Blockstream Markets Weekly—December 04, 2020

USD slides as BTC hits ATHs, Bernstein Research warms to BTC, Paul Tudor Jones reiterates bullish outlook…Does a massive risk-on rotation mean $20K for Christmas?

By Jesse Knutson

What’s happening in the markets?

USD slides as BTC sets new highs

Bitcoin rebounded from last week’s declines to touch on new all-time highs this week. Price this week was very resilient after gaining seven of the previous eight weeks. Bitcoin looks to be catching a strong tail wind from a massive risk-on rotation with gold seeing its largest weekly outflow ever and global equities seeing $24B of inflows.

Expectations of a strong 1H21 global recovery, inflation concerns, and vaccine optimism helped support gains in risk assets as the USD slid to a new 2.5 year low. Bitcoin and the USD have demonstrated a fairly strong inverse relationship since the $2.2T CARES stimulus bill was signed into effect in March of this year (chart below).

News flow this week was reflective of these themes with more big-name investors making the case for Bitcoin. Bernstein Research, a previous Bitcoin critic, noted that increased fiscal expansion and a higher likelihood of inflation and tax increases would drive demand for Bitcoin. Likewise, Paul Tudor Jones reiterated his call for Bitcoin outperformance as risk appetite increases and as Congress and the Fed pump more stimulus.

Bitcoin not only set a new all-time high of $19,900 this week but also set highs in several longer-term price metrics as well, including all major moving averages and the year-to-date VWAP (volume-weighted average price). The 20 day moving average, for example, is already 12% above the 2017 peak. I think the longer-term trend has already broken out into uncharted territory, but we probably need a > $20,000 print for that to be fully recognized by the market.

Money on the sidelines

Despite reports that US lawmakers were considering stricter stablecoin rules, stablecoin AUM growth showed no signs of slowing. Tether ended the week just shy of $20B while USDC looks on pace to cross above $3B by the end of the year. This means there is an increasingly large pool of capital that can be easily rotated into Bitcoin. The new rules look unlikely to be implemented in the near term. But it’s worth watching. A stablecoin crackdown would probably see the majority of that money forced into Bitcoin.

When moon sir?

After gaining seven out of the previous eight weeks, we would typically expect a larger pullback than what we saw last week. From a positioning and flow perspective, though, I don’t see any reason why Bitcoin couldn’t punch through $20,000 at any moment.

Overall the market feels pretty healthy after last week’s deleveraging with futures still trading at a premium, funding rates well within normal levels, and on exchange Bitcoin balances still very low.

Given the recent torrent of positive institutional headlines and how resilient price has been, it feels like we could be somewhere near the beginning of a structural shift in markets. Where larger, mainstream investors reallocate portfolios to gain Bitcoin exposure. Maybe this means a slow grind higher and shorter, shallower pullbacks as a large amount of money attempts to squeeze into a relatively small asset.

Despite setting a new all-time high this week, I think $20,000 remains a key level of psychological resistance. A crack above $20,000 would put us firmly in uncharted territory and really punctuate the fact that we have transitioned into another bull market.

📬 Register your email to receive Blockstream Markets Weekly delivered straight to your inbox. 📬

Bitcoin markets news

Dollar plummets on US stimulus hopes, Bitcoin hits all-time peak

• What a headline…
• USD dropped to a new 2.5 year low as Bitcoin hit new highs on most exchanges Tuesday. Despite trading just shy of the $20,000 mark, Bitcoin’s 20-day moving average is now sitting at about 20% higher than the 2017 peak.

Bitcoin’s rally has Wall Street questioning gold

• Highlights how BTC has rallied as institutional investors back out of gold

“ Gold was really the safe asset of the past world and baby boomer generation…now it’s being replaced by automated assets like Bitcoin”

• Says that if Bitcoin’s market cap increases to 5% of gold’s market cap, it would imply a target price of ~ $30,000

Bernstein Research Co-Head: I have changed my mind on Bitcoin

• In 2018, Inigo Fraser-Jenkins told clients Bitcoin should play no role in investment portfolios.
• Now, though, the policy environment, debt levels, and diversification options for investors have changed since the pandemic and made Bitcoin more attractive

Paul Tudor Jones on Bitcoin: The path forward from here is north

• Implies that Bitcoin is undervalued:

“With a market cap of $500 billion, it’s the wrong market cap in a world where you’ve got $90 trillion dollars of equity market cap, and God knows how many trillions of fiat currency.”

• Bitcoin’s market cap is actually only ~ $360B. So I guess this means it could go up another 40% and is still wouldn’t be priced correctly :P
• Also compares it to gold and says that its neutrality and constancy will set it up for conflicts with the fiat banking system in the future

“ …for sure we’re going to see sovereigns fight back against private cryptocurrencies along the way….”

The total number of Bitcoin active users hits a new all-time high

• On Tuesday there were a total of 432,451 active entities, +5% from the Dec 2017 peak of 410,972.

MicroStrategy BTC premium would make GBTC blush

• MicroStrategy holds 38,250 BTC at a cost of $425M
• Stock price has ripped recently as investors see it as a BTC proxy
• Article highlights analysis that MSTR may now be trading at a > 300% premium for its BTC holdings

Visa launches Bitcoin rewards credit card

• Visa announced it is teaming up with BlockFi to issue the card
• Will give 1.5% of purchases back in BTC and a lump sum of $250 in BTC if you spend more than $3,000 in the first 3 months

$5B Guggenheim Macro Fund files to put 10% into GBTC

• Translates to a potential $530M position, despite GBTC’s current 30% premium to NAV
• The fund also said that they don’t have plans to build a position in BTC directly. I think this points to how big an impediment custodial and mandate restrictions still are too many mainstream institutional investors.

BitMEX appoints new CEO

• Alexander Hoptner, the former CEO of German stock exchange Borse Stuttgart GmbH, is slated to take over on Jan 21 of next year
• Several senior BitMEX executives stood down from their positions in October following charges of violating U.S. money laundering laws and offering illegal derivatives products to American customers

Congress wants Stable Coins to secure Federal approval

• “The Stable Act” appears to be aimed primarily at Libra type coins issued by US tech companies, but has been broadly worded and companies like Tether would be required to have a banking charter and be approved by the Federal Reserve and FDIC
• Democratic Party congresswoman Rashida Tlaib, one of the bill’s leads, stated that the Stable Act is designed to protect people of color and other minority groups who lack access to regulated financial services.
• It looks unlikely that the bill will get passed with just a few weeks left in the congressional year, though
• Increased regulatory pressure would have a wide-ranging impact on the industry, but could actually be positive for Bitcoin price as a potential haven for Tether’s massive $18B AUM.

S&P Dow Jones plans crypto index launch in 2021

• Note that this refers only to price benchmarks, of which there are already many providers, including Bloomberg, Nasdaq and Blockstream
• There is clearly a groundswell of mainstream institutional interest in Bitcoin at the moment, though. So I think this is part of a broader bridge-building between those investors and existing Bitcoin markets.

Charts

Bitcoin balances on exchanges are low

• This indicates a low near term propensity to sell
• Chart credit Danny Scott

A recovery in BTC hash rate tends to support price gains

• Hashrate looks to have largely recovered after the annual migration of Chinese miners from Sichuan back to their local hubs
• Historically, the 1 Month Hash rate MAVG crossing > the 2 Month Hash rate MAVG has signaled periods of strong BTC price appreciation (very big numbers!)
• Chart credit Charles Edwards

Bitcoin’s YTD VWAP (volume-weighted average price) hits new high

• Bitcoin’s year to date VWAP is now above $10,000 for the first time
• 2017 saw fully year VWAP increase 16x from 2016

USD weakness vs BTC strength

• The inverse relationship between BTC and DXY looks to have started in March with the passing of the $2.2B stimulus bill.
• Stronger risk appetite is driving money from safe havens and into risk assets, BTC has been benefiting from that rotation

GBTC premium back above 30%

• A new 10 month high. This is actually probably a little concerning as it points to a strong uptick in US retail demand. That said the 2017 GBTC premium didn’t top out until more than 130%.
• Chart credit YCharts