Commentary
Digital Assets gave up gains earlier in the week to end just +4% WoW and just shy of US$200B market cap mark. BTC saw weekly gains narrowed to 2.5%, enough though to bring its YTD price performance back into positive territory.
Amongst major asset classes, only BTC and Gold are still positive YTD.
Risk appetite was noticeably improved with smaller, high beta tokens posting significant gains: LINK +29%, ATOM +14% and XLM +14%. BTC clones BSV and BCH also enjoyed midweek rallies ahead of their halvings this week as well.
News flow this week continued to be macro dominated with, 1) The Fed growing its balance sheet > US$6T as it expanded activities into ETFs and non investment grade debt, 2) Jobless claims and unemployment numbers continued to surge globally, 3) and covid-19 deaths globally edging closer to 100,000.
Top crypto stories this week included, 1) Fidelity Digital Assets expanding its trading platform, 2) BCH and BSV halvings, 3) S Korea’s central bank said to be testing a Digital Won and 4) record AUMs set by USD and Gold backed digital currencies.
Our call 2 weeks ago for a near term break above $7,000 was a good one — though it looks as if BTC is struggling to hold that level now. Looking into next week, I think overall positioning looks pretty healthy. Last month’s correction into the $3,000s forced some pretty aggressive deleveraging by wiping out a lot of the speculative money. On-exchange BTC at the moment is at a 6 month low (meaning there’s an overall low near term propensity to sell) and there’s a lot of cash on the sidelines with both USDT and USDC market at historical highs of US$6.4B and US$710M respectively.
Technically, BTC has struggled this week to break above 50D MAVG resistance at $7,330. Given that we’re only 33 days away from the halving, I remain cautiously optimistic. If we can get above the 50D MAVG, there’s a good chance we can make another hop higher to test the $8,000 level in the near term.
I think it’s important to remember the big picture, though. The overall macro environment is evolving in a way that I think will see more investors move towards unforgeable, scarce, inflationary hedges like BTC and Gold. After the May halving BTC’s scarcity and stock-to-flow ratio will increase. By around the year 2022, Bitcoin’s stock-to-flow ratio will overtake that of gold. By modeling BTC’s scarcity with a stock-to-flow model, we get a year end price target of ~ US$33,000. The 2021 predicted price is US$98,000.
Thoughts
Exchange BTC Balances Fall to a YTD low
According to data provided by Glassnode, BTC exchange balances continued to fall this week — dropping to a 6 month low of 2,234,508 BTC across 13 major exchanges.
Typically BTC exchange balances increase as users send coins to platform wallets in preparation to sell. A decrease in exchange balances indicates that users have been moving coins off exchange for storage and are not planing to sell in the near term.
I think this speaks to the aggressive deleveraging we saw across the space with last month’s drop into the $3,000s that saw short-term institutional investors rotate into USD and washed out overly leveraged miners and speculators.
I think this is an extremely constructive signal.
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Fed Balance Sheet Jumps to $6.13T, National Debt Passes $24T
The Federal Reserve’s balance sheet increased to a record $6.13 trillion this week following a broader application of newly launched liquidity facilities.
Yesterday officials announced that bond-buying program would be expended to include Fallen Angels (investment-grade rated prior to March 22 but that was later downgraded) as well as ETFs that track speculative-grade debt.
At the same time, public debt held by the United States jumped past $24 trillion for the first time ever — almost double from where it was a decade ago and up by ~ $1T in less than six months.
Remember when the deficit hit a record $1.4T under Barack Obama 2009?
These are big numbers. It’s as if every government globally has suddenly embraced Modern Monetary Theory — the idea that governments can print as much money as they need, even to pay off their own debt. Once they’ve discovered the magic money tree, it’s hard to see them turning away from it and easy to see how this slips into currency debasement and significant inflationary pressure.
BSV and BCH don’t look great post halving
BCH’s hashrate fell by ~ 48% to a new 8 month as mining for most participants becomes unprofitable.
The decrease in hashrate not only makes the protocol less secure (the cost of executing a 51% attack on BCH for an 1hour is estimated to cost just ~$7,500 vs more than $22,000 the prior the halving), but has also led to a significant slow down in block speed with just 4 blocks being processed over a 3 hour period.
The lack of change in BSV hashrate is potentially even more concerning. Whilst the sharp drop in BCH hashrates highlights the degree to which economically incentivized miners are participating in the ecosystem, the lack of change on the BSV chain may suggest that there is possibly no organic mining in BSV. Which may imply it is about as decentralized as a Visa server farm.
News
- Draper: Pandemic could be tipping point for BTC adoption
“They are gonna be printing all this money to try to get the economy back after they’ve basically tanked it,” he said. “They are going to flood it with a bunch of money, and that money is going to be worth less, and less, and less.” - Fidelity Digital Assets expands platform to include crypto exchange ErisX
– Previously only routed client orders to market-making trading firms
– ErisX said Fidelity would now be able to route orders to its marketplace
– ErisX is the first exchange that Fidelity Digital Assets has onboarded - ‘Rich Dad Poor Dad’: Only Gold, Silver and BTC lie outside the system
– The author of the book Rich Dad Poor Dad, Robert Kiyosaki, discussed hard money in a podcast interview with Morgan Creek Digital co-founder, Anthony Pompliano
– Kiyosaki likes BTC as a hedge on the central bank driven financial system - South Korea’s central bank is testing a Digital Won
– Very early stages and it may not even result in broadly distributed product, but interesting to see another central bank looking at this - Class action lawsuit alleges unregistered security issuances
– A number of major exchanges and projects involved including:
Binance, BitMEX, Tron , Civic, Block.One, Kyber Network and Status. Bibox, Quantstamp, Bancor and Kucoin
– The suit has been filed by Roche Cyrulnik Freedman, the same firm that sued Craig Wright for Satoshi’s billions and Bitfinex for ‘market manipulation’ - PAX Gold sets new historic high for market cap, volume
– 5 day average turnover gained to close to US$2M
– Market cap hit a high of US$33M this week +160% YTD
– Seems to be growing interest in this form of tokenized gold - US government debt passes US$24T
– Now larger than the economies of China, Germany and Japan
– Means that the US will have to spend $1B…per day…on interest
– What could go wrong?! - US jobless claims expected to hit 5.25M
– Last week’s number was 6.65M up from the previous week’s 3.31M
– Means that more than 15M Americans have filed claims in past 3 weeks - Americans not making mortgage payments +,1064% MoM
– The government is requiring lenders handling payments on federally backed loans to give borrowers grace periods of as much as six months at a time with no penalties
– Solvency crisis could spread to loan servicers who are pay bondholders whether or not borrowers pay - BCH, BSV pump on halving — sparkle and fade?
– Given the lack of network activity on both chains and high centralized their whole ecosystems are from ownership, mining and wallet / exchange support…would expect a pullback post this rally - 1/3 of BCH supply has never been touched
– I think there’s a very large chunk of BCH and BSV supply that was never claimed. Means that the actual market cap is way smaller than what is reported. - $633M worth of BTC moved for just $0.26 transaction fee
– transfer required neither identity checks nor trusted intermediaries - BTC bull — Jack Dorsey — commits 1/3 of wealth for covid 19 relief
– Dorsey is CEO of both Twitter and Square
– BTC transactions accounted for ~1/2 of Square’s Cash App revs in 4Q19 - Bitfinex launches staking products
– Will offer staking rewards up to 10% per annum on crypto assets
– Given the disparity between traditional fixed income yields and crypto yields will be interesting to see if more mainstream investors begin to put a toe in - Four of Crypto’s ultra rich made the Forbes 2020 Billionaire List
– Bitmain co-founders Micree Zhan and Jihan Wu with $3.3B, $1.8B
– Ripple co-founder Chris Larsen with $2.6B
– Coinbase CEO Brian Armstrong with $1B - Canaan IPO class action — shareholders to decide on representation
– Alleges the IPO Registration Statement was materially false / misleading
– Shareholders need to pick a lawyer by May 5 2020
Charts
- Chart 1. 7 Day Price Performance
– Significant gains this week in smaller, higher beta tokens
- Chart 2. BTC Seasonality
– BTC +6% so far this month
– April historically has been a reliable up month
- BTC vs Other Assets YTD
– BTC and Gold the only assets in positive territory YTD
– Everything else still deeply negative:
Global Treasuries, Equities and Commodities
- Chart 3. Halving 2020 vs 2016
– BTC price this cycle is significantly lagging the 2016 halving cycle
- Chart 4. BTC Price
– BTC struggling with 50D MAVG resistance this week at ~ $7,300
– If we can break above that, will likely be able to challenge the 200D MAVG at ~ $8,000
– Halving is now just 32 days away
