Commentary
Friday the 13th. Digital Assets -47% WoW. Trading this week increased to a daily average of US$200B across the space with BTC and USDT trading record single day volumes today (BTC at US$68B, USDT at US$98B).
Selling this week was driven by macro uncertainties as Coronavirus driven supply chain disruptions and demand shocks caught up with Western investors. Broad based de-risking across markets saw investors rotating aggressively into cash. BTC as the most freely traded asset on the planet — no down limits, government intervention or market closures — suffered a -60% drop, its worst single day fall on record.
Looking at exchange BTC flows and wallet balance changes it looks like the bulk of selling was led by Western institutional and high net worth. Western exchanges looked to have dominated recent BTC net inflows (sending BTC to exchanges before selling) and the number of wallets with ≥ 100 BTC has come back aggressively over the past few weeks.
Initial price declines were exasperated by aggressive liquidations on futures exchanges. 24 hour liquidations in BitMEX surged to a record high US$830M.
News flow this week was dominated largely by macro headlines: 1) multiple Western countries closing borders and restricting travel, 2) more Coronavirus stimulus packages (Australia $11.4B, The Federal Reserve announcing $1.5T market intervention plan), 3) PlusToken moving 13,000 BTC through mixers, 4) Reports of liquidation driven exchange outages at BitMEX and Deribit, 5) BNP said to be banning Coinbase remittances and 6) YouTube reportedly again sanctioning crypto content.
In the short term, BTC is in uncharted waters after suffering its worst single day fall ever and the only real drop below the 200 week moving average we’ve ever seen. BTC tends to lead traditional markets in peaks and bottoms and I think there’s a good chance price discovery for BTC will happen faster than in traditional markets. The coming months will clearly be a test for BTC, but this is exactly what it was built for. Satoshi Nakamoto etched the headline “Chancellor on brink of second bailout” (The Times 2009/1/3) into the Genesis Block — the first block of the Bitcoin Blockchain — as a reaction to the monetary policies of the last crisis.
In many ways this crisis looks to simply be a result of the inability to adequately address the previous one. I think this will likely further erode trust in the current system and foster interest in an alternative. The tinder for what’s happening in markets now has been building for a generation. The Coronavirus is just the spark that set it ablaze. In my opinion, hard (limited supply), digital, global, censorship resistant money offers one of the few paths forward from the excesses and mismanagement of the legacy system.
Statistically, large single day BTC drops have been followed by near term bounces. 70% of BTC’s 20 biggest single day drops have been followed by a bounce over the following 50 days (Chart 8 below). The average gain is ~ 30%. Which translates to a price target of ~ $6500 by May 1…. just in time for the BTC block reward halving.
Thoughts
What happened to BTC and where do we go from here?
Before this week’s record sell off, BTC had shown a small, but increasing correlation with US equities. Historically, BTC has had a very low correlation with any traditional assets or markets. I think that’s largely because BTC market participants and traditional market participants have historically had very little overlap — the longer you stretch out the time period out, the more true this is and the lower the correlation. Mainstream institutional money that is so dominant in traditional markets has been notoriously been very slow to gain exposure to BTC.
So how do we explain BTC’s recent correlation with US equities — and the massive overnight sell off? I think Raoul Pal of Global Macro Investor hit the nail on the head.https://cdn.embedly.com/widgets/media.html?type=text%2Fhtml&key=a19fcc184b9711e1b4764040d3dc5c07&schema=twitter&url=https%3A//twitter.com/raoulgmi/status/1236975140744937474&image=https%3A//i.embed.ly/1/image%3Furl%3Dhttps%253A%252F%252Fpbs.twimg.com%252Fprofile_images%252F1134440835410538496%252FjrvVYXVY_400x400.jpg%26key%3Da19fcc184b9711e1b4764040d3dc5c07
I think Pal’s observation is probably also supported by wallet balance trends and exchange BTC flows:
Wallet Balances — Wallets with balances ≥ 1 BTC have been on an uptrend all year, and haven’t slowed much despite the recent correction. Larger wallets, though, with balances of ≥ 100 BTC have pulled back significantly over the past 1.5 weeks.
Exchange BTC Flows — Over the past 30 days Bitstamp has seen the largest net inflow of BTC (amongst spot exchanges). I think that probably indicates users sending BTC to the exchange in order to sell. Bitstamp has been regulated in Luxembourg since 2016 and is seen as one of the preferred execution platforms for institutional investors. Over the past 7 days, Bitfinex is the leader. Bitfinex is also considered a largely quasi institutional focused platform (Note also how Chinese exchanges, Huobi and OKex saw outflows of BTC).
This is also reminiscent of the 2008 financial crisis — when investors often sold what they could, not what they wanted to. Post the 2008 Bear Stearns bailout Gold (counter intuitively) fell -30%. The price didn’t recover above $1,000 until 2H09. Gold became a funding asset for liquidity strapped investors and banks. Banks even borrowed gold (to sell) to meet USD liquidity requirements.
I think yesterday’s selling in BTC was much the same. As Western investors came increasingly to grips with the economic implications of the Coronavirus, BTC was an easy asset to sell; its liquid, doesn’t have down limits, and trades 24/7/365. As macro investor Dan Tapiero put it:
“BTC is the only asset that can go down 50% in one day and doesn’t need government intervention to stabilize [it]”.
Post the last financial crisis — gold significantly outperformed equities as governments unleashed stimulus efforts and the overall money supply increased. This was really the reason BTC was created and I think one of the reasons to look for outperformance in the mid to long term.
News
- PlusToken scam moves 13,000 BTC to mixers
– PlusToken is a Chinese Ponzi scheme that raised ~US$2.9B in crypto
– There’s a good case to be made that the PlusToken fund raise and collapse dictated a lot of BTC’s 2019 price action
– Could be movement in preparation for selling
– The bulk of PlustToken selling in 2019 allegedly occurred on HuoBi
– Another report suggested that 70% of BTC raised has been sold - FTX CEO: BitMEX responsible for price crash, BTC could have gone to 0
– FTX is crypto derivatives exchange born out of Alameda Research Research, the 4th most profitable trader on BitMEX’s leaderboard
– Suggests that BitMEX’s ‘lethargic’ liquidation engine created a liquidation cascade that only stopped when the exchange went down for maintenance, allowing price to recover form a low of $3,800 to > $5,000
– The BitMEX insurance fund decreased by 1,627 BTC yday - US Fed to inject $1.5T into markets to offset market disruptions
– Christopher Whalen, founder of Whalen Global Advisors:
“Both bonds and equities were inflated rather dramatically by our friends at the Fed. You’re seeing the end game for monetary policy here, which is at a certain point you have to stop. Otherwise you get grotesque asset bubbles like we saw, and the engine just runs out of fuel.” - Australia launches $11.4B Coronavirus stimulus package
– Australia will likely be 1 of the main victims of the China demand shock - CME suspends trading in response to Cornavirus
– Trading to continue , more about segregating 450 traders and staff - 2 arrested for facilitating laundering of NEM from Coincheck hack
– Coincheck’s NEM hack worth US$500M was one of the largest ever
– Japan has arrested 2 people involved with the Russia based hackers - BlockFi now accepts cash via Silvergate support
– BlockFi is one of the most popular decentralized lending platforms
– Silvergate is a San Diego bank popular with crypto businesses
– Could make BlockFi more popular amongst traditional investors
– Especially given you can get >8% yield in USDC - YouTube looks to be banning crypto content again
– Crypto YouTubers The Moon and Ivan on Tech both hit again - Reports that BNP is blocking client remittances to Coinbase
– Reportedly considers Coinbase ‘an illegal operation’ - Circle introduces new APIs focused at pivoting USDC into payments
– Marketplace APIs will provide tools for online e-commerce platforms - CME BTC Futures volume surges after price dip
– Gains to US$445M, best day since Feb 18’s US$1.1B - Judge throws out Craig Wright’s latest excuse
– The latest twist…CSW has access to Satoshi Nakamoto’s 1M BTC wallet…but can’t prove it because of the bonded courier that provided CSW with the files necessary to unlock the ‘Tulip Trust” (a collection of 1 million Bitcoin that Nakomoto supposedly mined in his early days) is a Kenyan lawyer — and their communications and documents are protected by attorney-client privilege
– The judge threw out CSW’s argument
Charts
- Chart 1. Weekly % Change
– BTC -34% WoW at the time of writing
– Many smaller coins and tokens down 50% or more
- Chart 2. YTD % Change
– BTC -26% YoY
- Chart 3. Lowest RSIs
– BTC at RSI of 22
– Many < 30 RSIs
- Chart 4. Position in 52 Week Band
– Many smaller coins and tokens down very close to 52 week lows
- Chart 5. % vs 50D MAVG
– BTC -42% vs its 50D MAVG
- Chart 6. BTC vs 200 Week MAVG
– This is first time ever BTC has been significantly below the 200W MAVG
- Chart 7. BitMEX liquidations
– Good chart provided by Delta Analytics highlights $830M in liquidations
- Chart 8. Price performance after big single day drops
– Statistically, there’s a high probability BTC is higher over next few weeks
