Commentary
Digital Assets added +4.5% this week for the best gain in more than a month. Trading was very light at US$48B, down another -10% from the previous week. Breadth was about even with just shy of 50% of the top 200 coins and tokens ending the week higher.
BTC did the bulk of heavy lifting this week outperforming other Digital Asset thematics (Chart 3) and accounting for 82% of this week’s gains. BTC strength was driven by the first Fed rate cut since the start of the GFC, speculation of further weakening in the CNY, and reports that the CFTC was close to allowing physically settled BTC futures — potentially a significant onramp for mainstream institutional inflows.
Top stories this week included: 1. Cash App executing US$125M in BTC trades in 2Q, 2. Huawei’s CEO advocating a Chinese Libra, 3. LedgerX nearing CFTC approval, 4. SEC planing to run BTC and ETH nodes, and 5. Speculation that the Bank of China is warming to BTC.
Technically — price, volume and volatility all seem to be foreshadowing a significant price move. Volume across the space was extremely light this week. 7 Day ADV thinned out to a 3 month low. Volatility is also contracting with Bolinger Band Width down to a 2.5 month low of just 0.16. Given the macro backdrop and BTC’s increasing correlation with both gold and USD/CNY, it feels increasingly like mid term risk is shifting towards the upside. USD/CNY (Chart 7) is especially interesting. If USD/CNY breaks higher and the CNY sees a substantial degree of depreciation it looks likely that BTC could be pulled higher as capital flight accelerates.
Thoughts
- Rate cut adds fuel to BTC macro tailwind
BTC gained with gold this week following the Fed’s first rate cut since 2006. It’s interesting to note that BTC’s overall correlation with gold is continuing to trend higher as BTC’s correlation with DXY and SPX continues to trend lower. Increasingly, we think, BTC is being seen as a hedge on macro uncertainty in much the some way gold is. Gold bugs see these drivers — global monetary policy and its subsequent asset bubbles and inflation — as pushing price the price of gold to the $5,000 level, ~3.5x current price.
Gold currently has a market cap of around $8T, roughly 45x larger than BTC’s US$180B. Given the much smaller market cap of BTC, BTC’s fragmented liquidity (easier to push price), and more favorable demographic trends, we would expect the same macro drivers to push BTC valuation much higher and faster than gold.
- LedgerX launch is a step closer to mainstream institutional participation
The launch of LedgerX this week could mark the first step towards — much anticipated — mainstream institutional participation in BTC. The approval of LedgerX to launch the first ‘physically’ settled BTC futures will likely be closely followed by similar products from Bakkt and ErisX which are still awaiting regulatory approval.
Bakkt, which was originally expected to launch in November 2018, is owned by Intercontinental Exchange (ICE), one of the largest players in global trading, custody and settlement. The launch of Bakkt will make it a lot easier for mainstream institutional players to gain exposure to BTC. We expect macro trends to push demand for assets like gold and BTC significantly in the mid to long term.
- USD / CNY could break higher, positive BTC / USD
Chart 7 below highlights a potential cup and handle pattern playing out in USD / CNY. This pattern implies the possibility of the USD / CNY to break signficantly higher (CNY weakening). Since Nov of last year, BTC has been following USD / CNY. This looks like a reversion to the close relationship between BTC and USD / CNY seen in 2017. This makes sense — as CNY weakens there will be increased CNY capital flight which has historically been supportive of BTC price.
News
- Square Q2 earnings show $125M in BTC sales through Cash App
– Almost double 1Q19’s $65.5M
– BTC accounted for 95% of the Cash App’s subscription-, services- and transaction-based revenue - US sees first ‘physical’ BTC futures settlement … Bakkt around the corner?
– LedgerX announced the first approved BTC settled futures contract today
– Likely means that competing platforms also launching BTC settled futures are probably very close to launching — Bakkt and ErisX
– Bakkt has been bogged in regulatory approval for more than a year
– Seen as one of the main potential entry points for institutional players
– Bakkt is owned by the parent company of the NYSE
– ErisX is backed by TDAmeritrade - CFTC: LedgerX ‘Not Approve’ to launch physical BTC futures
– Ledger appears to be actively trading options and swaps trades
– Futures approval “appears to be in the very final stages of the approval process” - Tom Lee: Rate Cuts good for BTC
– Rate cuts add liquidity into the overall system
– Some of that liquidity will be squeezed into BTC as a hedge against systemic risks (similar to gold) - Bank of China post fuels speculation that China is warming up to BTC
– Bank of China (not the PBOC) published an explanatory infographic
– Sure that China likes anything that challenges USD dominance even at the margins, but clearly has an ideological conflict with BTC philosophies of censorship resistance and individual soverignty - Huawei CEO: China should preempt Libra
– This could be another interesting way in which China could chip away at USD hegemony, by promoting a Chinese controlled ‘stablecoin’ in developing nations - BitPay suspends services in Germany ahead of new regulations
– Starting 2020 German authorities will consider digital assets as financial instruments. Will involve more stringent KYC AML oversight and a likely a licensing reigme. - Brave now allows Twitter users to tip content creators BAT
– Tips can also be automated to allow users to pay your favorite content creators in timed installments - UK judge slams Craig Wright’s defamation case against Roger Ver
– The case was thrown out of court on grounds that it was “weak,” “lacking in detail,” and “inappropriate.” - Only 2% of Americans trust Libra more than other cryptocurrencies
– Only 10% of those polled have a positive view of cryptocurrencies
– Cites another poll that found 11% of Americans owned cryptocurrencies
– 38% of those invested in crypto invested as a long term strategy - U.S SEC to run BTC, ETH & XRP nodes
– Reads like an interest in capturing blockchain data and exercuting related analytics similar to services run by Chainalysis - Indian trade group against proposed blanket ban on cryptocurrencies
– Nasscom, a major Indian trade croup, is advocating for a risk-based framework to regulate and monitor cryptocurrencies and tokens - Tether has spent $500k, has 60 lawyers working on NYAG case
– Tether has spent $500K on preparing documents for the NYAG
– Involves aggregating data from 10 different communications platforms - Australia may tighten cash rules, but exclude cryptocurrencies
– Plans to ban cash payments for goods and services ≥10,000 AUD
– Crypto is exempted from proposed restrictions - CoinDesk: Binance Charity falling short of transparency goals
– Has apparently received $13M in donations, but depoloyed only $6M - U.S Supreme Judge delays decision to dismiss NYAG Tether case
“Needed more time to make a final decision on whether to dismiss the NYAG’s case entirely, or rule the other way and reject Bitfinex and Tether’s motion to dismiss.” - Galaxy Digital granted underwriter license
– Allows the ability to support companies “from founding, through private capital raisings, to their initial public offering and beyond” - DoJ files $100 million lawsuit against BTC-e
– Accused of failing to register as a Money Services Business (MSB) and failing to establish anti-money laundering programs and procedures - The Block commits fraud to show NY residents can register with US
– The Block published an article showing that US citizens can still open Bitfinex accounts, Bitfinex responded by highlighting that the user “represented to us several times that he was not an individual resident in the U.S.” - Silk Road site administrator sentenced to 78 months
– The 31 year old Irish national worked as Silk Road administrator for just 4 months. Has since been extradited to the US where he will be imprisoned for 6.5 years
– Silk Road’s founder, Ross Ulbricht, is currently serving a double life sentence plus forty years without the possibility of parole
Charts
Chart 1. Weekly Price vs Volume
Chart 2. Weekly Price Change
Chart 3. Major Thematics
Chart 4. Volume Z Score
– Volume was very slow in the first half of the week
– Many assets saw volumes shrink to bottom end of their 100 day range
Chart 5. Average Daily Volume, Month
– Most assets saw volumes fall MoM in July
– August also off to a slow start
Chart 6. Price 50 Day Z Score
– BTC back around its 50D MAVG. Most other big caps about -1 SD below
Chart 7. USD / CNY Cup and Handle Pattern
– Implies a potential for a break higher in USD / CNY (CNY weakening)
– BTC has followed USD / CNY since Nov of 2018
