What a difference a month makes. For those that read these regular missives, it’s no surprise that I’ve been predicting bullish activity. The question as always is when. The reason that the when is important is if that you pick a direction too early you can end up with markets going against you. We’ve lots of positives in the environment but have been in a sideways market for a while now, with threats of a breakout but lots of conflicting data. Which brings us back to the question, when will the bull run start? We say, as of now, “The bull run has officially just started,” with bitcoin moving from approximately $27,000 to a high of $35,100 this month, it crossed into new territory, checked a bunch of boxes, and broke into the clear. For us, breaking – and holding – above $31,500 was a key indicator.
My friends, buckle up, because the bull market is here. And you ain’t seen nothin’ yet.
What the ETF
Let’s start by noting that the first half of the month was kind of tepid. In fact, mid-month bitcoin was negative, trading below the monthly opening price, and it looked like we could have another downdraft to retest lows. Then things got crazy on October 16. Rumors that BlackRock’s ETF had been approved drove the price of bitcoin to almost $30K before retracing and settling around the $28K mark. We’ve been expecting ETF approval, which is now anticipated in January, but this points to one thing that is very important. Though a false alarm, this demonstrates the pent-up demand that’s in place. In fact, BlackRock CEO Larry Fink (and now illustrious poster child for crypto) noted that this demonstrates a “flight to safety”, and crypto is the airplane that investors need right now.
Just Kidding about Just Kidding
The “oops just kidding” ETF approval drove prices, and drove prices quickly. Then, just like a SpaceX or Blue Ocean land-able rocket, upon a quick launch we quickly retraced and returned to Earth. Perhaps this is foreshadowing, and I think that sometimes foreshadowing is actually… foreshadowing. We now see how markets want to respond to such approval. Adding another layer to this, BlackRock’s ticker for its spot ETF was listed on the Depository Trust and Clearing Corp (DTCC), which settles and clears trades in US markets. Now, it does look like that ticker has been pulled, but hey, we know it’s out there. More. Fore. Shadowing.
It’s like a trailer for that really great movie that you want to see, except we don’t exactly know when the movie will be released. We don’t know exactly when the ETF will be approved – but it sure seems imminent and odds are it will be on or maybe even before the next deadline, which is January 10th. To top it all off it also seems that BlackRock actually began to seed it’s ETF this month as well. Folks, these things don’t happen by accident.
Let me put it this way; I spent many years as a skydiver, and I can confidently say that you don’t put on a parachute if you’re not going to jump out of an airplane. With a ticker primed and a fund seeded, can it really be long before approval occurs? With the action we saw, I think it shows exactly what will happen when that ETF is approved.
Of course, BlackRock is the 800 lb gorilla, but it’s not just BlackRock. There are currently 12 spot-Bitcoin ETF applications: Grayscale, 21Shares & Ark, BlackRock, Bitwise, VanEck, WisdomTree, Invesco and Galaxy, Fidelity, Valkyrie, Global X, Hashdex and Franklin.
It’s also thought that many of the above ETFs will be approved at the same time, which would add more gas to the fire. In fact, Mark Yusko of Morgan Creek Capital Management notes that these ETFs could bring $300 billion into a market that, as of the beginning of the month, was $1T and now sits at roughly $1.25 trillion.
A Well-Rounded Bull
It’s not just the ETF price action that has us now declaring a bull has started. The mid-October doldrums occurred in the midst of the Hamas attack which created a lot of fear. This was also coupled with renewed concerns of a recession. All of these things can make investors fearful and indeed, the S&P is down on the month, NASDAQ is down, NYSE is down… let’s face it markets are down, and it was just as likely that the crypto markets were down.
What we didn’t know was where the safe havens would occur. Would it be gold as the norm, or would it now extend to crypto as Fink has alluded? Well, that was another question answered this month, and the answer was “Yes” and the “flight to safety” to crypto seems to be being embraced. This concept isn’t new to those that have been in the space for years, but what is new is seeing this embraced by the biggest asset managers in the world. Importantly, bitcoin had a state change and now is operating like a safe haven (a place for money to flee in volatile and down trending markets). And while gold is the traditional safe haven asset, AllianceBernstein, a manager that has over $650 billion under management, reinforced Fink’s statement, noting that bitcoin is a safe haven asset more attractive than gold. Importantly it now seems that Houston, we have decorrelation.
Technicals are lining up to support the bull run as well and we’ve hit a Golden Cross this month. A Golden Cross is where the 50-day moving average overtakes the 200-day moving average, which is another bullish sign. We also note that trading volume, which has been almost nonexistent through Q3, is significantly up. As a final pillar, it is really important to see that the rest of the crypto asset world followed bitcoin and scored excellent gains, meaning the entirety of the markets moved. Had this not occurred we might have written off bitcoin’s run as an outlier.… but with breaking resistance, a golden cross, new yearly highs, increased volume and markets following… the facts are clear.
Freshly Squeezed
Speaking of bulls, in Pamplona, Spain, every year in July there is the annual “Running of the Bulls”. In this event, actual real bulls are released in city streets as a part of the Sam Fermin festival and people get into the streets with the bulls and… run with them. While for many (including me) this fits the “why do we do this?” category of human activities and definitely falls into the “safety third” category, fatalities are generally few, though injuries are great. I guess, even when running with the bulls, one can get caught off guard.
It seems we had a bunch of injuries in this October run as well and quite a few were caught off guard. This, ultimately, was due to a short squeeze, which is where markets go against sellers that are “short”, expecting the markets to go down, and forced to buy back their positions to minimize losses. This happened in October, and it happened fast, almost instantaneously, with most of bitcoin’s gains occurring in one day, catching many off guard. I’m specifically referring to October 23 (October 24 in Asia), where Bitcoin surged 18% in 24 hours. On this day bitcoin saw $275 million in short liquidations followed by another $100 million the next day. This was primarily on exchanges outside of the USA which showed how this is, indeed, a worldwide market and one in which the USA is merely playing a part.
Crypto 5, SEC 0
Meanwhile, the SEC just keeps losing cases. In addition to what had happened this summer with XRP being dubbed not a security, and Grayscale winning their case (that the SEC cannot disallow their ETF) the courts again continue to rule in favor of crypto. This month a judge ruled that the SEC cannot appeal the Ripple Labs decision, which was also followed up with a ruling formalizing Greyscales Victory on October 23. Simultaneously, the SEC dropped their charges against Ripple Executives.
We have never had a bull run where we’ve had courts favoring crypto. Ever. And, we’ve had some impressive runs. I would argue that these rulings are not only correct, but that they are ultimately good for the US. They will not only clear the way for innovation, they are going to help our treasury as the US Government is among the largest Bitcoin holders in the world, with roughly $5 billion in custody.
Also in the world of regulatory clarity, in case you missed it, California quietly signed a new crypto licensing bill into effect, which requires the state to create a regulatory framework for crypto. I think this is just the beginning of what’s to come.
Yes, it is a Technology
In all of this ETF and regulatory progress let’s also remember that this is a technology: blockchain technology. And this technology can be used for worldwide benefit. This is no better illustrated by looking at JP Morgan, the bank led by Jamie Dimon, which stepped into the fray in a big way.
As a backgrounder we should note that JP Morgan has been exploring the blockchain space since 2015. Despite this Dimon, in January this year, stated it was all “hyped up fraud” and tokens were “pet rocks.” I think he was following the well-trodden trade of master magicians and sleight of hand practitioners however because, while distracting everyone with such statements, the company that he leads just debuted their “Tokenized Collateral Network” with one of their main clients being… you guessed it… BlackRock. I guess that maybe they aren’t “Pet Rocks” after all, are they Jamie?
JP Morgan’s TCN platform is designed to allow clients to tokenize basically anything, using real-world assets as collateral. It allows the creation, transfer, and settling of real-world assets, via tokens, in a quick and efficient manner. It’s not a new concept to the crypto world. The difference is that now it is being embraced and promoted by one of the biggest banks on the planet. My message here is that, while all attention is on markets and price action, we need to realize there is a fundamental value to blockchain technology and we’ve just scratched the surface. It’s not going anywhere. Or, maybe it’s better to say that, before long, it is going to be going everywhere.
In Closing
When stuck in a tunnel it’s hard to see the light at the end and, boy oh boy, have we been in a tunnel, with pundits on both sides. Well, if data is any indicator, it seems those days are just about done and it’s time for believers to press long. Be clear – I’m not saying that these markets are going to go up in a straight line. There will be ups and downs. That’s how markets work.
I am saying, however, that the bull run is here. For those of you concerned that you missed it… you didn’t. Though hard to fathom when looking at traditional markets, a 25% gain in these markets is a small leg when considering the gains that are anticipated through 2025. Now, Rome wasn’t built in a day and the bull market won’t complete in a day. Even if macro environments cause a burp in 2024 or 2025, we expect this to be a period where individuals and companies can participate in this next technological revolution, hedge against the US Dollar, and generate generational wealth. It happened with steel. It happened with oil. And it’s happening right now in front of our very eyes with blockchain.
As always there’s more to say. As always, I’ve gone long so I’ll wrap this up. Until next time be well, stay safe, and I’ll keep Decrypting Crypto for you!
Disclaimer: Not investment advice. This information should not be construed as a recommendation, investment or tax advice, or an offer or solicitation to buy or sell any security. Past performance of a fund is no guarantee as to its performance in the future.