Bitcoin fundamentals briefing, March 2020

Bitcoin fundamentals briefing, March 2020

Instead of Intro

It is not simple to analyze Bitcoin sentiment these days, mostly because it doesn’t belong to itself. Those of you who carefully monitor other markets, not only cryptocurrencies, probably see that miserable plunge stands across the board – equities, commodities, and even the gold market.

This is a specific time, guys, when markets are driven outside, not by common market factors. All of them are victims of psychological and global fundamental processes that reflect in massive cash transfers across the Globe. So, the cryptocurrencies do.

This period calls as “dash for cash” or huge run into US Dollar. On a time of massive assets devaluation, when the price of assets collapsed, and rates of all Central Banks stand near the same mark – zero, cross-borders investing becomes useless – investors demand a lot of liquidity to close margin positions, prepare the foundation to support cross-border trading, export and import, searching mostly return of the investments rather than return on the investments. This is the time where we’re living right now.

As you understand, Bitcoin is not able to escape this. In prosperous times that we had last year, investors were treating bitcoin as venture product, made test investment, were looking what bitcoin market is, etc. Once the dash for cash has started – all ventured products were closed, and a vast amount of cryptocurrencies sold.

Still, beyond this liquidity turmoil we have events and processes that it worthy to mention in our March fundamental briefing.

Cryptocurrency Now Fully Legal in South Korea

The passing of the amendment signifies the official entry of cryptocurrency trading and holding into the legal system for the South Korean government. A restructuring of the domestic blockchain industry is expected to take place as a result of this event.

Exchanges, trusts, wallet companies, and ICO are now required by law to have a real-name verification partnership with an approved Korean bank. Real-name accounts prevent money laundering by assigning a verified individual to a single bank account with which they may withdraw and deposit fiat currency from and to an exchange. Also, companies must obtain an information security management system (ISMS) certification.

Hyperledger Announces Eight New Members, including Clear, Conduent and Walmart

Hyperledger allows organizations to create solid, industry-specific applications, platforms and hardware systems to support their individual business transactions by offering enterprise-grade, open source distributed ledger frameworks, libraries and tools. General members joining the community are Aiou Technology, Clear, Conduent, Joisto Group, Tangem, Tokenation and Walmart.

“Walmart is excited to participate in Open Source communities, coming together to create scalable and adaptable technology,” said Sanjay Radhakrishnan, Vice President, Walmart Global Tech. “We’ve seen strong results through our various deployments of blockchain, and believe staying involved in open source communities will further transform the future of our business.”

Crypto ATM in the world exceeds 7000 

ATM’s ammount jumps 15% since November 2019 – for 1K ATMs

BaFin Classifies Crypto as Financial Instrument

Per the financial regulator, virtual currencies are “a digital representation of a value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a currency specified by law and that does not have the legal status of a currency or money, but is accepted as a medium of exchange by natural or legal persons and can be transmitted, stored and traded electronically.”

Lloyd’s launches new cryptocurrency wallet insurance solution for Coincover

Lloyd’s has launched a new insurance policy to protect cryptocurrency held in online wallets against theft or other malicious hacks.

The first of its kind liability policy, with flexible limits from as little as £1,000, was created by Lloyd’s syndicate Atrium in conjunction with Coincover to protect against losses arising from the theft of cryptocurrency held in online, hot wallets.

It is a new type of liability insurance policy with a dynamic limit that increases or decreases in line with the price changes of crypto assets. This means that the insured will always be indemnified for the underlying value of their managed asset even if this fluctuates over the policy period.

Honeywell Is Now Tracking $1 Billion In Boeing Parts On A Blockchain

Boeing has added more than $1 billion in excess airplane parts to GoDirect Trade, a blockchain platform designed to prove the origin of the parts and ensure they comply with safety standards, according to the manager of the platform, designed by aerospace giant Honeywell.

Unlike the bitcoin blockchain, which anyone can build on, Hyperledger Fabric requires that companies be given access to the platform. In this case, Boeing had to set up a digital storefront on GoDirect Trade, a process Butters says takes about two minutes. Once the storefront is created, trusted companies can load their own excess and obsolete materials directly to the platform, similar to Amazon, via an API or by transferring a text file directly to Honeywell.

Bakkt Completes $300 Million Series B Financing

Today, we are pleased to announce that Bakkt has raised an additional $300 million of capital with participation from investors including Intercontinental Exchange, Microsoft’s M12, PayU, Boston Consulting Group, Goldfinch Partners, CMT Digital, and Pantera Capital. I’m excited at our potential to unlock nearly $1 trillion of digital assets when the Bakkt app launches this summer.

Italian Bank Opens Bitcoin Trading to 1.2 Million During Lockdown

Growing crypto adoption and the COVID-19 outbreak has encouraged Italy’s Banco Sella to launch a Bitcoin trading service.

The trading is conducted via the bank’s Hype platform, with the bank acting as an intermediary to mitigate against potential security risks with cryptocurrency exchanges. With the country in lockdown and everyone stuck at home, the bank is capitalizing on a growing interest in Bitcoin as a safe way to transfer money internationally in the midst of the crisis.

About 1.2 million Italians already use Banca Stella’s Hype to carry out transactions and not only will they be able to buy and sell Bitcoin, they’ll also be able to pay for goods and services with the cryptocurrency.

Bitcoin Printed This Exact Pattern Prior to 2019’s Explosion to $14,000. It’s Back

You can now use Coinbase Card with Google Pay

Android users can now add Coinbase Card, a Visa debit card funded by crypto, directly to their Google Pay wallets. With the launch of Google Pay, Coinbase now becomes the first company to enable users to make mobile payments powered by their crypto balances.

From today, Coinbase Card payments using Google Pay are available to customers in the United Kingdom, Republic of Ireland, Belgium, Finland, France, Italy, Slovakia, Spain, Croatia, Czech Republic, Poland, Denmark, Norway, and Sweden. We are working to expand to other European countries later this year.

Negative events this month, guys, mostly relate to “dash for cash” action and overall slowdown in global economy. Bitcoin trading also has not become an exclusion.

Next BoE Governor: ‘Be Prepared to Lose All Your Money’ With Bitcoin

Investing in cryptocurrencies will always receive some skepticism from officials who started in traditional markets. Today in London, Andrew Bailey expressed this sentiment, arguing anyone putting money into Bitcoin should be prepared to lose the shirt off their back.

If you want to buy Bitcoin, be prepared to lose all your money… [Bitcoin] has no intrinsic value.”

Bailey’s remarks echo those of billionaire Warren Buffett, who made the claim in an interview last month that Bitcoin has no value. However, while Buffett seldom speaks to reporters on the subject, Bailey has been consistent in his criticism of cryptocurrencies.

Halting $9.8 Billion in Theft Is Key to Crypto Growth, KPMG Says

he cryptocurrency market needs to improve how it secures digital assets for the $245 billion industry to keep growing, according to KPMG.

At least $9.8 billion in digital assets have been stolen by hackers since 2017 because of lax security or poorly written code, the accounting firm wrote in a report released Monday. Adoption of cryptocurrencies such as Bitcoin and Ether among institutional investors has led to competition for a place in portfolios, making safeguarding the tokens more important that ever, KPMG said.

“Institutional investors especially will not risk owning crypto assets if their value cannot be safeguarded in the same way their cash, stocks and bonds are,” – Sal Ternullo, co-leader of KPMG’s crypto-asset services and co-author of the report, said in a statement.

Among the first companies to offer custody services for crypto are Fidelity Investments and units of the exchanges run by Intercontinental Exchange Inc., Coinbase Inc. and Gemini Trust Co.

Major Crypto Exchanges Lament Outsized Scrutiny From US IRS

Representatives of major crypto exchanges today told the United States Internal Revenue Service that they want to see clear regulations rather than vague suspicion from the tax authority.

The Coinbase executive continued to say that they were seeing excessive pushback from regulators, quipping that “Tax people are not always the most welcoming people in business conversations.”

Agreeing with the crypto executives was Jamison Sites of RSM. “All the big players in this industry — Coinbase, Kraken — they’re very much startup companies,” Sites said.

Few Blockchain summits were postponed due COVID-19:

Paris Blockchain Week Summit Rescheduled due to Covid-19 Outbreak

Bitcoin 2020 Is Moving To Q3 2020

Following the rapid escalation of COVID-19 in California and worldwide, Bitcoin 2020 has been postponed from March 27 and 28, 2020, to Q3 of 2020.

Institutional investors are shunning CME bitcoin futures as coronavirus roils global markets

As investors seek safety amid the global coronavirus outbreak and plunging equities markets, they don’t appear to be turning to bitcoin – at least on the institutional side of things.

Bitcoin has long been touted as a non-correlated asset, meaning its price swings don’t follow other assets, namely stocks. Some proponents have also viewed bitcoin as a safe haven, a place where investors can expect outsized returns during broader market turmoil. The past week’s market performance and revelations about the coronavirus’s spread have put both these viewpoints have been put to the test.

“Looking at CME Group bitcoin futures data, which is in my view the current easiest and cleanest product for traders, traditional hedge-funds, and large asset managers to get exposure to bitcoin, you’d expect that if institutional investors were starting to express belief in bitcoin as gold 2.0, we’d see outsized volumes and open interest grow in the product during the last two weeks.”

But that hasn’t happened, as the data indicates:

Daily volume for CME bitcoin futures peaked the day before U.S. equities made all-time highs (February 19) at over $1 billion in volume, before falling now close to 75%. The CME bitcoin futures market printed its lowest volume day in 2020 on Friday, while the 7-day rolling open interest is down 25% in the past two weeks.

CME Bitcoin Options Volume Hits Record Low, While Bakkt Goes Weeks With No Trades

The Chicago Mercantile Exchange (CME) traded just three bitcoin options contracts on Tuesday, with a notional amount of 15 bitcoin (approximately $80,000), the exchange told CoinDesk. That is CME’s lowest daily volume for bitcoin options on record, according to crypto derivatives firm Skew Markets. The previous record low of $125,000 was registered Jan. 24.

Meanwhile, Bakkt has seen no options trading activity since Feb. 27.

Heightened volatility typically fuels demand for hedging instruments like options, which are derivative contracts that give holders the right to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy, while a put option gives the right to sell.

However, the opposite has happened in bitcoin on regulated U.S. exchanges: volumes have actually dropped precipitously as volatility has skyrocketed.

The decline in options volume seems to have been caused by institutional traders treating bitcoin as a source of liquidity during the past week’s massive stock market sell-off, which triggered a multitude of margin calls.

“Last week’s market rout saw institutional investors selling many risk assets, including bitcoin. CME is a regulated platform designed for traditional investment managers seeking bitcoin exposure without a priority of ownership or utilization, and therefore saw a drop in volume as their customers led the flight to cash,” Tom Lombardi, director at digital asset management firm Wave Financial told CoinDesk.

Crypto hedge fund Adaptive Capital is shutting down after it ‘took a big hit’ during last week’s bitcoin price plunge

“Adaptive has made the decision to close operations and return the remaining funds to investors,” the firm wrote. “We are convinced that the risks of continuing operations in such an unstable environment outweigh the potential benefits.”

Halving will lead to consolidation in mining sphere and massive takeovers of private, small mining companies

In a big interview John Lee Quigley talks on perspective of mining business in general and after the coming halving. In a process of discussion he comes to pity conclusion that on a double impact of BTC price drop and coin reward drop – private mining probably will be destroyed or become a subject of hostile takeover by large mining companies or pools.

So this price drop we’ve seen on Thursday will probably wipe out a lot of miners. We haven’t seen the difficulty estimates, and drop just yet or a lot of miners would probably be forced to turn off their rigs. The miners who are lowest on the cost curve would probably acquire these rigs and the hash rate which comes offline, difficulty is going to adjust them words and then the big miners are in a great position again because the hardware they have acquired on the hardware they’ve deployed is now mining at a lower difficulty level so they have greater returns.

They have to pay high accounting fees to the big four to meet the financial reporting standards. And I believe they were probably mining at $8,000 or $9,000 per bitcoin mined and then Charles Edward released a methodology and indicator on trading view, which estimates the average price or average cost of production based on the energy draw that Cambridge are estimating. And I believe it was about 6,500. He estimated the average cost of production across the industry was, so this price drop, is the biggest miners are remaining profitable but a lot of those in the middle and small end are just now unprofitable and will be forced to go offline.

Bitcoin Miners Facing Double Whammy of Reward Cuts After Plunge

With Bitcoin’s price down almost 40% this month to $5,350, so-called miners whose computers provide a third of all the power for the network, have gone into the red, said Chris Bendiksen, head of research at digital-asset manager CoinShares. The decline couldn’t have come at a worse time. In May, rewards in the form of new coins issued to miners will automatically drop in half, further exacerbating losses unless the price rallies.

The miners that have predominantly new gear, they are probably fine,” Bendiksen said. “But then you have the previous generation ones, they are starting to sweat a little. If the prices remain like this, the halving will finish them off.”

Already, Bitcoin’s hash rate, as the combined mining power on the network is known, dropped nearly 20% in the last 24 hours, according to tracker Blockchain.com

“Based on our estimates, anyone using Antminer S9 or older generation miners is unprofitable unless their power cost is lower than 4 cents/kWh,” said Sale Irwin, chief executive officer of Greenidge Generation LLC, which runs a mining farm. “The drop in hash rate over the past 24 hours can be attributed to this dynamic, especially given the widely-accepted assumption that S9 miners still constitute the majority of miners in operation.”

As miners shutter operations, that could also decrease security of the Bitcoin network. Miners’ machines are used to confirm Bitcoin transactions, and when fewer miners are safeguarding the network, it can be easier for a few bad actors to start double-spending coins, for example.

Coinmentrics analysts forecast significant drop in difficulty 

With just under 1 week left to the next difficulty retarget, BTC difficulty looks like it will drop over 13% to its lowest level of 2020 (based on recent and current hash rate levels

Посмотреть изображение в Твиттере

BTC’s average block time has increased to 13 minutes for 2 consecutive days, with some blocks taking over 90 minutes to find.

In general – here are the Top 5 Cheapest places to mine Bitcoin

1. Venezuela—$531
2. Trinidad and Tobago—$1,190
3. Uzbekistan—$1,788
4. Ukraine—$1,852
5. Kuwait—$1,983

Many can mine above $4,000 and be profitable.

Technical View

In our traditional part dedicated to “technical view” on the market we bring most intriguing scenarios and suggestions on BTC price performance.

We start with arguable suggestion from Coinmetrics, who said that Bitcoin halving could repeat the destiny of 2nd halving on Litecoin when everybody were waiting for rally, but expectations were not approved by real price action:

Изображение

 

Second interesting reading is new report by Arcane Research

The major issues of this reports are:

  • Recent bounce doesn’t tell yet that BTC has turned over the corner as The Fear & Greed Index stays in the “Extreme Fear” area and is now at 12. Even though the market has increasing strongly this week, investors doesn’t look too confident just yet.;
  • The 7 day average real trading volume* has more than doubled over
    the last week. A lot of bitcoin is changing hands right now with
    extreme volatility. The 7 day average daily trading volume is now
    getting close to the levels we saw back around the peak in 2019.
  • It’s been a week with large drops and strong retrace for bitcoin. This is without a doubt reflected in the 30 day volatility, which is pushing to new highs. We’re currently seeing a 30 day average volatility of almost 9%, which is very high, even for bitcoin.
  • Both COVID19 and the sudden supply shock in oil has led to uncertainty in the global financial markets/ All major indexes have nosedived over the past weeks. As the market priced in the severity of COVID19, bitcoin crashed. This was in part due to investors having a risk off approach due to global uncertainty. Past the initial crash, bitcoin mirrored the stock market
    movements tightly, leading to its highest ever 90 day correlation with the S&P 500 at 0.584.
    However, the price action of the last couple of days might indicate that the tide is about to turn. Bitcoin seems to be decoupling from the stock
    markets as its value returns to the levels of January 1st, while the stock markets remain stagnant.
  • Data provided by Glassnode show long-term hodlers are buying bitcoin now. A metric called the “Hodler Net Position Change” shows the monthly position change of long-term investors. When the metric is above zero (green), it means that holders on average are accumulating BTC.  When this metric is below zero (red), it means that holders are selling and most likely taking profits.
    We saw that the metric dipped below zero in February, as holders stopped
    accumulating.  However, over the past week, holders have once again started
    accumulating bitcoin.

Conclusion:

It is an awful but exciting time for all financial markets, but especially for Bitcoin. In fact, this is the first serious test by crisis events of tremendous scale. We saw such tests many times before on the stock market since 1929. Every time they were different a bit, but their impact was mostly similar. Now Bitcoin stands under attack for the first time.

This is the test guys. BTC shows what it is worthy of, and this test clarifies a lot of myths and questions. Now we could definitely say that the current crisis confirms our suggestion that BTC has no relation to the gold’s features as we’ve mentioned it in one of our reports. It has no intrinsic value, what W. Buffett talks about.  BTC shows a high correlation to an equity index and S&P 500 in particular in a moment of collapse, and it means that investors treat it as standard assets, equals to ordinary stock or currency, not an as safe haven, not as absolute saving quality as gold.

Once it was expected that on rising volatility, it should be higher interest to BTC and its derivatives, but in reality, it turns opposite – investors scared and leaving BTC, dropping trading volume to the zero. All this stuff tells one thing – the safety features are highly overvalued and, in fact, BTC doesn’t have it.  This breaks the myth on gold kind features of cryptocurrencies.

Second – BTC loses to rivals in attractiveness. People mostly watch for common assets like stocks, bonds, and commodities first, while BTC takes the backseat.

Another big information cluster stands in specific to BTC area – mining business and coming BTC halving on a background of an outstanding price collapse.  This situation makes complicated prices recovering, especially if the price will stand for a long time at depressed levels.

At the same time – we see that Blockchain and BTC sphere is alive and developing. Processes are going despite difficult times. It means that technology should survive and find application in the life of society.

But as investors, we have to answer on the question – if we would search for a bargain, what you prefer to buy – precious metals, oil, blue chips stocks, or bitcoin?

As we expect a drop of Bitcoin to 3.3K area, we see that the market will meet serious difficulties in the repairing process as the crisis is naked its real value. All investors see that now and fog of “value safety” disappears. It means that we expect slower recovery compares to conventional markets and a drop of interest to cryptocurrencies among those who thought about investing before the crisis.  This is the majority of institutional investors. Their money was critically needed in the crypto sphere to guarantee and provide the market’s expansion. Now, this process will be under question. As a result, BTC could turn to the market like some secondary quality stock.

 

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Sive Morten

Sive Morten

By day Sive Morten works for the large European bank. In that roll he evaluates the markets including currencies market managing bank risks and evaluating the bank portfolio.

At the Forex Peace Army, he is known as an author of Forex Military School, which quite unique free forex trading course. We do not know of any other free forex trading education covering such a broad spectrum of forex market concepts in such details while keeping it easy to understand and practically use.

As if that wasn't enough, he is the part of the Shoulders of Giants Program. He shares with his fellow traders at FPA his view and forcast of the Gold Market, Currency Market, and Crypto Market in form of weekly analytics and daily video updates.

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