By John Sarson, CEO Sarson Funds
Institutions coming into crypto is something that we have been talking about for years. We saw the first glimpses of institutional involvement in crypto in 2021. During that time, reports of Tesla, Guggenheim, Paul Tudor Jones, and even the esteemed Rothschild family were all noticed building crypto positions. This propelled Bitcoin and other cryptocurrencies to all-time highs. But the interest in crypto soon faded.
Tesla’s public about-face on Bitcoin, due to its perceived negative environmental impacts, started the anti-crypto movement. This was followed by the implosion of high-flying crypto industry projects such as Titan Finance, Olympus DAO, and Terra Labs (LUNA). This was followed by the bankruptcies of Celsius, Voyager, Blockfi, and Three Arrows Capital. Adding insult to injury, shortly thereafter, fraud allegations surfaced against FTX Exchange. This was succeeded by the SEC’s crypto witch hunt which resulted in lawsuits or fines against PAXOS, Coinbase, Kraken, and Binance US and other crypto companies.
Next came the legally questionable attempt by the FED to actively deny banking access for crypto firms dubbed “Operation Choke Point”. This started with the rejection of the banking charter for Custodia Bank and gathered steam with the failure of Silvergate Bank, and the seizures of Silicon Valley Bank and Signature Bank. Amidst this backdrop, institutions that had remained on the sidelines seemed to have made the correct choice. That is until something they hadn’t anticipated began to occur. What I’m referring to, of course, is the continued worldwide adoption and utilization of crypto networks despite these ominous events and the best efforts of the FED to slow crypto adoption.
As we noted in our February client note, we noticed a change in crypto market sentiment in late January immediately following the rejection of Caitlin Long’s Custodia Bank and the FED’s 86-page rebuttal. Interestingly, the markets did not react negatively to this news. We speculated then that if the market was going to stop going down on bad news, it might signal that the bottom was in for crypto prices. This led me to write my 2023 predictions, suggesting that crypto prices had likely bottomed. On the day of the rejection, January 27th, Bitcoin was trading around $23,000. Since then, the market has climbed the proverbial wall of worry, with prices consistently rising and Bitcoin up a respectable 35% over that period.
At Sarson Funds we believe there is more upside in the market because we see evidence that the long anticipated (and often prematurely predicted) institutional bid is finally entering the market.
Over the past two weeks, crypto activity in the institutional space has noticeably increased. Banks around the world, including Japan’s largest bank, Mitsubishi, and Hong Kong’s largest bank, HSBC, have announced new cryptocurrency initiatives. US institutions have made numerous ‘revised’ Bitcoin ETF filings with the SEC, including a June 15th filing by financial giant BlackRock, who currently manages over $8 trillion in assets. Even Jerome Powell was forced to concede on June 21st that the crypto industry “appears to have some staying power” and on June 26th that “payment stablecoins [are] a form of money”.
Non-financial enterprises are entering the space at a rapid pace as well. On June 15th business consulting behemoth SAP indicated that stablecoins present a more efficient and attractive way to execute international monetary transfers… (duh).
Need more evidence? Here are a few significant developments that have recently occurred (in chronological order):
2. June 18th, 2023 The Indonesian Government Unveils List of 501 Tradable Cryptocurrencies
4. June 20th, 2023 Japan is now exempting token issuers from paying corporate tax on cryptocurrency gains that are yet to be realized.
5. June 22nd, 2023 Spain’s $57 billion banking giant Santander, which already allows bitcoin purchases, recently launched an education initiative called “Digital Assets 101” to educate its customers on cryptocurrencies.
At Sarson Funds, we are noticing empirical evidence that the recent rise in Bitcoin prices last week from around $25,000 to $31,000 is due to institutional buying. We ascertain this by comparing the volume and direction of the market on weekdays to that on weekends. We believe that institutional investors typically trade or purchase cryptocurrencies from Monday to Friday, with retail investors responsible for price movements and volume over the weekend. Since BlackRock’s announcement on June 19th, we’ve noticed a shift away from weekend price spikes, with volumes and performance spikes now occurring from Monday to Friday. This suggests to us that institutional investors are active in the market and acquiring cryptocurrencies- to which we say, “It’s about time!”
Making this trend more significant is the realization that institutions typically slow down during this time of the year. Many institutional investors have already left or will soon leave for the summer holiday period, so the fact that institutional buyers are present and active in the market is a very good sign for the future of cryptocurrency prices. In our opinion, it’s the right time to reduce cash positions and move assets into crypto.
We are ensuring that our portfolios are fully invested in anticipation of a price rally. We believe that our portfolios are well-positioned for the continued growth of Artificial Intelligence (AI), as well as Virtual and Augmented Reality (VR/AR). Our conviction is bolstered by the excitement surrounding the upcoming launch of Apple’s mixed-media headset, the Vision Pro. We are also actively investing in token based decentralized physical infrastructure (DePIN) projects such as Helium, Hivemapper and DIMO.
As always, if you’d like to talk about what we see in the markets or why we’re investing in specific names, we are here and at your service. We’re excited about the momentum that we are seeing in many of our portfolio holdings.