Bitcoin's Long-Term Prospects Improve
VYSYN Weekly Release #103: Fresh market data reinforces confidence in Bitcoin's long-term relevance
While most crypto assets are gradually recovering from the latest crash, the market has not fully stabilized. Despite continued shakeouts, crypto market analysts have discovered a few indicators that will give Bitcoin traders reason for optimism.
This edition of the VYSYN Release will analyze the indicators increasing investor optimism in Bitcoin and how regulators are warming up to the asset. We will also consider a major discovery that reinforces Bitcoin's long-term relevance.
Crypto rallies as market sentiment improves
Bitcoin traders are drawing optimism from the latest moves on the Grayscale Bitcoin Fund (GBTC) premium and discount to NAV chart. GBTC is the world's largest Bitcoin investment vehicle, allowing institutional investors to gain exposure to the digital asset without holding it. Holders of the GBTC shares maximize their profits when the fund is trading at a premium.
However, the recent price corrections forced most private and institutional investors that were holding GBTC shares to drop their positions at a massive discount. Earlier this month, the GBTC discount dropped to its all-time low of 34%. The discount recently shrank by almost 5%, an indicator of an upcoming bounce in the market. Several analysts attributed the recent uptick to the increase in the number of investors betting on GBTC's conversion to an ETF. Based on market logic, GBTC shares will trade at par with the underlying asset if the conversion pushes forward, thus wiping out the discount. The fund is currently trading at a discount of 29.7%.
Grayscale had applied with the U.S. Securities and Exchange Commission (SEC) to convert its GBTC fund to a spot Bitcoin ETF. As the deadline approaches for the SEC to rule on the proposal, GBTC saw a spike in its trading volume in addition to the discount drop. The spike is an indication of renewed interest among institutional investors as they seek to gain more exposure to the crypto asset. The fund is currently enjoying a seven-month increase in its daily trading volumes.
Grayscale is making conscious efforts to win the SEC's approval, emphasizing that a spot Bitcoin ETF is critical at this point. The company recently signed an agreement with Wall Street giants Jane Street and Virtu Financial (VIRT) as authorized participants for its ETF, if approved. A spot Bitcoin ETF will have a remarkable impact on the market as it will pave the way for large capital inflows into the crypto space. Matt Hougan, CIO of Bitwise noted that the ETF would encourage more institutional involvement "because it's a familiar instrument.
Regulators' interest in Bitcoin increases
Regulators are also showing an increased interest in regulating the crypto space. SEC chairman Gary Gensler recently proposed a "one rulebook" for the regulation of cryptocurrencies. The SEC boss pointed out that the regulator intends to work with other financial regulators on this initiative, including the Commodity Futures Trading Commission (CFTC). He said, "By getting that market integrity envelope, one rule book on an exchange will really help the public. If this industry is going to take any path forward, it will build some better trust in these markets."
Speaking in another interview on CNBC's Squawk Box, Gensler clarified his stance on crypto assets and how he views them. He revealed that he is prepared to publicly label Bitcoin a commodity rather than a security. Gensler, however, refrained from clarifying the status of other crypto assets, including Ethereum (ETH).
The future of cryptocurrencies like Bitcoin partly depends on its categorization as either a commodity like gold or a security like stocks. For the longest time, this categorization has sparked disagreements between regulators and crypto market experts. Thus, Gensler's labeling of Bitcoin as a commodity is a win for the industry, as it will not be subject to the more stringent regulatory oversight assigned to securities. With Bitcoin treated as a commodity, market participants have more freedom to innovate in the space.
Meanwhile, the Bank of England’s (BoE) Deputy Governor, Jon Cunliffe, recently expressed his confidence in Bitcoin's staying potential. He noted that the survivors of the current market crash “could become the technology companies of the future,” competing with commercial giants like Amazon and eBay.
During the Point of Zero Forum in Zurich, Cunliffe compared the latest crash to the DotCom bubble in the late 1990s. Cunliffe noted that ten years after DotCom’s collapse, survivors like Amazon and other companies became key players in the tech industry. He expressed similar confidence in Bitcoin and the crypto industry, emphasizing that the technology is here to stay.
Recent gold discovery highlights Bitcoin's long-term relevance
Gold is widely recognized as an excellent store of value, with its limited supply and track record that goes back thousands of years. Bitcoin is digital gold due to its strict 21 million supply cap, which makes it non-inflationary and a good store of value.
However, a recent discovery of 31 million tonnes of gold ore in Uganda, estimated to be worth over $12 trillion, has questioned the reliability of gold as a store of value. As was the case with other major gold discoveries in history, including the 19th century South African Gold rush, this latest discovery could increase the world’s supply of gold by an unhealthy amount. Consequently, gold will become a less reliable asset in terms of a store of value, as the prices will plummet upon this sudden influx of the metal. Gold's price has marginally declined since the Ugandan gold discovery on June 8. The metal is currently valued at $1,797 per kilogram.
While analysts are still skeptical about the exact quantity of the gold discovered in Uganda, it could mean great things for Bitcoin. The discovery of more gold reinforces the argument that Bitcoin is more reliable and a better store of value compared to the metal.
Reiterating his conviction in Bitcoin's potential as an excellent store of value and inflation hedge, MicroStrategy's CEO Michael Saylor told CNBC, "Every commodity in the world has looked good in a hyperinflationary environment, but the dirty secret is you can make more oil, you can make more silver, you can make more gold […] Bitcoin’s the only thing that looks like a commodity that is scarce and capped."
Despite lacking a long historical track record like gold, Bitcoin has the potential to eventually be regarded as a better asset than gold. However, it has to go through significant maturation. The prices need to be less volatile, it needs to decouple from traditional stocks, and become widely accepted.
Bitcoin is a survivor. Its exposure to unfavorable market conditions over its short history has allowed it to develop strong resistance to them. After each catastrophic event, the digital asset has emerged stronger with enhanced economic security, growing user numbers, and more efficient processing. Thus, there is good reason to believe Bitcoin will again bounce back stronger from the recent setbacks in the wider crypto markets.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocation, versatile marketing support, and tech assistance.