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Powell’s testimony, Grayscale’s hearing to drive the market today

Jerome Powell’s testimony before the US congress today could test the limits of the Bitcoin price range of US$19k-24k

March 7, 2023 - Bitcoin and Ethereum prices barely moved since the sell-off triggered by the Silvergate’s issue last week. The on-chain analytics firm Glassnode said in its latest weekly report that short-term holders’ profit-taking could lead Bitcoin prices to a support level around US$19k. Such a price level would take the Market Value Realized Price (MVRV) ratio of short-term holders back to 1, ending a profit-taking run, which started when the ratio crossed 1.2. Meanwhile, the realized price of the Bitcoin older supply is at US$23.5k, creating a resistance. On top of that, the Bitcoin futures funding rates are the most negative since Dec 22, reflecting the bears’ dominance. The Fed governor Jerome Powell will testify before the US congress today, depending on his tone, the market could test the limits of the price range of US$19k-24k for Bitcoin, in our view.

Grayscale, a subsidiary of the troubled DCG group, will argue in court today that the SEC inappropriately treated its Bitcoin ETF bid differently than earlier decisions approving bitcoin futures-based ETFs, according to its legal team. Some investors are betting on a positive outcome for Grayscale, which has reduced the Grayscale Bitcoin Trust (GBTC) discount to its net asset value (NAV). The Grayscale discount has currently narrowed to 42% after hitting levels of 47% in mid-February. Such a discount has been used by some market participants as a pulse for the crypto market sentiment. In our view, the odds are against Grayscale as regulators have been tougher with the crypto industry lately. In parallel, the bankrupt FTX and Alameda Research have filed a lawsuit against Grayscale, asking to unlock ~US$9bn in value for shareholders of the Grayscale Bitcoin and Ethereum trusts, which could yield US$250mn for FTX, but it seems unlikely, in our view.

In the meantime, the roll out of central banks digital currencies (CBDC) moves on. The Bank for International Settlements (BIS) has just released a study covering the use of CBDCs for international payments. Moreover, the Brazilian Central Bank announced its pilot project for the digital Brazilian Real, which is expected to be completed by the end of the year. On the other hand, some countries have struggled to put their CBDC off, as the case of Nigeria. We think that CBDCs are going to be an important part of the digital assets environment for the time being. Of course, there will be some hurdles as in the case of Nigeria, but we do not see central banks around the world retreating from such an initiative.

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