Commentary
Digital Assets +7% this week — bouncing somewhat after last week’s record sell off. Breadth this week was strongly positive with 95% of the top 200 coins and tokens ending the week higher. BTC ended the week +16%, ETH +9%, and Altcoins as a group were +4.5%.
Last week’s capitulation looks to have largely run its course with BTC holding north of the $5,000 mark over the last couple of days despite continued weakness in global markets. Strength accelerated overnight, with BTC starting to show signs of decoupling from traditional markets — outperforming traditional markets by ~ 20% over the past 24 hours. At the time of writing we had recovered to $6,300.
Headlines this week were generally positive: 1) Bakkt raised $300M in series B funding, 2) Binance put US$52M into an India blockchain fund, 3) Coinbase’s legal head quit to join the darkside, 4) Starbucks app looks to be testing Bakkt Cash, and 5) USDT market cap jumped to US$5.7B.
The Tether market cap increase is particularly interesting because it points to new cash coming into the market. Over the past 24 hours it looks like Tether has seen inflows of ~ $161M. Historically, this has been a good predictor of bottoms.
Another interesting data point this week was the sharp drop in BTC hashrate. Over the last 1.5 weeks BTC 7 day average hashrate has fallen about 20%. It is estimated that around ~40% of the hashrate is comprised of outdated S9 miners. Those miners were expected to pull the plug post the BTC halving in May, but are now being forced to retire early after last week’s price crash. The washing out of short term focused, highly leveraged miners is probably positive for the overall supply situation. As larger players, with better balance sheets and lower energy prices tend to sell more strategically.
The global BTC market has been significantly deleveraged after a massive round of liquidations last week (back to back days of $863M & $798M) and with open interest on BitMEX now down the lowest level since May of last year. Given the current premium in futures — would expect to see fresh longs entering the market over the next few days. Following last week’s record sell off, there seems to be little to be gained by shorting at this level — so I think risk /reward is probably skewed more to the upside at the moment.
Given the volume peak at ~ $5,200 level, I would expect this to be a strong line of support. Fibonacci levels seem to imply a bit of resistance at the current level of $6,200 — this also lines up with lows in December and November of last year. Looking farther out, $7,700 looks like it will be another likely line of resistance given how much volume has traded just north of this level over the previous 12 months. Seasonality offers a glimmer of hope — BTC has been up 4 of the past 5 Aprils, the median 5 year return is +26%.
With the BTC halving now just 53 days away, what looks like a significant miner capitulation this week, and an acceleration of monetary and fiscal stimulus globally there are a lot of reasons to remain optimistic looking into 2H20. BTC was designed specifically for the economic future that will likely be unfolding over the course of the next few years.
Thoughts
Four Horsemen of the Apocalypse:
Bailouts, Inflation, Demonetization, Negative Interest Rates
Boeing looks like it will be the poster child for the buyback nonsense of the past few years. Boeing has spent billions of dollars buying back its own shares and is now looking for a $60B bailout to support the aerospace manufacturing industry. Boeing is not alone. The biggest U.S. airlines spent 96% of free cash flow last decade on buying back their own shares.
The timing is interesting. There is 0 appetite in the public for 2008 style bailouts. Normally I don’t think that would matter, but with the US presidential election just 8 months away I think there’s going to have to be a much greater level of accountability this time around.
I think inflation is already a problem. Economists will tell you it isn’t. That core inflation is at the bottom end of the historic range, but ask the man on the street -gas, education, housing- are all more expensive now than ever. Wealth inequality across countries and generational tensions also seem to point to on the ground inflation. The past few weeks have seen record intervention on both the fiscal and monetary sides. I think this means inflation is probably going to get worse.
With Central Bankers running increasingly out of tools, negative interest rates are looking more and more likely. This week the US announced the second emergency rate cut in two weeks, bringing the federal fund rate to between 0% and 0.25%. Discussions around negative interest rates are increasing. Last year, the IMF published a blog post that made the case for negative rates: Cashing In: How to Make Negative Interest Rates Work. The idea is that negative interest rates will make people want to spend, stimulating the economy, rather than saving. The problem, though, is that while “severe recessions have historically required 3–6 percentage points cut in policy rates”, most countries already have very low interest rates. The IMF suggests “a system that would make deeply negative interest rates a feasible option”. The US is already on the edge of a pension crisis. There will be many knock on effects for both the financial system and society in general.
To make negative interest rates feasible, demonetization and the war on cash will escalate. As the IMF has said “When cash is available…cutting rates significantly into negative territory becomes impossible”. This week the Reserve Bank of New Zealand highlighted that it would need to “…consider changes to the cash system to mitigate cash hoarding…” in order to facilitate the implementation of negative rates. The coronavirus offers a convenient reason to address dirty money, both Korea and China have started to take cash out of circulation to burn or launder. Demonetization is just a step away from the dystopian sovereign digital currencies that lock users into the financial system while also offering new tools to monitor or sanction transactions and confiscate or freeze assets.
Bitcoin offers an alternative. Its supply is immutable. Its issuance schedule is transparent. Transactions can not be censored, sanctioned, or reversed. Balances can not be frozen or confiscated. Selling in BTC last week was like selling in Gold in 2008. It’s part of everything going to USD. When that ends, I think BTC will get a second look as inflation and demonetization accelerate and as trust in the powers that be continues to erode.
Media
- MaiCoin Podcast #5 — Pankaj Balani, CEO and Co Founder of Delta
– Delta is a crypto derivatives exchange that offers up to 100x leverage in BTC and Altcoin derivative contracts.
– Pankaj provides unique insight into what happened with BTC liquidations last week, what role BTC plays in the current macro environment and how this industry is developing
News
- Tether market cap increases to US$5.7B
– Historically, gains in USDT market cap have lined up well with bottoms
– The whole USDT business plan is predicated on interest generation
– It will be interesting to see how the USDT model evolves as currencies globally move towards 0% or negative interest rate - Chinese miners just got liquidated
– This is a great article, matches what I’ve heard in the market…and explains the hashrate drop (chart 8 below)
– Many Chinese miners seem to have lent their BTC for USDT which they then used to expand capacity and/or weather weaker than expected price
– This lines up with a tweet I saw from Dovey Wan in Jan:
- Bakkt Cash appears on Starbucks App
– At the moment only Select users can use Bakkt Cash as a payment option
– Bakkt’s game plan looks to focus more around digital asset custody, than trading. Perhaps this is also why they pushed the idea of ‘physically settled’ BTC futures rather than cash settled. - Fear of Virus-Tainted Dollars Opens New Front in War on Cash
– No dirty money please, only hygienic payments please
– Burger restaurant:
“In an abundance of caution, we ask you to please pay with credit or debit card if possible rather than cash.” - Warren Buffet worries about market impact of negative rates
– “I would say that’s the most important question in the world”
– Perhaps Warren will warm to BTC at some point after all - Helicopter money: US may spend US$1.2M to give every American $1,000
– Trump administration wants to send out checks ≥ $1,000 each
– It feels like there’s a probability of some sort of UBI implementation
– Mitt Romney & Treasury Sec Mnuchin have advocated similar plans - MakerDAO considering USDC collateral support
– Should probably just use USDC instead - Binance sets up US$50M Blockchain Fund in India
– “Blockchain for India” fund will incubate and invest in local startups
– Will make investments anywhere between $100,000 and $5M - Coinbase ex Legal Head quits to join US Treasury
– Will become #2 man at Office of the Comptroller of the Currency
– Brooks is a proponent of private (corporate) digital currencies - Bakkt raises US$300M in Series B funding
– Investors include Microsoft’s M12, Boston Consulting Group and Pantera - Huobi’s mining business records 547% surge in mining revenue
– Said 2019 mining revenue increased to $320M vs $53M in 2018
– Operating profit increased to $6.3M…operating margins are 2%? - Nasdaq listed miner, Canaan hit with lawsuit for Dubious IPO Practices
– Revolves around a previously highlighted allegation where the miner reportedly included a $150M oder form mining equipment a month before filing for an IPO - Major XRP supporter Tiffany Hayden throws in the towel
– Typical crypto drama - Vitalik shares his vision for ETH 2.0
– The main goal is still to launch Pahse 0 some time this year
– Phase 0 is the first phase of the Ethereum 2.0 launch
– ETH 2.0 implementation is still a loooong way away - Kentucky company tokenizes $20M of Whiskey
– Should add some liquidity - Canada tightens crypto AML/CFT regulations
– Every transaction ≥ CAD$1,000 must record:
Type of crypto, sending/receiving address, sour of funds, entities involved
Charts
- Chart 1. Weekly % Change
- Chart 2. BTC vs Other Assets — 5 Days
– BTC +22%, Gold -3%, China Stocks -4.7%, International Treasuries -5%
Taiwan Stocks -9%, Commodities -9%, US Stocks -11%
- Chart 3. YTD price %
- Chart 4. RSI — Lowest
- Chart 6. % vs 50D MAVG
- Chart 7. Position in 52 week band
- Chart 8. Hashrate crashed this week
– Most likely a capitulation of over leveraged Chinese miners
- Chart 9. BTC price chart
– Likely some resistance around the current level
– Next line is ~ $7,700. Quite a bit of volume above that
– Strong support ≥ $5,200
- Chart 10. BTC Seasonality
– March losses already trimmed to just -26%
– March 2018 was worse at -33% MoM…so stop your crying
– April is a consistent up month. Hope springs eternal
