[5]  Within Equities, the Great Rotation theme gained momentum.  The Nasdaq has struggled for momentum in recent weeks whilst the S&P has edged higher.  Europe has made significant progress catching up on the early lead from the UK and US and is also tracking half the population receiving their first jab by the end of June.  

Large parts of EM, however have struggled with deployment of the vaccine and the volatility in the bond market.  Chinese equities were state-managed lower over the last two months but have started to break higher from their consolidation doldrums in recent days as attention has switched to managing ‘excess speculation’ in the commodity markets as China announces its complete emergence from the pandemic and seeks to retain its manufacturing export competitiveness. The Fed has been careful to co-ordinate messaging and at this stage has succeeded in leading the market to appreciate that tapering of bond-purchases is on the cards in H2 21 but that short-term rates remain anchored for the forseeable future.[6]  

Crypto Performance Table (As of 31.05.2021)

* Bitcoin price is based off XBT daily performance from Bloomberg

** Ethereum price is based off XET daily performance from Bloomberg

*** Litecoin price is based off XLCUSD daily performance from Bloomberg

Past performance of XBT, XET and XLCUSD does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for XBT. XET and XLCUSD is in USD. The performance calculation is based on USD. If the currency in which the past performance is shown differs from the currency of the country in which you reside, you should be aware that due to exchange rate fluctuations, the performance shown may increase or decrease if converted into your local currency. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. It is provided for illustrative purposes only. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in these products. Source: Bloomberg / HANetf. Data as of 31.05.2021

Outlook

ITI observes that with so much pandemic pent-up demand for a traditional northern-hemisphere holiday season, the ‘sell in May’ phenomenon would seem a particularly relevant risk-management marker with institutional multi-asset investors incentivised to book profits after such a strong run. ITI observes though that the market is increasingly of the opinion that we are only mid-cycle in this extraordinary bull-run and the ongoing scramble for assets is set to continue as nothing has changed with the spectre of inflation and debasement of savings – particulary against the impending ‘Great Taxation’.  Hence the decision to de-risk at this juncture is less obvious.  The average historical summer decline has been less pronounced in the US equity market and moreso in Europe and EM.  

Historically May has been the strongest month for Bitcoin with the ‘Consensus’ conference, often attributed with the surge in fresh demand – not so this year. However May saw institutional adoption move up a gear for digital assets as Goldman Sachs published a broad-reaching research note that explained their U-turn on Bitcoin, in summary ‘client demand’. 

Mainstream ‘traditional’ heavyweight institutional investors continue to move into digital assets with legendary Carl Icahn citing the ongoing debasement of the Dollar.  ITI remains extremely bullish on the ETC Group Bitcoin ETC and Ethereum ETC as the debasement of fiat currency continues, regardless of any potential ‘sell in May’ episode in traditional markets.  ITI expects that markets will look back at the price action in May 2021 as an opportunity to have bought the dip as the migration of Bitcoin from small wallets to large wallets continues to gain momentum.