2020 Q2Q3Q4 Bitcoin Market Newsletter

Trader’s Digest

Lucrative consumer trading apps and the prolonged socioeconomic disruptions from Covid-19 lockdowns have transformed the trend of stock trading. Cherished Robinhood and E*Trade traders have timed the market perfectly since March, with Dow Jones Industrial Average knocking the $30K milestone on November 24th, 2020. Unsurprisingly, many suspected this rally as the direct result of the quantitative easing programs from Covid-19 stimulus injections worldwide, with over 20% of all existing U.S. dollars having been created in 2020 alone.

Bitcoin Digest

During this period, Bitcoin price rallied positively along with many stock indices. 1-year Bitcoin-S&P500 realized correlation hit 45.9% and 1 month realized correlation hammered an unprecedented 78.8% in July.

Source: skew, data available as of 22 November 2020

Real magic happened between September and October.

September 4th, global markets retraced slightly, and Bitcoin followed the fall with a 16% dip.

September 14th, MicroStrategy announced its acquisition of additional bitcoins totaling ₿38,250.

October 1st, the U.S. Department of Justice and the CFTC filed charges against the infamous crypto derivatives exchange BitMEX and its owners for violating several regulations: KYC and anti-money laundering rules (following the news, BitMEX experienced an exodus of withdraws nearing ₿60,000 or 0.3% of Bitcoin’s circulating supply (illustrated below)).

Source: BTC:BitMEX Netflow, CryptoQuant, data available as of 25 November 2020

October 8th, Square, an American payment company owned by Twitter CEO Jack Dorsey, announced a $50M purchase of bitcoins.

Then, bitcoin price broke its range and started heading towards its multiyear high $19,900.

Sentiment suggests that this was a price rally fueled by a series of institutional investor interest, positive news, and bitcoin’s re-recognition as both a hedge against inflation and a store of value.

Source: TradingView, data available as of 28 November 2020

Institutional Investors

Let’s take a deeper look into how big market players contributed to the price rally.

Grayscale Investment and its product Grayscale Bitcoin Trust added nearly 102,525 bitcoins to its fund between September 4th and November 25th. On average, Grayscale alone accumulated ₿1,250 each day. This value far exceeds bitcoin’s daily block rewards of ₿900 (plus transaction fees), post its 3rd halving since May 11, 2020, creating an obvious supply shortage.

Source: Grayscale Investment BTC Holdings, bybt, data available as of 27 November 2020

MicroStrategy (NASDAQ MSTR), a 31 years old Nasdaq listed company also obtained ₿38,250, or nearly 0.18% of total bitcoin supply. MicroStrategy CEO, Michael Saylor’s interview with CoinDesk indicated that this monumental corporate decision, transforming a stagnating business intelligence company into a bitcoin hedge fund, necessitated 4–8 months of research and preparation. A suggestive time requirement for a public company to pivot towards bitcoin. Perhaps related, MicroStrategy’s share price now trades at its 20 years high, an unseen price level since the Dot-com bubble.

Source: TradingView, data available as of 28 November 2020

Glassnode, an on-chain market intelligence provider, indicated that the total bitcoin address holding 1K+ bitcoin reached an all-time-high of 2,278 addresses in November 2020. This signifies that wealthier and more organized entities are accumulating and storing bitcoins at large scales. Simultaneously, bitcoin address holding 1+ bitcoin also reached an all-time-high of 824,000+ in September 2020.

Source: glassnode, data available as of 26 November 2020

The CME Group’s cash-settled bitcoin futures surpassed $1 billion in open interests on November 18th. CME commented that 567 new client accounts traded its bitcoin product in Q1 2020, more than double the number of new accounts that started trading in Q4 of 2019. A further indication that the sentiments in investing in Bitcoin among institutions have swelled over the past year.

Source: skew, data available as of 2 November 2020

News

Nikolaos Panigirtzoglou, a managing director at J.P. Morgan, expressed the long-term upside potential for bitcoin in their weekly publication “Flow & Liquidity”. Other analysts also observed that many family office asset managers are shifting their investments toward bitcoin from their gold ETF holdings. 3 October 2020

69,000 bitcoins move for the first time since 2015. An asset confiscated by the Department of Justice from the Silk Road crackdown. 3 November 2020

China Construction Bank, the world's second-biggest bank by assets, will partly accept bitcoin for its $3 billion bonds sale. 11 November 2020

Ricardo Salinas Pliego, the second richest man in Mexico, expressed that 10% of his liquid assets are in Bitcoin. 18 November 2020

PayPal entered the bitcoin business, allowing its users to trade and hold bitcoin. 21 November 2020

What’s Coming Next to Bitcoin Price

London Blockchain Labs’ analysts believe that there are strong correlations between the recent rapid deprecation of USD and the positive price rally of bitcoin (we will update you with another article). An asset price bubble resulted from ultra-low interest rates and gargantuan Covid-19 stimulus packages, as aforementioned. Based on the ongoing lockdown and rapid vaccine development in the US, we have inferred the below scenarios for future bitcoin price action. (Note that this is purely speculation; not financial advice).

Source: TradingView, data available as of 28 November 2020

Scenario #1 — Lockdown with no immediate vaccine introduction

  1. Lockdown persists, more businesses are forced to close.

2. The US government inevitably injects additional stimulus relief packages, further depreciating USD value.

3. Bitcoin asset price and covid-free economies such as China flourish in the short-midterm.

Scenario #2 — Lockdowns end and vaccines are introduced.

1. Market reacts negatively as no more large relief packages or fed asset purchases can be expected.

2. Higher interest rates will depress the prices of high-risk assets in the mid-long term.

3. USD appreciates, decreasing the intrinsic value of equities and commodities including bitcoins.

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