Fiat Winter Is Coming?

The wild cryptocurrency markets are still breaking various records and we’re here to update on the latest records and news. Plus, expert views on the confusing economic time we are facing globally

Efficient Frontier
Sep 29, 2020 · 6 min read

In the last two weeks Bitcoin kept gaining acceptance, with a Swiss county accepting it for taxes, cryptocurrency exchange Kraken winning a banking charter in the state of Wyoming and of course, Microstrategy’s CEO, Michael Saylor, putting his comapany’s entire balance sheet into Bitcoin and claiming he’s going to hold on to it for 100 years. “There has never been an example of a $100B monster digital network that was vanquished once it got to that dominant position…This has already won, it’s been tested.” he said in his recent interview.

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ETH/BTC ratio

Since our last edition Bitcoin went from around $10,400 up close to $11,200, then down to $10,150 and is rising to $10,700 at the time of writing. The mood in the markets has definitely shifted away from the DeFi euphoria.

Bitcoin’s correlation

“Bitcoin (and crypto in general) is still trading very much as a risk asset. Whenever there are really big issues with liquidity where people need to sell the things in their portfolio that are fluctuating relative to their spending basket, they tend to sell crypto — they tend to sell stocks. So conversely it benefits from money printing, and it benefits from quantitative easing because that increases the money supply, increases people’s confidence in assets going up. So I think that correlation does have some fundamental basis. There’s a lot of secular bull runs that can happen while things are correlated.”

Bitcoin’s correlation with Gold, Stocks, VIX and USD. Source: Zack Voell, Coindesk

“I think if stocks fall a lot from here, bitcoin will not be immune, but it will find a base, based on its own technicals and its own supply and demand. So if stocks go much lower, it does not mean Bitcoin needs to go way below $7,000 or $8,000” said Su Zhu, CEO of Three Arrows Capital on ZoomerJD podcast

Bitcoin outlook: 0 or 100

Every month it becomes more clear that choices such as Michael Saylor’s to buy Bitcoins with his company’s cash will be seen in 10 years as either 100% brilliant or 100% disastrous, with little to no room in the middle. Thought it might seem simplistic, in our view, Bitcoin’s clear value proposition will keep gaining traction and growth until it matures into a normal commodity of the 21st century. This is unless some black swan (such as a serious bug or a very large scale hack) cause the Bitcoin project to fail.

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Bitcoin’s mining power has quietly reached another all time high over the last month

This uncertainty, shared even by some of the biggest enthusiasts, is what makes Bitcoin’s price today low compared to the optimistic projections as the futuristic global safe haven digital asset.

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Bitcoin young investment wallets Source: Coindesk
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Bakkt regulated Bitcoin futures reached all time high trading volumes this week

Sushi wars

On September 17th Ethereum experienced yet again an all time high in on-blockchain activity and fees paid to miners, paying $16.6 million to clear Ethereum network transaction in one day.

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Daily fees paid to the Ethereum miners spiked above 40,000 Ethereum tokens on September 17th for the first time in the network’s history

The activity was prompted by that evening’s air drop of the Uniswap’s new governance token, inspired by its rival SushiSwap. The exited buying and selling of the supersize new token pushed the network’s capacity, prompting Ethereum’s hourly total fees paid to the miners to hit ~ $1M the night of the launch. The Uniswap $UNI ‘airdrop’ awarded wallet addresses using Uniswap before September 1st 2020 free tokens, currently worth more than the 2X yearly wage in Gambia for each user, or close to $1,200 per user at the time of writing.

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Bitcoin

Bitcoin options volume and open interest (above), which were close to non-existent just a year ago, are still not fully liquid but draw a picture of a market maturing in giant steps. Total Bitcoin options open interest touched at all time highs this week, again, while volumes are showing continued strength.

“Inflation on everything you actually want“

“This entire conversation on inflation, it’s really twisted” said Michael Saylor in a conversation on the Pomp podcast “Everybody talks about consumer prices, CPI inflation ‘We’re not getting enough inflation’. Well you’re not getting inflation on Youtube and Netflix streaming videos and candy-bars manufactured by robots in factories and domino’s pizza. You’re getting inflation on everything you [actually] WANT. If you wanted an Ivy League education, if you wanted a beachfront house in Miami, if you wanted an apartment in New York, if you wanted anything scarce, everything you want is going up 7% [a year] and that’s asset inflation. If I want a bond that’s going to yield $50K a year, it used to cost $1M and this year it costs $10M. The cost of the asset went up by 2%? No.”

“When municipal bonds went up while every city is bankrupt, when Apple stock and every other public tech equity went up and the multiples blew out and the economy went to the worst place I’ve seen in 30 years…at that point you start to have a thought with yourself which is: what is the true inflation rate? We should probably coin a different term. If you looked at asset inflation on a good year, for the last decade it’s at 7% a year, right? This year you can make an argument that it was 25%” Saylor concluded, explaining his investment in Bitcoin.

Trader Nicola Duke expanded on this outlook “Land prices will capture all the economic surplus that furloughed workers are currently enjoying. As day turns to night and gravity pulls apples from the trees, the largest transfer of wealth in history from young to old, landless to land owners, poor to rich, will accelerate. If you do not own land, large cap stocks that can access central banker printed money, and crypto/assets such as gold, you are going to be on the wrong side of this economic mismanagement. The political and social ramifications are not so obvious, but are very much scarier.”

“The world is going to change in the next five years in shocking ways. First, there’s a debt-money cycle — what is the value of money? What will happen to the debt? Will the dollar retain its value?” Warned famed investor Ray Dalio in his last week interview with MarketWatch. “When something goes down, something else is going up so you have to look at all things on a relative basis. Diversify well and worry about the value of cash.” But on a more constructive note he said: “The wealth, opportunity and values gaps will have to be dealt with. Are we going to be at each other’s throats in a way that is harmful or are we going to be working together even if things get worse? …We have to be in this together. The system needs to be re-engineered to do this. But if we don’t do this engineering well, we’re going to spend in an unlimited way and deal with that by creating debt that won’t ever be paid back, and we will risk losing the reserve currency status of the dollar. If we get into that position — and we’re very close — things will get much worse because we are living on borrowed money that’s financing our consumption.“

News and links

  1. FATF regulators publish Digital Asset Red Flags report and recommend profiling cryptocurrency users to prevent criminal actions
  2. World’s biggest exchange discovers the internet: CME data is now available online
  3. Valuing Bitcoin : New Grayscale report
  4. Bitcoin Options App raises $4.7M from Pantera Capital, QCP Capital more. Due to launch in 2020
  5. Digital art that changes with Bitcoin’s price sold for 262 Ethereum

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Efficient Frontier

With over 12 years of high frequency and algorithmic…

Efficient Frontier

Written by

Leading research & algorithmic trading firm for the cryptocurrency markets efrontier.io

Efficient Frontier

With over 12 years of high frequency and algorithmic trading experience, our technology powers weekly over $1 Billion of trade. We’re passionate about digital assets and our mission is to bring professional, trusted technology that adds value to the industry and the markets.

Efficient Frontier

Written by

Leading research & algorithmic trading firm for the cryptocurrency markets efrontier.io

Efficient Frontier

With over 12 years of high frequency and algorithmic trading experience, our technology powers weekly over $1 Billion of trade. We’re passionate about digital assets and our mission is to bring professional, trusted technology that adds value to the industry and the markets.

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