APRIL 2021 — Monthly News Update

Photo by Ansel Lee | pexels.com

In this month’s issue:

· April Overview
· Bitcoin: Bear Trend or a Bullish Correction?
· Doge Coin Mania
· Ethereum Transformation
· Institutional Crypto-Adoption
· Political Crypto-Adoption
· High Hopes for a U.S. Bitcoin ETF

APRIL OVERVIEW

Bitcoin opened at $53,583 on Friday, 30th of April (Binance price), showing a negative return of -8.8% in the month of April. The price has been quite choppy throughout the month, ranging between a low of $47,011 on April 25th, and a high of $64,919 on April 14th.

BITCOIN: A BEAR TREND OR A BULLISH CORRECTION?

Bitcoin plunge of April 18th

On Sunday, April 18th, between 10am and 11am Hong Kong time, Bitcoin had experienced a sharp price correction. Bitcoin correction amplitude was as high as 15% in this plunge, going from a day’s high of $60,499 to a low of $50,931. Ether, the second-largest crypto coin, also dropped as much as 18% to under $2,000, and a lot of other digital coins experiences a substantial fall in prices. We would like to help shed light on the situation and calm some raising concerns on the market.

The week preceding the digital sell-off happened to witness record-high prices, with the combined crypto currencies market cap surpassing 2.25 trillion. Market participants have also been excited about Coinbase, the world’s most well-known digital currency exchange, going public on Wednesday. Many market reviews link this momentous performance of crypto assets to Coinbase’s direct listing, which spiked interest in the entire crypto universe. In addition to that, crypto holders were unwilling to get out of their positions ahead of Coinbase public offering.

So how did this eventful week result in such a significant sell-off? We are looking at a number of triggers, which had an impact on the market.

First of all, many refer to speculative rumours on the crypto market that the US Treasury will take action against financial institutions carrying out money laundering through digital assets. US Government also linked Russian election fraud to crypto assets on Thursday, Apr 15 (Read More). Other cases of regulation pressure were seen in Turkey, where the central bank banned the use of cryptocurrencies as a form of payment (Read More), and South Korea, where authorities approved a new crypto AML rule urges cryptocurrency businesses to register with financial regulators (Read More).

Second big news prior to the weekend plunge was China shutting down its major bitcoin mining hub in an attempt to cut down the energy consumption (Read More). As a result, hash rate, or the so called mining power, fell by as much as 49%.

The sell-off that followed was amplified by forced liquidations of overleveraged futures positions. Forced liquidations are triggered, when investors fail to cover the under-margin status of their accounts. Thus, in a highly leveraged market even a small initial sell-off can trigger mass forced selling, which results in a significant downfall. The drop on April 18th showed an estimated $4.9B of forced bitcoin liquidations and more than $9B worth of forced liquidations of all crypto positions across all exchanges. Overall, forced-sold positions accounted for 50% of the total sell-off, intensifying the downwards pressure on the market (Read More).

Ironically, plunges which are magnified by forced liquidations do not necessarily signify an overall bearish market sentiment. If anything, this incident shows us that market participants have become over-confident, massively leveraging their positions in an expectation of a bull market.

Further decline

Later in the week, news of Biden set to raise taxes for the rich Americans flooded the market (Read More). Following this announcement, bitcoin price even lower than the plunge of the 18th of April reaching as low as $47K on April 25th. For the first time since 2018, bitcoin market cap went lower than 50% of the total crypto market.

A new trend is emerging on the bitcoin market since the beginning of 2021 connected to the cryptocurrencies derivatives market. CME Bitcoin futures expire the last Friday of each month, and over the course of past few months markets have witnessed a downfall in each month end. Thus, bitcoin market was in a downfall between Jan 20 and Jan 27, between Feb 22 and Feb 28, March 21 and March 25. In April the downfall seems to have started on April 21 (not taking into the account the plunge of April 18th, covered earlier in this paper), and lasted until April 25. Overall, between April 16th and April 25th, Bitcoin lost more than 20% in value, to later recover 10% by the end of the month.

Recovery — Bullish market sentiment

April 26th showed a strong upside trend, recovering 10% of bitcoin’s lost value.

Indeed, we are still seeing a lack of bitcoin liquidity, with decreasing supply as bitcoin holders are taking their coins off the market and placing them into cold storage in anticipation of a long-term price appreciation.

Another bullish signal on Bitcoin market is its mass retail adoption, with 50,000+ new entities on blockchain a day. At the moment, this does not necessarily translate into a pump for bitcoin, as we currently observe a big demand for altcoins following the dogecoin pump. However, in a long-term perspective, those users may switch to a more stable, less risky crypto asset with a proven historical track-record.

Finally, a useful tool when looking at bitcoin price, is the Bitcoin Difficulty Estimator (Bitcoin Difficulty Estimator — Link). Here, one can see the bitcoins which are expected to be mined by the protocol, versus those actually mined. Due to China power outages and declining bitcoin price, a lot of expected bitcoins remain unmined, which signifies a downfall in supply.

DOGE COIN MANIA

So what was the deal with Doge coin in April?

Doge coin was initially created as a joke to mock money as we know it. The coin has surged 450% in one week, with the most rapid growth on the 16th of April, when doge coin went from opening at $0.183 to closing at $0.365 in one day, with a day’s high of $0.450.

Unlike Bitcoin, the number of doge coin is not limited. There are 129 billion coins at the time of writing, and about 10,000 new dogecoins are released in block awards every minute. The idea behind doge coin is that it questions the role of state in supplying money. Reaching a market cap of $50B at its highest peak, the coin is a reflection of how absurd money can be and questions the current system. Crypto community does not see any value in doge coin in the long-term (Read More).

Getting towards the end of the month, Dogecoin has seen a new spike in interest following Elon Musk’s new tweet, raising 20% in value to $0.31.

ETHEREUM TRANSFORMATION

Unlike Bitcoin and many other crypto currencies, Ethereum launch process is a rather lengthy one. It started in 2015, when it was first laid down in the creators’ original plan (Read More), and is still ongoing. At the current stage, Ethereum launch is in its “Serenity” phase, which started in 2020. The main goal of this transition is improving the crypto asset’s functionality, in particular, switching from consensus mechanism “Proof of Work” to “Proof of Stake” (Read More).

One of the most recent and impactful developments in the Ethereum universe is the lifted gas limit — from 12.5M to 15M operations which can be included in each block (Read More). This move translates into cheaper fees per transaction. Following the announcement from Ethereum’s mining pool operator on Apr 20th, ETH price went up more than 25% in 2 days, hitting a new all-time high of $2,645.

INSTITUTIONAL CRYPTO-ADOPTION

Same as in previous months, April has seen some ongoing discussions regarding potential institutional adoption of crypto assets. JP Morgan suggests that decreasing volatility of crypto assets will open up the market to institutional investors and banks (Read More).

Goldman Sachs is offering a wide range of bitcoin investments and other digital assets to its wealth management clients. Investment options will include physical bitcoin, derivatives and other traditional investment vehicles (Read More).

Morgan Stanley is allowing qualified investors to access three of external crypto funds, two of which are from Galaxy Digital and the third one from both IS Investments and NYDIG. Bitcoin investments are capped to 2.5% of the individual investor’s net worth (Read More). The latter of the three funds has already raised $29.4M from 322 investors in just 14 days of going live (Read More).

Brevan Howard Asset Management starts investing in crypto assets, allocating up to $84M in digital assets according to anonymous sources (Read More).

On April 20th, Venmo announced the launch of crypto payments with an option to buy, hold and sell cryptocurrency within the app (Read More). Venmo is a mobile payment service owned by PayPal, highly popular in the U.S. with over 65 million users. The app is only available to holders of U.S. bank accounts.

On April 27th news came out that JP Morgan will allow its clients to invest in a bitcoin fund provided by NYDIG (Read More), being the latest U.S. mega-bank to change its position regarding crypto. According to sources, the fund is planned to kick off in summer. JP Morgan accepting bitcoin investments is a notable change in tone, as the CEO, Jamie Dimon, has been knows to criticise bitcoin heavily in the past.

On the other hand, some companies and financial institutions are still doubtful about crypto assets. HSBC not only refuses any direct exposure to cryptocurrencies, but goes as far as to ban any investments that derive their value from the digital asset class, in particular banning any purchases of MicroStrategy shares as of March 29 (Read More). UK bank NatWest also chose to go down that road, banning business customers who transact in crypto (Read More).

The news of Tesla selling $272M worth of bitcoin hit the market quite controversially, however, Elon Musk was able to turn it around saying Tesla only sold 10% of its Bitcoin holdings to prove the liquidity of Bitcoin assets on its balance sheet (Read More).

As Bitcoin remains a topic of interest amongst many institutions, here is a list of 30 companies with bitcoin reserves totalling over $55B: Follow the link for the list of companies.

POLITICAL CRYPTO-ADOPTION

With a rising adoption of crypto assets by general public as well as institutional investors, crypto and blockchain solutions also trigger interests in the political arena. In particular, New York City comptroller candidate calls for mor blockchain innovation in NYC. In the details of her plan, NY retirement systems will have up to 3% of their funds in crypto exposure, and that the city itself would invest in blockchain to support start-ups in this field. Another candidate running for Mayor of NYC joined the hype, claiming he would ‘invest in making the city a hub for BTC and other cryptocurrencies’.

Another exciting announcement came out on Apr 19th, when China’s central bank called crypto assets an “investment alternative” (Read More). This label signifies a softening stand on cryptocurrency trading in China, while stressing that cryptos do not compete with the country’s digital currency — digital yuan. Industry participants have taken this statement rather positively, hoping for progressive shift of cryptocurrency trading in China and watching for potential regulatory changes.

Discussing crypto and blockchain opportunities on the political arena is an important stepping point for the technology, as both public and politicians contemplate over potential future applications.

HIGH HOPES FOR A U.S. BITCOIN ETF

While the US remains unwilling to approve any of the applications for a standard bitcoin ETF, Canada’s Horizons ETF issues a new ticker which allows investors to take short positions on Bitcoin futures. This new ETF was introduced to the Toronto Stock Exchange on the 15th of April (Read More).

None of the applications filed for a bitcoin ETF in the US have been approved to this date by the Securities and Exchange Commission. Applicants include Galaxy Digital, NYDIG, Fidelity Investments, Valkyrie, SkyBridge Capital, VanEck, WisdomTree, and others.

DISCLAIMER

This material should not be reproduced, redistributed, passed on to any other person or published, in whole or in part, for any purpose without the written consent of JKL Digital Capital Limited (‘JKL’). Although information contained in this material has been compiled from sources believed to be reliable, JKL does not represent or warrant the accuracy, completeness or reliability of the information contained in this material.

The contents of this material have not been reviewed by any regulatory authorities. You are advised to exercise caution in relation to the contents of this material. If you have any doubt about any of the contents of this material, you should obtain independent professional advice. Neither JKL nor any of its affiliates, nor any of its or their respective directors, officers, employees, and representatives will accept any responsibility or liability whatsoever for any direct, indirect, or consequential loss arising from the use of or the reliance upon any information contained in this material. This material does not constitute an offer or an invitation to subscribe for or purchase any financial product. It is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation to purchase any financial product.

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Quantitative fund focused exclusively on trading digital assets and blockchain technology. Find out more on www.jkl.capital

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JKL Capital

JKL Capital

Quantitative fund focused exclusively on trading digital assets and blockchain technology. Find out more on www.jkl.capital

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