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The founder of a digital assets hedge fund breaks down 3 under-the-radar drivers that could shortly reboot the crypto bull market — and shares why El Salvador's acceptance of bitcoin as legal tender is 'extremely powerful'

Carlos BetancourtBKCoin Capital LP

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Commuting in New York City can be a nightmare even in the best of times, but that's exactly how former commodity trader Carlos Betancourt found bitcoin

From 2013 to 2015, Betancourt would ride the subway from the Upper East Side to the Financial District every day, walking past the Bitcoin Center NYC — a meetup and educational resources organization — before getting to his office. 

"Little by little, I started noticing that there were more and more people lining up outside the Bitcoin Center," Betancourt, who is now the co-founder of crypto hedge fund BKCoin Capital, recalled in an interview.

Betancourt's curiosity was piqued and he went inside. He quickly realized that the line outside the door was for the ATM inside where people could buy bitcoin with cash or debit cards. It was a sign of the wild-west early days of cryptocurrencies when many enthusiasts had no idea how to access the bitcoin network or set up a digital wallet. 

However, once Betancourt read the bitcoin white paper authored by its pseudonymous creator Satoshi Nakamoto, the commodity trader, who is well-versed in how precious metals are mined, was immediately intrigued. 

"When I first read the Satoshi white paper and understood that there is going to be only a certain amount of bitcoin mined. What's left after that is just supply and demand and simple economics," he said. "If it's something that people want and the demand is high, the price is going to go up. Conversely, if it's something people don't want and there's no demand for it, the price is going to suffer."

3 drivers that could soon reboot the bull market

Bitcoin's price has indeed suffered recently.

Plagued by Tesla chief executive Elon Musk's concerns over the massive amount of energy consumed in mining bitcoin and regulatory headwinds from China, bitcoin's price tumbled as low as about $30,000 from an all-time high of just above $64,000. 

But things are already looking up and bitcoin is trading above $40,000 again. 

Musk on Sunday tweeted that Tesla would resume accepting bitcoin as payment when the cryptocurrency's clean energy usage reaches 50%, causing it to immediately jump above $39,000. On Monday, hedge fund billionaire Paul Tudor Jones pitched bitcoin as a portfolio diversifier to which he would allocate 5% along with gold, cash, and commodities. 

While big-name investors and influential individuals tend to move the markets, Betancourt believes that there have been some positive developments flying under the radar in the crypto market that could really reboot the bull market. 

One of the examples is the successful Series C fundraise of Ledger, a maker of crypto hardware wallets. The Paris-based company last week closed a $380 million round that values the startup at more than $1.5 billion. Leading the raise was renowned macro investor Dan Tapiero, who launched 10T Holdings, a crypto-focused fund, in February. 

Another sign of institutional appetite is the $314.15 million fundraise during the same week by Solana Labs, the developer of the Solana blockchain (SOL), in a private token sale. The round was led by Andreessen Horowitz and Polychain Capital.

Perhaps the most telling sign was the oversubscription of the junk bonds issued by MicroStrategy, which ramped up its borrowing to $500 million from $400 million to purchase bitcoin. 

"These are all very bullish things," Betancourt said. "I'm looking very closely at these very quiet but very positive news because they are essentially telling me that the smart money is still looking at the space, still investing in the space, and there's a lot of appetite for it."

Aside from those bullish signals, bitcoin's first update in four years, Taproot, has been greenlit by miners to take effect in November. Meanwhile, Ethereum's planned EIP (Ethereum Improvement Proposal)-1559 is slated for July.

With these drivers and catalysts underway, Betancourt said it is likely that ether reaches above $3,000 again and bitcoin jumpstarts another bull run. 

"We've kind of been muted. We've been in a consolidation stage after May," he said. "But we continue to be bullish, we still think that we are in a bull market and there's a good chance that we'll see all-time highs again before the end of the year."

Why El Salvador's acceptance of bitcoin is 'extremely powerful'

In November 2018, Betancourt and his partner Kevin Kang set up BKCoin Capital, which as of April had returned 214.19% since inception compared to the S&P 500's 58.43% during the same period, according to the firm. 

The duo started by trading crypto independently, trying to capture an inter-exchange arbitrage, which means buying and selling into different exchanges to exploit the price differences at different trading venues. 

"At the time, we could capture 30% to 50%, so the market was very inefficient," he said. 

Today, the firm offers a flagship market-neutral strategy, with its main alpha generator being the bitcoin basis trade, which exploits the differences between bitcoin spot and futures prices. 

As an active trader, Betancourt said the fund could place 50 to 100 trades on any given day, but he also appreciates bitcoin's promise for innovation and financial inclusion. 

Originally from Latin America, he thinks that El Salvador's decision to recognize bitcoin as legal tender could empower people who are either under-banked or living in nations undergoing hyperinflation. 

Betancourt adds that while 70% of the population in El Salvador doesn't have access to a bank account, they do have cell phones, making it possible for them to leapfrog the traditional banking system and transact using bitcoin and other cryptocurrencies via cell phones.

He also thinks that a lot of countries could follow the footsteps of El Salvador, which could send ripples through the financial markets and speed up institutional adoption.

"The moment any other country also decides to make it a legal tender and it starts transacting with El Salvador, banks must accept it as a form of payment and as a form of currency," he said. "Once a couple of countries decide to do that and then they transact with each other or families transact with other families in each country, that's going to be a key moment in the history of cryptocurrencies."

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