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Bollinger Bands Tighten - Is a Big Move Coming Soon?

GB Market Commentary 05/01/2023

by Marcus Sotiriou


Bitcoin continues to trade between $16,200 and $17,100 – a range that has lasted for almost 3 weeks. This has caused the Bollinger Bands, which characterises the prices and volatility over time of a financial instrument, to tighten. Tight Bollinger Bands show how volatility has dampened significantly.


Historically, when Bollinger Bands become constricted it results in a big move for price. The last time the Bollinger Bands were this tight was July 2020, which preceded a 5,000% move for Bitcoin to the upside. This has led many to believe that a big move is coming soon.


The rift between Gemini and DCG has caused investors to remain fearful in the short term, as it was announced today that the Grayscale Trust COO has left the company. In addition, the SEC is reportedly investigating DCG currently.


The situation between Gemini and DCG has a huge impact on Grayscale (owned by DCG) because DCG owes $900 million to Gemini Earn (separate from the $2 billion owed to creditors) whilst Grayscale’s value is far less than this debt.


I see two possible outcomes for Grayscale:


1. DCG is forced to sell Grayscale to generate cash to pay off creditors.


In this scenario, Valkyrie could assume the role of becoming the new Trust administrator, and manage GBTC, as they have made a proposal. Valkyrie’s proposal involves slashing fees from 2% to 75 bps and using Reg M – this would close the GBTC discount and therefore save GBTC holders.


2. Gemini forces Genesis (owned by DCG) into bankruptcy, triggering the liquidation of Grayscale assets.


If Genesis goes into bankruptcy, this means DCG assets will have to be liquidated due to Genesis’ callable loans, resulting in DCG bankruptcy. Therefore, Grayscale Trust assets would be at risk of being sold, but if Ch. 11 is invoked the sale of Grayscale assets will be stopped until the court process plays out.


Grayscale holders are hoping for the first option, where the GBTC discount is removed. However, there is a real risk of DCG going into bankruptcy, which would mean Grayscale assets could be dumped on the market.


I think this could impact institutional confidence in digital asset exchanges that are not fully regulated and demonstrates how a regulated Bitcoin ETF is necessary for institutional and consumer confidence in this asset class, where wild price discrepancies cannot occur.


Yesterday, we saw the Grayscale Ethereum Trust trades at a record 60% low against Ethereum, showing a lack of confidence from investors in the situation.


Gemini publicly wrote to Barry aiming to solve the situation by January 8th, so we should have more clarity on the situation then.

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