Learn more about our Bitcoin ETC.
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)
|
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
|
Bitcoin* (net)
|
-35.42%
|
-18.91%
|
89.34%
|
26.54%
|
286.00%
|
278.14%
|
|
Ethereum** (net)
|
-5.92%
|
83.56%
|
329.36%
|
251.75%
|
1003.93%
|
69.61%
|
|
Litecoin*** (net)
|
-31.61%
|
9.92%
|
110.44%
|
46.86%
|
291.81%
|
-25.36%
|
* 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.