Weekly Update – Week 181
Rivemont is the portfolio manager responsible for the investment decisions of the Rivemont Crypto Fund.
A rather quiet week in the industry and on the cryptocurrency market, especially when compared to the whirlwind of the first half of the year! Are we witnessing the calm before a new surge in the current bullish cycle, a period of accumulation or a trend reversal? As you read this letter, you will see that we are approaching pivotal moments for the future. First, let's take a look at what's been in the news.
The environmental impact of the cryptocurrency industry has remained a central topic. This was especially the case in New York, where energy company Greenidge Generation pivoted its operations to bitcoin mining. The company, which was born in 1937 as a coal-fired power plant, has recently turned to mining bitcoins using cleaner-burning natural gas, raising the ire of many environmental groups. While the company says it complies with all New York State environmental regulations, the debate over spending energy to power the bitcoin network has been reignited.
Recall that it was Elon Musk who recently brought this debate to the forefront. After putting the full weight of his influence behind bitcoin, he turned around and criticized the environmental impact of the network. The price correction of bitcoin has been a parallel event. Many have noted the hypocrisy of the comments, as the development of TESLA cars, especially the batteries used, is anything but green. Binance's CEO was quick to add his two cents via Twitter this week:
Also as part of that same debate, Ethereum founder Vitalik Buterin on Thursday insisted that shifting the network's consensus mode from proof-of-work to proof-of-stake would virtually eliminate the network's carbon footprint. “Proof-of-stake is a solution to the [environmental issues] of Bitcoin—which needs far less resources to maintain,” Buterin said at the StartmeupHK virtual festival in Hong Kong.
The transition to ETH 2.0 with this new consensus mode is expected by the end of this year. This alone is an exciting and complex topic that will certainly be the subject of a future paper. For now, let's just stress that the community is already strongly supporting the project. Indeed, more than 5 million ETH, worth more than 13 billion USD, have been deposited in the staking contracts of the 2.0 network. It is by putting these ETH assets in a trust wallet that the mining will then take place, in order to ensure the security of the network. In short, the investors are both confident and numerous and are already ready to participate.
Investment giant Guggenheim has just filed the legal paperwork with the SEC to launch a new fund that, on the face of it, is likely to seek exposure to bitcoin. The company stated that the fund’s exposure to crypto can result in substantial losses to the fund, citing a number of risks associated with the industry: “Cryptocurrency is a new technological innovation with a limited history; it is a highly speculative asset and future regulatory actions or policies may limit, perhaps to a materially adverse extent, the value of the Fund’s indirect investment in cryptocurrency and the ability to exchange a cryptocurrency or utilize it for payments.”
Finally, let's note that there are indications that Apple could be the next tech giant to enter the cryptocurrency world. Indeed, according to a recent job posting, the firm is looking to hire a business development manager with experience in the cryptocurrency industry to lead its “alternative payments” partnership program. Apple said candidates should have five years or more “working in or with alternative payment providers, such as digital wallets, BNPL [buy now pay later], Fast Payments, cryptocurrency, etc.”
Now let's turn to the technical picture and what the price action can tell us. There are widely differing opinions on what will happen next, and likely many players are waiting for a confirmation before taking a consistent position. In short, we seem to be at a key pivot point. Let's look at the different indicators that are currently in conflict.
On the bearish side first, the 200-day moving average has been broken on the downside for almost two weeks now. A few attempts to regain it have so far failed. This is leading the 50-day moving average to plunge, so some are worried about a bearish cross occurring when these two averages intersect.
On the more neutral side, we are coming to the tip of a clear symmetrical triangle that could create a strong price move once it is broken. Passing and staying north of $38,000 would allow it to move up, while the bearish diagonal is at $34,000. This will give a strong clue as to whether the correction was just that, or whether there are more sellers than buyers left at the lows visited in recent weeks.
On the optimistic side, the fundamental picture remains entirely unchanged, the various markets continue to flirt with new highs, and both adoption and industry development are moving full speed ahead. These are key factors that charts alone do not always reflect! In every bull run in bitcoin history, a correction similar to the one we are currently experiencing has occurred, before the price propels itself to new highs far above the previous ones. If the past is any indication of the future, there is no doubt that this is where we are, both in terms of price action and time since the most recent halving. The green line represents the 2013 bull market, the yellow the 2017 market and the red the current one.
Historically, it is always in these moments of uncertainty that the best opportunities for entry and profitability have been found. Bitcoin has also shown its cyclical nature, and to date there is no evidence that the current one is exhausted, far from it. We advocate this bullish scenario on the fund side and have taken back many positions after avoiding much of the downside. The majority of capital is currently exposed to Ethereum.
Rivemont Investments, manager of the Rivemont Crypto Fund.
The presented information is as of June 2nd, 2021, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.