Consolidation Edition
Discover more from Efficient Frontier
Consolidation Edition
In this edition: Market wrap and summary of Deutsche Bank’s Bitcoin report
Bitcoin’s price is close to finishing its 6th week above $40,000 after trading in the last week between $52,000 to $60,000. Yesterday Tesla surprisingly announced on Twitter they will be accepting Bitcoin for electric cars and the price shot up to $57,272. However, it quickly lost momentum and dropped to a low of $50,400 at the time of writing, with many market participants expressing negative sentiment.
The dip to $53,000 on Monday triggered the sell of $1.34 billion worth of positions into the leveraged derivatives market. Yesterday’s dive from $57,000 to $51,600 triggered $1.79 billion more of liquidations. Derivative trading is still led by Binance’s market in both the amount of contracts and volume.
With a record amount of option positions due to expire Friday, it will be interesting to see how much the market is affected with the largest bets being placed on Bitcoin dropping back to $42,000 by tomorrow, although it seems unlikely.
On-chain
Two on-chain indicators show interesting information:
The number of Bitcoin addresses with more than 1,000 Bitcoins (a subject discussed in our last newsletter), continued its sharp drop, completing what looks like the sharpest rise and fall of Bitcoin-rich addresses in Bitcoins history.
Meanwhile, the supply of Bitcoin in exchanges keeps dropping, continuing the trend which started in March 2020. This lowers the supply of Bitcoin to retail buyers.
The new Canadian Purpose Bitcoin ETF, has amassed 14,693 Bitcoin, or a total of $1 billion in assets since it opened on February 18th.
Yesterday Fidelity asset management announced they plan to launch a Bitcoin ETF under the name Wise Origin Bitcoin Trust. The same day Goldman Sachs filed to create an ARK investment ETF which may have some exposure to cryptocurrency. Meanwhile, on Monday the Brazilian Securities and Exchange Commission approved the first Bitcoin ETF in Latin America, providing much needed access to a country suffering from high inflation.
At the same time, the GBTC exchange traded fund which has served for many years as a replacement for a Bitcoin ETF in the US, is still suffering from a negative premium to Bitcoin. Since February 24th GBTC’s premium has remained negative after Grayscale’s mother company Digital Assets Holdings purchased $250 million shares hoping to support its price.
Deutsche Bank’s Bitcoin Report
The controversial banking giant published its first report on Bitcoin, voicing measured but clear approval of Bitcoin as a real asset. Starting on a skeptical note explaining the Tinkerbell Effect, the report serves as a basic introduction to the subject, and also states that Bitcoin is here to stay and has value as a treasury management tool.
Deutsche Bank highlighted Bitcoin’s low liquid supply which creates its ‘ultra-volatility’ and the low transactions count (0.5 billion a day), stating that Bitcoin, like Tesla, still needs to prove its utility. The report added obligatory mention of CBDCs and how Central Banks will not relinquish their power and allow Bitcoin to be used as a form of currency, while displaying a chart showing growth in the number of Bitcoin users as parallel with the growth of internet users in the 90’s.
Quotes from Deutsche Bank’s report:
“‘As Bitcoin network grows, the value of Bitcoin grows. As people move into Bitcoin for payments and receipts, they stop using US Dollars, Euros and Chinese Yuan, which in the long term devalues these currencies.”— Eric Schmidt, Executive Chairman of Google.’”
“Most likely, there will only be space for a handful of these cryptocurrencies, and few will ever be used as a means of payment.”
“Central banks and governments understand that cryptocurrencies are here to stay, so they are expected to start regulating crypto-assets late this year or early next year”
“Among central banks, 86% are researching and developing central bank digital currencies (CBDCs). The Bahamas launched the first nationwide CBDC last October, and both Sweden and China launched pilots in early 2020.”
News & links
FTX Arena: cryptocurrency exchange secures naming rights to Miami’s 20,000 seat basketball and concert arena
Popular on-chain exchange Uniswap launches version 3
Time Magazine interviews Michal Saylor, mentioning money printing and inflation
Podcast: Max Boonen, founder of B2C2 in a great conversation on market making