Commentary
Digital Assets gained +4% this week. Gains were end of week skewed with BTC jumping up $500 Thursday HK time to cross back above the $7,000 mark. Strength was broad based with 198 of the top 200 coins and tokens looking to end the week higher. Amongst the top assets by market cap, gains this week were led by ETH, Link, Tezos and BCH.
Top crypto headlines included: 1) China Digital Currency launch thought to be imminent, 2) Central Banks may be preparing for a stablecoin crackdown, 3) US policy makers are still critical of Libra despite new watered down version, 4) Grayscale reporting a record quarter of inflows, and 5) US listed BTC miner Canaan posting a massive 2019 loss.
Broader economic headlines continued to support the BTC value proposition with: 1) 22 million Americans filing jobless claims since the start of the COVID19 pandemic, 2) Policy makers pushing for broad, UBI type financial support, 3) Millennials spending their stimulus checks on BTC , 4) Bloomberg highlighting how the global money supply has now more than doubled since the 2008 GFC and 5) China 1Q20 GDP contracting -6.8% — the first drop since at least 1992
BTC custodied on-exchange continued to dwindle this week. As mentioned last week, this is a very positive signal as it implies that investors have a low near term propensity to sell. At the moment, transactions to and from exchanges account for just 16% of on-chain activity — with outflows continuing to outpace inflows on the aggregate. At the same time, money on the sidelines continued to increase with the market caps of USDT, USDC and PAX all at, or near, historic highs.
As highlighted in research from Glassnode this week, BTC’s Net Unrealized Profit/Loss is nearing the ‘optimism’ zone — meaning that investors as a whole are in the money. A break into this zone has typically been followed by further gains as investor confidence increases.
My outlook for the near term remains constructive. As discussed last week the 50 day moving average was a key line of resistance. Moving tentatively above that this week is a positive sign that I think will likely be supported by the 20 day moving average crossing above the 50 day moving average some time later next week. With very little volume between the current level and $8,500, I think the next significant line of resistance is the 200 day moving average at $8,000. With just 25 days left until the May 12 halving, I think risk remains skewed more to the upside at the moment.
Thoughts
Stablecoin Wars: Central Bank Bans, Libra, China Coin
Lots of news this week around stablecoins. This comes at a time of strong global USD demand and record high market caps for USD backed stable coins like USDT, USDC and PAX.
Libra announced this week a very watered down version of its original proposal. Libra-lite would no longer be a public blockchain, rather it would be a permissioned chain on which users would have to secure regulatory approval. In addition, Libra would no longer be backed by a basket of low volatility assets — but instead single central bank issued currencies. Despite the changes, Libra saw continued pushback from policy makers.
Screenshots were also circulating this week of what looked like a new Agricultural Bank of China wallet for China’s DCEP coin. Reports also this week that a formal issuance of DCEP would likely come sooner than originally expected.
At the same time The Financial Stability Board (FSB) — an international body that monitors and makes recommendations about the global financial system — outlined ten recommendations to central banks for regulating stablecoins, including an outright ban.
As previously highlighted by the Bank of Japan there is little organic demand for state issued digital currencies. I think this is an extension on the war on cash — an effort to remove cash, lock citizens into the financial system, and facilitate the implementation of negative interest rates. In China, it’s probably even worse than that; it’s a completion of their social credit system that would offer perfect financial control over more than a billion individuals.
This is exactly the problem BTC was built to address. Prior to 4Q17, BTC was the reserve currency of crypto. Since then, the 3 largest stablecoins have grown to a combined market cap of ~ US$8B. A prohibition on stablecoins would likely see these funds squeezed into BTC — the last best hope for individuals to hold sovereignty over their own money.
News
- Bloomberg: Money is losing its meaning
– Great article on Bloomberg this week
– M2 for 12 major economies shows money supply has already more than doubled to $80 trillion from before the 2008–2009 financial crisis
– The $ has no intrinsic value & now there are no restraints on spending…
– It’s not crazy to think gov spending may hit $10 T— for just one year!
- China’s GDP drops +6.8% YoY in 1Q20–1st drop since at least 1992
– China is, of course guiding, that the economy is now on the mend
– But is undergoing a demand shock of its own with Western consumers now on lockdown - Central banks preparing for stablecoin crackdown
– Stablecoin demand has soared recently. USDT market cap has gained more than US$2B since March and both PAX and USDC market caps are at record highs - China said to be preparing for imminent launch of Digital Yuan
– Lots of screenshots circulating this week of a new Digital Yuan wallet
– The Agricultural Bank of China (ABC), one of the nation’s four state-owned banking giants, is said to be trialing a test interface for the country’s central bank digital currency known as DCEP
– No … that isn’t an acronym for DECEPTION it stands for Digital Currency Electronic Payment - US listed Chinese miner Canaan posts huge loss
– Reported a 2019 loss of $148M on revenue of $204M
– Comes less than 6 months after IPOing in the US
– According the announcement they blame the loss on COVID19: “As a result of the impact of the COVID-19 outbreak….” - Libra bends the knee to regulators — congress still not keen
– Libra announced some major changes this week:
1. Will no longer be backed by a basket of currencies, instead will be Libra USD, Libra GBP etc
2. Will no longer be a public blockchain, but a curated private chain
– Despite the changes Rep Sylvia Garcia (D-TX) said Libra is still likely a security and should be regulated as such - Millennials receive stimulus checks….and buy BTC
– The package set aside $1,200 for every low/mid income American adult
– BTC price jumped $500 the day the checks went out
– A chart shared by Brian Armstrong, CEO of Coinbase, seems to indicate that users were using the check to lift offers on Coinbase
- Members of congress want to give every American US$2K / month
– Paid to every adult earning <$130K for the duration of the COVID crisis
– Paid monthly until unemployment returns to pre-virus levels
– Sounds like this would be hard to turn off once started - Gayscale now holds 1.7% of all BTC after record $500M quarter
– Firm raised $503.7 million in Q1 2020
– Nearly double the previous high of $254.8 million reached in Q3 2019
– Inflows surpassed $1 billion over a 12-month period
– Grayscale manages a number of popular crypto investment products including the GBTC listed BTC fund - Binance Latam lists Bolivar
– Venezuelan VES will trade vs BTC, USDT, ETH, BNB, BUSD, & EOS - Australian crypto unicorn raises $160M with Big 4 bank backing
– Airwallex, raised $160 million in recent fundraising round
– Led by ANZ and San Francisco-based cloud software company, Salesforce - BTC payment facilitator Purse.Io closes shop
– Company has operated since 2014 as an Amazon payments facilitator - Crypto custodial giant BitGo executes another acquisition — buys Lumina
– Crypto custodian BitGo has acquired Lumina
– Lumina provides an institutional investor platform for managing crypto portfolios and tracking tax obligations
– Earlier this year BitGo acquired STO platform Harbor and last October, BitGo acquired staking infrastructure provider Hedge - Visa gives BTC adoption a boost
– This is actually kind of cool…allows users to get loyalty points in the form of BTC rather than air miles etc - Binance’s CZ — QE will drive BTC price higher…it’s math!
“Mathematics works. If you increase supply of the fiat currency and bitcoin is a limited asset, mathematics will eventually work. So I think we’ll see impacts in a few months.” - Crypto trading analyst Tone Vays gets cut from Youtube in latest purge
– Removed for what YouTube calls “harmful or dangerous content”
– Vays channel isn’t exactly institutional grade investment analysis, but it’s certainly not “harmful or dangerous content” - CSW is running out of time on billion dollar lawsuit
– US district court judge has given CSW until the end of this week to provide documents supporting his case
– CSW also abandoned a libel suit against Adam Back this week
– Adam Back is CEO of Blockstream and was referenced by Satoshi Nakamoto in the Bitcoin whitepaper. Back says CSW is not Satoshi. - Crypto derivatives exchange Delta ads BTC/USDT contracts
– Watch our interview with Delta CEO Pankaj Balani - Over 22 million Americans have filed for jobless claims in the past 4 weeks
– Increases the unemployment rate to ~ 13.5%
– Last week, in Canada, the Premier of Alberta said that unemployment there had increased to 20% - Government calls for bailout of government
– Governors have called for $500B for states to make up budget shortfalls
– Wild times….
Charts
- Chart 1. Weekly % Change
- Chart 2. Major Assets YTD % Change
– Gold #1 and BTC $2 outperforming YTD
– Global equities and commodities still down significantly
- Chart 3. BTC Hashrate
– Big bounce in Hashrate this week
– Probably miners switching from BCH post halving to BTC
– China loosening travel restrictions is probably also helping
– Hashrate is expected to correct ~ 40–60% post the May 12 halving
- Chart 4. The Big Picture
– BTC price (log scale) as we enter the 3rd halving set for May 12 2020
“All this has happened before and will happen again” — Battlestar Galactica
- Chart 5. Gold, S&P vs M2 (Money Supply)
– But they said there’s no inflation?
– I think this ties in well with the Bloomberg article this week
– Blue = Gold, Middle Line = Money Supply, Bottom = S&P
– Note how Gold outperformance accelerated after the 2008 bailout
- Chart 6. BTC Price vs Volume
– BTC on pace to close > 50D MAVG for the first time in 52 days
– 20D MAVG will likely cross > 50D MAVG later next week
– Volume thins out a bit above this level
– The 200D MAVG at $8,000 is probably the next big line of resistance
– Volatility is also dropping which often foreshadows big price moves
- Chart 7. Bitcoin Exchange Balances
– Chart Credit: Glassnode
- Chart 8. China Quarterly GDP
