Bitcoin Market Note: April 2020
Almost every disruptive benefit of bitcoin is surfacing amidst the COVID-19 crisis
YTD performance as of April 7th
Bitcoin: +1.7%
S&P 500: -3.2%
Investment Grade Bonds (LDQ): -16.0%
We experienced the largest short-term drawdown in 33 years. Stocks, corporate bonds and treasuries are licking their wounds from one of the largest market dislocations in our lifetime. A run on physical gold has rendered that market grossly inefficient, if not frozen at times. Bitcoin, as an electronic alternative to gold, has the hard money characteristics that investors seek in such a dire landscape.
Former Federal Reserve Chair, Janet Yellen, “The Fed…is far more restricted than most other central banks…it would be a substantial change to give the Fed the ability to buy stock”. The Bank of Japan invented Quantitative Easing, ZIRP, and buying equities with printed month. This has not worked out for their currency (credit: Pantera Capital).
Much like 2008, deflation expectation is rearing its ugly head.
Economists agree that the counterbalance of inflation is coming. Even Paul Krugman, Nobel Laureate writes about “some inflationary overheating when things return to something like normal.” Assets with limited supplies have performed well in inflationary environments.
As bitcoin approaches the halving in mid May when the amount of new supply released every day is cut in half, the popularized stock-to-flow model will put bitcoin just behind gold as a measure of scarcity. Every prior bitcoin halvening produced 100%+ returns in the following 12 months.
The Great Crypto Deleveraging came and went. $700m of forced liquidations occurred on a long squeeze in the futures market when the price dipped down to $3,848. One could make the comparison to the crypto version of the Long Term Capital Management debacle, when the firm (leveraged crypto investors) was forced to liquidate a number of its positions at a highly unfavorable moment. Bitcoin is up almost 90% from those lows in only 3 1/2 weeks.
Almost every disruptive benefit of bitcoin is surfacing today…
Asset scarcity in a world of fiat dilution, self-sovereign capital ownership amidst government overreach of civil liberties, cross-border payment transfers during system outages (US treasury bond desks temporally down) and contagious paper money (China). All of this occurring on the heels of massive support and bitcoin application development from Fidelity Digital Assets, Square, Revolut, the highly anticipated Bakkt App (subsidiary of ICE/NYSE partnering with Starbucks) and India lifting the crypto trading ban. The elusive creator of bitcoin, Satoshi Nakamoto created this technology for moments in time just like this.
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Tom Lombardi is a Director with Wave Financial, leading the digital asset treasury management team in Los Angeles. He is also an adjunct professor of finance at Pepperdine University, teaching Digital Asset Finance to MBA students. Learn more on Twitter and connect on LinkedIn.
Disclaimer
The views expressed in this report reflect the authors’ personal views and not those of Wave Financial or Pepperdine University. The authors’ comments are not intended to be construed as recommendations or an offer to buy, sell or hold any investment. The authors’ compensation is not directly or indirectly related to the specific recommendations or views contained in the research report. The update included in this post is intended to provide generalized guidance; nothing in this analysis is intended as investment advice, a recommendation or an introduction to particular funding or capital resource.
