MaiCoin Digital Asset Weekly, Aug 2 2019

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

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

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