MaiCoin Digital Asset Weekly, Jan 10 2020

COMMENTARY

Digital Assets +4.9% this week on active trading. Volume for the week gained to US$76B +8.5% from the previous week. Breadth was much improved with 73% of the top 200 coins and tokens ending the week higher.

Headlines this week were dominated by BTC’s break above $8,000, following the Iran driven surge in Gold and Crude. Top headlines this week included: 1) A surge in Google ‘Bitcoin Iran’ searches, 2) Top 10 crypto derivatives exchange, Deribit, leaving the EU ahead of stricter AML rules, 3) A South Korean government committee recommending BTC be listed on the national exchange, 4) Japan’s SBI and GMO investing in a giant 300MW managed BTC mining project and 5) ECB’s Lagarde continuing to push for development of a Digital Euro.

Outside of news, there were also a couple of good reports out this week: Bloomberg’s 2020 Crypto Outlook and Fidelity’s 2019 BTC retrospective (links below).

Looking forward, I think we can expect some consolidation after the best weekly gain in 6 weeks. I was expecting $8,000 resistance to be more of a challenge given the amount of volume that has accumulated around this level. Price, however, was able to break well above $8,000 on the first try — creating a 7 week high. Higher highs are a good sign. From a sentiment perspective, BTC’s fear and greed has improved to neutral and the fact that it can participate in a ‘safe haven rally’ with gold is an important testament to the market’s view of its fundamental utility during times of geopolitical stress. One potential caveat, though, is the CME BTC futures gap at ~ $7,600 and the tendency of BTC to step back and fill these gaps. There is no actual reason, though, why BTC price has to actually fill the CME gap — but it is something that has tended to happen over the previous few months. Seasonality may also influence price in coming weeks. BTC has tended towards weakness ahead of Chinese New Year (Jan 25 2020), but has consistently outperformed afterwards. The ideal situation for the next few weeks would would probably be for BTC to consolidate this week’s gains around the current level, before making a run at the 200D MAVG resistance at the $9,200 level.

THOUGHTS

From magic internet money to safe haven

From Magical Internet Money to Digital Gold

In early 2013, the website BitcoinTalk.org asked users to select a slogan for Bitcoin. The top choice from users was “Magic Internet Money”. The slogan was followed with the above advertisement, painstakingly crafted with Microsoft Paint. The slogan “Digital Gold” came in at #8.

It was interesting to see BTC rallying with gold this week in the wake of US / Iran tensions. While BTC is almost certainly still much more of a risk asset than a safe haven asset, it can at times act like Digital Gold. In June 2019, Grayscale highlighted a number of these occurrences in their “Hedging Global Liquidity Risk with Bitcoin” report, including: 2015 Grexit drawdown, 2015 China CNY revaluation, 2016 Brexit drawdown, and the May 2019 China-US trade war.

BTC following gold is a very encouraging sign. It shows that the market views BTC as tradable proxy for geo political tensions in the same way that Gold, VIX or Crude are. Bloomberg’s ‘Crypto Outlook’ report highlighted the potential for Gold demand to spill over into BTC and act as its primary price driver in 2020. BTC’s increasing correlation (still very low, but trending higher) with Gold is a good graphical representation of how BTC is evolving from ‘Magical Internet Money’ to ‘Digital Gold’.

Chinese New Years Seasonality

BTC tends towards weakness before CNY, but over the previous 5 years has demonstrated pretty consistent gains afterwards.

T — 15 days until Year of the Rat.

Chinese New Year Seasonality, BTC 5 years

READS

  • Bloomberg Crypto Outlook — January 2020 Edition
    – Looks for price to stay in 2019 range, but edge closer to $14,000
    – Expects BTC and Gold to grow in 2020 on fixed supply and demand
    – Demand for Gold will spill over into BTC and drive price
    – BTC will remain the focus of crypto markets
  • Fidelity Digital Assets — 2019 Bitcoin Retrospective
    – This is a really good 2019 summary …too much to summarize
    – Highlights developments in the regulated derivatives space, including: 1) Bakkt and CME planing options release, 2) increasing volume, 3) mining specific derivative products
    – Also highlights historic highs in 1) realized value, 2) hashrate, and 3) all time high wallet numbers amongst a number of address bands, including:
    => addresses with a balance between 0.001 to 1 BTC
    => addresses with 1 to 10 BTC
    => and addresses with 1K to 10K BTC, and so on

NEWS

“We believe that crypto markets should be freely available to most, and the new regulations would put too high barriers for the majority of traders, both — regulatory and cost-wise.”

  • Japanese giants SBI and GMO invest in 300 MW managed mining project
    – The site in Texas is one of the largest in the world…and may expand to a massive 1 GW…which would likely make it the world’s largest mining site
    – The site is run by Germany’s Northern Bitcoin, who operates mining facilities on behalf of investors that are paid out in either new BTC or fiat
    – GMO had previously racked up a $321M loss trying to develop and execute its own 7nm mining technology before eventually giving up
    – One of the biggest trends in BTC is the mining industry moving out of China in favor of cheaper renewable power located largely in the West
  • Total ETH locked in DeFI applications hits new high of 3 million ETH
    – Accounts for close to 3% of total ETH supply
    – Represents growth of 11% MoM
    – Demonstrates the growing popularity of high yielding DeFi platforms
  • Line’s BITBOX exchange delists XRP
    – BITBOX is a pretty small, Singapore based exchange
    – Probably just an attempt to delist illiquid trading pairs
  • Coinbase Pro launches an Android App
    – Funny how long this took, but is another sign of improving market access
  • $15M of Tether moves to Blockstream’s Liquid Sidechain
    – Implementation of confidential transactions allows for greater privacy
    – Hides transactions between off-exchange accounts on Liquid & exchanges
    – Has significant implications for larger traders:

“For example, a trader could move some Liquid-based tether to an exchange, with the intent of buying bitcoin without tipping her hand to others who might drive the price up before she can make the purchase.”

CHARTS

Table 1. Price Performance

Chart 1. Google Trends
– This week a lot of traditional investors learned that BTC can trade like Digital Gold

Chart 2. Crypto Sentiment
– Sentiment finished down slightly from a peak earlier in the week
– The overall trend continues to improve, though

  • Chart 3. BTC vs Other Assets
    – BTC outperformed this week beating
    Gold, Other Cryptos, Emerging Market Stocks and US Stocks
  • Chart 4. Volume
    – BTC and USDT both on pace for record high ADV this month
  • Chart 5. TA Brief Breakout
    – If we can consolidate at this level, may have a chance to break convincingly out of this channel and challenge the 200D MAVG at $9,200
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