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This week started on a red note, with Bitcoin’s price going under $30k for the first time in over a month. But before the mid of the week, we made progress and came really close to $33k. Commenting on this volatility, Michael Sonnenshein, Grayscale Investments CEO said, investors allocating to crypto know that it is going to be a part of it. “Most of the investors we're dealing with are not looking at short-term price movements or volatility. Their crypto allocations are really over the medium to longer-term time horizon. So I don't think people feel terribly fazed when they see sudden movements in the market,” he said in an interview with Bloomberg this week. But with Bitcoin falling in line with stocks this week, is it a diversification play? “Certainly,” said Sonnenshein, noting that for a lot of investors, it is a “differentiated return stream.” While the Bloomberg hosts are hearing that there's no money sitting on the sidelines wanting to get in, according to Sonnenshein, based on who's investing in the market, their size of allocations, and with the conviction, they are doing that, “the opportunity for bitcoin remains very very bright.”
“Even though there is no Bitcoin ETF today investors aren't waiting to add crypto to their portfolios. BTC is doing hundreds of millions of dollars a day in notional trading volume.”
Sonnenshein also commented on GBTC unlocks about which a lot of investors are concerned about and wondering about its effect on the fund growing so large. “It's a little too early to tell,” he said. “But what we have seen is with BTC trading at a discount to net asset value a lot of investors, particularly institutional money, have been stepping into that trade realizing that that capital can actually help them own or control more bitcoin than it would be if they were buying bitcoin in the spot market,” which will ultimately lead it back towards NAV and “in the longest case scenario it will be an ETF that would arbitrage away any discount to the net asset value,” Sonnenshein added.
Taper Tantrums
Interestingly, the government continues to pump money into the market that works in Bitcoin’s favor. While the Federal Reserve Chair has assured that quantitative tightening isn’t happening as of now, US President Joe Biden also said this week that inflation is temporary.
“The Fed is independent. It should take whatever steps it deems necessary to support a strong, durable economic recovery.”
The President said his plans to invest more in infrastructure and better care for older people and children would enhance productivity and raise wages without raising prices. This, he said, will “take the pressure off of inflation (and) give a boost to our workforce." With the Fed meeting next week and Jackson Hole, there are expectations that the Fed will provide some clarity on tapering. In an interview with Bloomberg, Guggenheim Investments Chairman Scott Minerd said,
“It's been very interesting to watch how hawkish a number of the Fed FOMC members have become in such a short period of time… I think that by September the Fed will probably feel some obligation to lay out how tapering will work but may not be so anxious to actually announce a date when it would start. I think the earliest we would expect tapering to start would be March of next year.”
But any sign of acceleration would be interpreted as bad for the stock market and probably good for bonds, he added. Even before that, Minerd warned of rough months ahead. “Usually the stock market has its weakest performance in the months of September and October,” with the old rule - sell in May go away, come again at Labor Day. While warning about “a seasonally difficult time for risk assets,” Minerd talked about Bitcoin. Calling it a “risk-on asset,” he feels that the latest drop could have lower to go. “I think that there is still more air to come out of this,” he said. This means, ultimately, something in the neighborhood of $15k will be the standard bull market for a bear market, according to him. As such, he ain't buying the cryptocurrency anytime soon but would make that decision based upon price action in the future.