Will the Holidays Bring Gifts or Coal to Bitcoin Investors?

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With just seven weeks left in the year, it seems there’s no consensus on who will win out: the HODLers or the profit-takers.

Insights, news and analysis for the professional investor

By Marc Hochstein, Executive Editor

November 14, 2021

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Bitcoin (BTC) - $64,262.93

Ether (ETH) - $4,581.56

Prices as of 11/14/21 @ 8:00 a.m. UTC

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If you weren’t watching CoinDesk TV’s daily morning show, “First Mover,” here’s the news you missed this week:

Mayor Francis Suarez announced that Miami will soon pay a bitcoin-denominated yield to residents who stake the MiamiCoin token, an instrument he says someday may eliminate the need for city taxes. MakerDAO founder Rune Christensen praised the U.S. President's Working Group on Financial Markets' stablecoin report for recognizing DeFi’s value – a big turnabout from his previous pessimism. Acting U.S. Comptroller of the Currency Michael Hsu also commented on the stablecoin report, citing a need for regulation to protect vulnerable populations.

“First Mover” is hosted by CoinDesk TV anchor Christine Lee, CoinDesk Managing Director Emily Parker and Managing Editor for Global Capital Markets Lawrence Lewitinn. Tune in live, weekdays at 9 a.m. ET on our homepage, our Twitter feed or our YouTube channel. For more from Lawrence, read his Briefing column, on the bitcoin price’s trajectory for the coming holiday season, below.

– Marc Hochstein, executive editor

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The Briefing

We’re approaching Christmas and many expect the art of window dressing to take hold.

No, not on the streets of our towns, where shops prepare far too early for holiday sales. Rather, we’re talking the lengths portfolio managers are said to go to make it look like they made all the right bets in 2021.

Is that what could be coming for the cryptocurrency markets in the next few weeks? If past mutual fund behavior is any guide, window dressing may not be a driving factor, but there are still things portfolio managers do – or don’t do – that help drive up asset prices in their portfolios before New Year’s Eve.

For those unfamiliar with the theory, window dressing is the idea that portfolio managers sell their losing positions and buy more of their winners ahead of year-end reporting so they look like they’ve been making all the right moves. Among other consequences, that could punish already-losing securities and pump winners even higher.

Many studies have been done suggesting that may be the case, but they usually use quarter-end data to come up with their conclusions.

However, one study published in 2014 in the Review of Financial Studies used actual mutual fund equity trading data from 1999 to 2010. While not finding evidence of typical “window dressing,” researchers Gang Hu, R. David McLean, Jeffrey Pontiff and Qinghai Wang found something more nuanced.

“We find that both abnormally high institutional buying and abnormally low institutional selling are associated with price inflation,” they wrote. “We further show that the portion of buy trades increases sharply on quarter-end, and especially year-end, days. Further analyses reveal that institutional buying declines at year-end, whereas institutional selling has an even larger decline at year-end, thereby creating the high portion of buys.”

Basically, funds were increasing buys of their bigger stock positions up to near the year-end, but they stopped selling at an even higher rate. That, in turn, contributed to higher prices for those assets.

There may be a reason that happens, according to the researchers.

“We do not find evidence of targeted trading with year-end sales; the decline in selling is not greater for stocks of which institutions hold large positions. However, unlike buying a stock, delaying the sale of a stock is in most cases costless. It therefore makes sense for managers to not sell any stock at year-end if they are concerned about year-end net asset values.”

Yet an institutionally-driven selloff may be in the cards for crypto, if one analyst is correct.

Read the full column here.

– Lawrence Lewitinn

A message from Copper

Copper provides a gateway into the cryptoasset space for institutional investors by offering custody, prime brokerage, and settlements across 250 digital assets and more than 40 exchanges. We are committed to providing flexible solutions that adapt to the changing cryptoasset space, while enabling far greater transparency, control, and security for asset managers.

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Chain Links

Decentralized social media takes the stage as Facebook (Meta), Twitter and Reddit all discuss plans for embracing the metaverse. TAKEAWAY: Metaverse integrations are beginning to trend as the digital world becomes possible and profitable. Scalable blockchains and tokenization have paved the way for social media giants to incorporate cryptocurrency into their platforms and Morgan Stanley believes the potential innovation is already reflected in the companies’ stock prices.

Coinbase’s shares tumbled as the company missed Q3 revenue estimates. TAKEAWAY: After a strong Q2, Coinbase struggled to mimic the previous quarter’s results. Overall volume was down significantly during the quarter, mostly due to lower volatility throughout the broader crypto markets. The company announced that recent cryptocurrency purchases can be linked to utility, rather than speculation, which had been the case until very recently.

The Consumer Price Index (CPI) jumped 6.2% year over year in October, the highest surge since 1990. TAKEAWAY: Energy, shelter and vehicle costs represented a large part of the jump in CPI, as inflation and supply chain issues worsened throughout the U.S. The equity and crypto markets dipped on the news as investors brace for a response from the Federal Reserve.

Over $120 million in bitcoin long positions were liquidated across major exchanges during Wednesday’s crash. TAKEAWAY: Bitcoin’s move from $69,000 to $62,000 liquidated the most leveraged positions since Oct. 26. However, lower volatility in the crypto markets have kept both long and short liquidations substantially lower than in April and May, when daily liquidations reached as high as $10 billion.

FTX US trading volumes jumped 512% in Q3 for an average daily volume of $360 million. TAKEAWAY: In the same period, Coinbase saw a significant decrease in volume, FTX jumped nearly 6x quarter over quarter. The platform’s user base has grown 52% as FTX looks to expand throughout the U.S. and soon plans to offer derivatives to U.S.-based customers.

– Teddy Oosterbaan

Consensus 2022, the must-attend crypto and blockchain experience of the year, is heading to Austin, Texas, from June 9-12, 2022. This is the only festival showcasing and celebrating all sides of the blockchain and crypto ecosystems, and their wide-reaching effect on commerce, culture and communities. Register now for the lowest price.

Podcast episodes worth listening to:

“The Breakdown”

Is Jack Dorsey About to Announce a Bitcoin DeFi Platform?

Or is Square’s TBD launch of its white paper just days after the Taproot upgrade a coincidence?

“Money Reimagined”

Why Axie Infinity Caught Fire in the Philippines

Why was the Philippines uniquely primed for the rapid and widespread adoption of Axie Infinity and other crypto opportunities?

“On Purpose”

What a Decade in Crypto Teaches You

Defining risk for clients and advisers. There is no hard line.

“Opinionated”

Synthetic ‘Fake’ IDs Can Buy Crypto?