The common digital assets bear market theses don’t have “a lot of substance” and are “most likely inaccurate,” according to Jeff Dorman, the Chief Investment Officer (CIO) of US-based investment management firm Arca.
While many seem convinced that we are now in a bear market, given the drop in prices, as well as in sentiment – “here’s the problem – we can’t come up with a single reason that validates why the market is all of a sudden so convinced that digital assets are going into an extended funk,” Dorman wrote in a blog post.
“While many are calling for a bear market — the data simply suggests otherwise. Whether or not this is enough to attract new buyers remains to be seen,” he added.
Gathering the opinions of industry leaders, funds, and traders about the specific bear thesis that makes traders convinced of the upcoming price declines, Arca listed the ten most popular bear cases, along with the reason why it might be incorrect.
1. “China intends on killing digital assets”
The CIO argues that China’s most recent crackdown is focused exclusively on Bitcoin (BTC) miners and digital asset exchanges that offer leverage, and not the actual underlying assets themselves.
Therefore, per Dorman, “it’s difficult to believe that this entire global asset class is at the mercy of a single government interjection. In fact, most market participants agree that long-term results from China’s potential exodus are actually positive, from a redistribution of hash power globally to more [environmental, social, and governance] ESG-friendly mining facilities.”
“Well, we’re 6 weeks into this selloff and most assets are already down 40%-70%. It would be reasonable to argue that we have already bottomed,” said Dorman.
2. “Massive regulatory pressure from the US”
Even if this one were true, said Dorman, “it would be a net positive in the long-run.” While markets may react “violently” when a regulator “opens their mouth,” laws have to change and be enacted before any governing body has jurisdiction to regulate this asset class – and this takes years to happen. (Learn more: ‘Knives Coming Out’ As Cryptoverse Responds To BTC FUD By US Senator)
3. “The Fed will be tapering soon and that is bad for risk assets”
“Stop. Tapering is not happening anytime soon, the [US] 10 year [treasury] is still at 1.5%, the US dollar is at a six-year low, the VIX is back to pre-COVID lows, tech stocks are booming again… it’s safe to say this is overblown.” Besides, even if true, it would mean that the digital assets market is the only asset class affected by it and the only one affirming the Federal Reserve (Fed) tapering view.
4. “Retail momentum and interest is dead”
“Off the highs… sure.
Dead and never coming back? Not. Even. Close.”
To back this statement, Dorman provided charts of BTC, Ethereum (ETH), and other projects’ tweet volume, Google search volumes, weekly Twitter followers of crypto exchanges, weekly crypto subreddits’ subscribers, and weekly YouTube views of influencer videos – all showing either a new all-time high reached recently, followed by a smaller drop, or the levels being below the all-time high gained in earlier years, but still notably high.
5. “Lack of institutional interest”
Arca speaks to institutional investors daily, said Dorman, noting that these investors are “still allocating to funds, in record sizes.” For example, Goldman Sachs and Citi launched digital asset divisions due to client demand, while a16 raised USD 2.2bn fund dedicated to digital assets. “For the first time on record, junk bonds yield less than inflation… tell me again where you think money will be flowing if not into new asset classes like digital assets?” wrote Dorman.
6. “ESG concerns”
The ESG (Environmental, Social, and Corporate Governance) concerns are entirely specific to Bitcoin, and not at all relevant to most other digital assets, argued Dorman, while – as noted previously – the redistribution of hash power out of China to more clean energy sources across the world will be a net benefit for the environmental concerns.
7. “Tether, Celsius, BlockFi, Binance risk”
There are numerous conspiracy theories about these four companies, but none of those are news and “therefore cannot be used as a valid excuse for the current market correction, and any “what ifs” surrounding them and potential regulatory issues are “lazy excuses” as well.
Per Arca, only Tether poses systemic risks, since USDT is intertwined with the working capital of all exchanges and decentralized finance (DeFi), “but even that would quickly be replaced by other perfectly comparable stablecoins should a problem actually arise,” said Dorman. Among the top 15 digital assets by market capitalization, three of them are stablecoins. (Learn more: Imagine Regulators Shutting Tether Down – What Happens to Bitcoin?)
8. “MicroStrategy is going to be a forced seller of Bitcoin”
“This is the dumbest of all fears as it is 100% not accurate and can be easily disproved by looking at the bond covenants. Any fears of MSTR being a forced seller of BTC, or being “liquidated” is a complete farce and a misunderstanding of how bond covenants work,” the CIO stressed. (Learn more: MicroStrategy Has No Limits For Bitcoin Purchases, Discusses Sale Scenarios)
9. “Digital assets are reflexive and fundamentals are deteriorating as price declines”
Even though this one is likely the most important of all of the bear cases, “it’s just not true,” Dorman said. Firstly, BTC and other cryptos have no fundamentals. Secondly, everywhere else, including DeFi, gaming, Web 3.0, and “other pockets of digital assets with real users, cash flows and adoption metrics, the fundamentals have never been stronger.”
10. “Grayscale (GBTC) unlocks are going to crush the market”
According to Dorman, this is “Nope.” A buyer of GBTC shares is subject to a six-month lockup, and while the biggest unlocks are happening over the next two months, which could lead to heavy selling of GBTC on the open market, this has no effect on BTC itself, as the trust does not trade its BTC, only the shares are being traded.
Moreover, since most buyers of GBTC were doing it for the arbitrage back when GBTC was trading at a premium to Net Asset Value (NAV), they were also shorting BTC. Therefore, there could actually be buy pressure, not sell pressure, placed on BTC, “as those who sell GBTC will have to buy back bitcoin to cover the short-leg of the trade.”
Meanwhile, in a separate Twitter thread, Lyn Alden, Founder of Lyn Alden Investment Strategy, argued that those bears who are focusing on Tether’s impact on bitcoin over the past year “would have probably done better to focus on the Grayscale neutral arbitrage trade instead.” She stated that, when new competition resulted in the market taking away GBTC’s premium to net asset value, the biggest bitcoin buyer stopped buying.
“In other words, part of the run-up in the second half of 2020 was due to the Grayscale neutral arbitrage trade, sucking in a ton of bitcoin,” she said. “When ETFs [exchange-traded funds] and other new ways to access bitcoin made GBTC less unique, the premium went away, so the neutral [arbitrage] trade went away.”
At 14:25 UTC, BTC is trading at USD 36,242, having increased 5% in a day and 14% in a week. Ethereum is also up 9% in a day and almost 17% in a week, changing hands at USD 2,216. The top 100 coins by market capitalization are nearly entirely green in both time frames.
Crypto Traders Most Bullish on Polkadot, Solana, Polygon and 10 Additional Altcoins: Digital Asset Survey
A new survey unveils that crypto traders are most bullish on 13 altcoins including Polkadot, Solana and Polygon.
The Real Vision Exchange Crypto Survey is designed to track sentiment among investors by allowing participants to scan 30 tokens and choose if they want to have an overweight or underweight allocation for each one. The survey was conducted by Real Vision Bot, which was created by two independent developers and boosted by macro guru Raoul Pal.
Results from voting that happened on the first two days of this week indicate traders prefer an overweight portfolio consisting of smart contract platforms Polkadot (DOT) and Solana (SOL), as well as Ethereum-scaling solution Polygon (MATIC).
The scalable and interoperable ecosystem Cosmos (ATOM) is fourth on the list, and smart contract platforms Terra (LUNA) and Cardano (ADA) appear tied for fifth. Traders also have overweight allocations for decentralized oracle network Chainlink (LINK), Ethereum competitor Avalanche (AVAX), Ethereum-based token Enjin Coin (ENJ) and decentralized exchange Uniswap (UNI) for the sixth, seventh and eighth places, respectively.
Tied in ninth place are cross-border payment solutions Stellar (XLM) and XRP, as well as decentralized storage network (FIL).
Real Vision Bot clarifies that the participants are not necessarily holding the cryptocurrencies that they voted for.
“They can of course vote according to their own positions, but also just based on their sentiment or forward looking. There are many reasons why the own book might not be 1:1 the preferred allocation.”
Bitcoin (BTC) is conspicuously absent from the list. Pal highlights that the community is responsible for that absence.
“It’s not us – it’s the community who makes the allocation… You guys, to be exact.
Morgan Stanley CEO: Crypto Won’t Go Away
Morgan Stanley’s boss is bullish on cryptocurrency but says that demand is scanty so far
Morgan Stanley CEO James Gorman sounded upbeat about cryptocurrencies during the bank’s third-quarter earnings call, claiming that the industry will not go away:
I don’t think crypto’s a fad. I don’t think it’s going to go away.
Morgan Stanley was the first major U.S. bank to grant its wealthy clients access to Bitcoin funds in March.
So far, Gorman does not see a lot of client demand for Bitcoin, but he does not rule out that crypto may start playing a bigger role in its business:
For us, honestly, it’s just not a huge part of the business demand for our clients. That may evolve and will evolve with it, but certainly it’s not what’s driving our economics one way or the other.
Shares of Morgan Stanley (MS) are up 44% since the start of 2021.
The bank’s investment revenue crushed analysts’ estimations in the third quarter of 2021, reaching $2.85 billion.
Not siding with Dimon
Gorman’s views on Bitcoin diverge from those of JPMorgan CEO Jamie Dimon. While the Morgan Stanley head refrained from making specific price predictions, he opined that the largest cryptocurrency would be here to stay:
I don’t know what the value of Bitcoin should or shouldn’t be. These things aren’t going away.
As reported by U.Today, Dimon caused quite a stir by claiming that Bitcoin is worthless.
While the Bitcoin price is already immune to Dimon’s oft-repeated critiques, his caustic comment certainly did not go unnoticed by the crypto community and market observers.
A divisive comment
There are some powerful Wall Streeters who share Dimon’s sentiment. Larry Fink, CEO of asset management juggernaut BlackRock, recently said that he was more in the Dimon camp.
Gorman is not the only banker who disagrees with Dimon on Bitcoin. Bill Winters, CEO of Standard Chartered, recently opined that cryptocurrency assets could serve as a hedge against inflation:
There’s a role for non-fiat currencies, especially when parts of the market are concerned about inflation—and there’s good reasons to be concerned about inflation.
China Crypto Ban: World’s largest Bitcoin mining pool to block IP access from mainland China
The latest update in the Chinese crypto ban saw the world’s largest Bitcoin mining pool, Ant Pool give in to the regulatory crackdown and announced blocking IP access in mainland China, effective from 15th October. Additionally, amid a global crypto takedown, Ant Pool has also revealed the upcoming launch of its exclusive KYC verification system to further comply with crypto regulations of various countries.
Ant Pool, the world's largest Bitcoin mining pool, announced that it will stop IP access in mainland China from the 15th and launch the KYC system to comply with the laws of various countries.— Wu Blockchain (@WuBlockchain) October 14, 2021
Since the reveal about the Chinese government’s tracking of IP addresses to filter out illicit crypto mining activities in the country, there have been several shutdowns of unregistered mining farms along with registered giants taking steps to comply with the authorities. Earlier this week, the largest Bitcoin mining equipment manufacturer in China, Bitmain announced that it will stop shipping any more Antimers to the country from October 11, in lieu of the ongoing crypto crackdown, that is specially focused on Bitcoin mining.
“Actively responding to the local government policies of the company’s entities has been Bitmain’s business strategy all along…Strictly abide by the laws and regulations of the locations of the company’s entities is the operating principle that Bitmain has always adhered to. From October 11, 2021, Antminer will stop shipping to mainland China (excluding Hong Kong and Taiwan). For customers in mainland China who have purchased long-term products, our staff will contact them to provide alternative solutions.”, stated the Press Release.
China Crypto Ban nears end as government succeeds shutdown of crypto businesses
However, the Chinese government has no plans to stop unless the crypto industry has completely vanished from the face of China. According to CoinGape’s recent coverage, China’s authoritarian government is now planning to add crypto mining to the “Negative List” of industries. This would mean that the crypto mining industry will be banned or restricted from any investment from both, mainland China investors as well as foreign investors.
The Chinese crypto ban appears to be near the end as more than 20 crypto firms and exchanges announced the suspension of crypto services in the country. Furthermore, foreign crypto exchange giants including Huobi, OKEx, and Binance have also announced the closure of all services by December.