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Tuesday, November 23, 2021
On this short holiday week, we provide a quick update on market action as well as wish our readers a Happy Thanksgiving.
Bitcoin closed 7.5% lower at $59,541 in the week ending on Sunday, but more recently, closed $56,280 on Monday. While bitcoin traded near and around $60,000 for much of the last month, the asset reached a closing high of $67,734 on November 9.
With no significant bitcoin-related news the culprit of this most recent pullback, market action seems likely to do with traditional trading and profit taking ahead of a low volume holiday weekend.
We point out that bitcoin’s high coincides with a rapid move higher in interest rates, as further inflation data has created calls for a faster pace of tapering as well as a quicker tightening schedule in 2022.
As a result, bond markets have experienced recent volatility. The 10yr treasury yield has moved higher from 1.42% on November 9 to 1.62% as of Monday’s close, and the curve has bear flattened in the same period. Momentum-related ETFs, such as Arkk Innovation, is now down 13.3% from its highs in November to Monday’s close. This rebalancing has likely stemmed partially to bitcoin, as its highs also coincide with these macro moves.
In other news, Jerome Powell was just renominated for Fed Chair, which provides consistency and transparency to the Fed’s process of normalization. While Lael Brainard could have been more dovish, Powell is certainly willing to provide accommodation when needed. This will support one of many bull-cases for bitcoin in the years beyond.
The infrastructure bill was also signed into law, including uncertain reporting language for a portion of crypto entities. A bipartisan team of senators have already put forth a bill to narrow such rules and provide greater clarity. We thank senators such as Cynthia Lummis (R-WY), Ron Wyden (D-Ore), and Pat Toomey (R-PA) for the work that they’ve done in supporting a runway for growth.
With bitcoin off ~17% from its close on November 9, an attractive buying opportunity is available for long-term investors. Bitcoin adoption continues to grow at a rapid pace, with estimates of over 200 million people using bitcoin and other digital assets.
The prospects into the end of the year and beyond remain incredibly bullish.
As always, please reach out with any questions or comments.
Joseph Orsini, CFA Director of Research
Price Volatility of Digital Assets – A principal risk in trading Digital Assets is the rapid fluctuation of market price. High price volatility undermines Digital Assets’ role as a medium of exchange as consumers or retailers are much less likely to accept them as a form of payment. The value of client portfolios relates in part to the value of the Digital Assets held in the client portfolio and fluctuations in the price of Digital Assets could adversely affect the value of a client’s portfolio. There is no guarantee that a client will be able to achieve a better than average market price for Digital Assets or will purchase Digital Assets at the most favorable price available. The price of Digital Assets achieved by a client may be affected generally by a wide variety of complex and difficult to predict factors such as Digital Asset supply and demand; rewards and transaction fees for the recording of transactions on the blockchain; availability and access to Digital Asset service providers (such as payment processors), exchanges, miners or other Digital Asset users and market participants; perceived or actual Digital Asset network or Digital Asset security vulnerability; inflation levels; fiscal policy; interest rates; and political, natural and economic events.
Digital Asset Service Providers – Several companies and financial institutions provide services related to the buying, selling, payment processing and storing of virtual currency (i.e., banks, accountants, exchanges, digital wallet providers, and payment processors). However, there is no assurance that the virtual currency market, or the service providers necessary to accommodate it, will continue to support Digital Assets, continue in existence or grow. Further, there is no assurance that the availability of and access to virtual currency service providers will not be negatively affected by government regulation or supply and demand of Digital Assets. Accordingly, companies or financial institutions that currently support virtual currency may not do so in the future.
Custody of Digital Assets – Under the Advisers Act, SEC registered investment advisers are required to hold securities with “qualified custodians,” among other requirements. Certain Digital Assets may be deemed to be securities. Currently, many of the companies providing Digital Assets custodial services fall outside of the SEC’s definition of “qualified custodian”, and many long-standing, prominent qualified custodians do not provide custodial services for Digital Assets or otherwise provide such services only with respect to a limited number of actively traded Digital Assets. Accordingly, clients may use non- qualified custodians to hold all or a portion of their Digital Assets.
Government Oversight of Digital Assets – The regulatory schemes—both foreign and domestic—possibly affecting Digital Assets or a Digital Asset network may not be fully developed and subject to change. It is possible that any jurisdiction may, in the near or distant future, adopt laws, regulations, policies or rules directly or indirectly affecting a Digital Asset network, generally, or restricting the right to acquire, own, hold, sell, convert, trade, or use Digital Assets, or to exchange Digital Assets for either fiat currency or other virtual currency. It is also possible that government authorities may take direct or indirect investigative or prosecutorial action related to, among other things, the use, ownership or transfer of Digital Assets, resulting in a change to its value or to the development of a Digital Asset.
About Eaglebrook Advisors
Eaglebrook is a tech-driven investment manager specializing in bitcoin and digital assets. The firm offers various Bitcoin and Digital Asset SMAs serving financial advisors, registered investment advisors (RIAs), family offices, and institutions. Eaglebrook is backed by wealth management executives and institutions.
Bitcoin is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Bitcoin is not backed nor supported by any government or central bank. Bitcoin’s price is completely derived by market forces of supply and demand, and it is more volatile than traditional currencies and financial assets.
Investing in bitcoin comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, bitcoin markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.