RESEARCH
BEQUANT Crypto&Coffee
Ned Davis of NDR, in his 1991 book “Being Right or Making Money,” tells the story of missing trades, investments, and rallies because they did not fit some expectations of his regarding the economy or valuations or other factors. More recently, the Dow reached record highs, gold continued to topple lower and Bitcoin climbed to within a touching distance of an all time high of $19,783 reached on December 17, 2017. And yet, the global economy shows no sign of recovery in the wake of the COVID-19 pandemic. In a dramatic speech, the UK Chancellor Sunak warned that the British economy is set to contract by more than 11% in 2020, the biggest annual contraction in 300 years. However, in the world that is dominated by retail traders and sports commentator turned stocked pickers, Dave Portnoy – stocks do only go up. Of course, much of this relentless hunt for yield is driven by interest rate distortions created by the overwhelming liquidity as central bankers across the world desperately try to lift inflation expectations and finally put to bed their fears of deflation.
Ironically, the BIS did a historical study and found routine deflation was not any problem at all. According to the BIS - “Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive”. The so-called tail risk is the Fed goes too far down the rabbit hole and unleashes a different kind of monster, but tail risks very rarely play out in a dramatic fashion. To wit, as per FTX’s TRUMPFEB contract that in theory should be trading at 0, has remained well above that, supported by the underlying fear of “what if…”
Turning back to the markets and the price action turned choppy in the closing hours of trade on Wednesday, in part due to the upcoming Thanksgiving holiday in the US which will likely dry some of the liquidity from the market, but also due to expiries this coming Friday. Still, the resilience showed up until then has been truly impressive and peak FOMO has been such that any dips were almost immediately absorbed. The tail risk is crowded market and it usually doesn’t take much to create a cascade effect.
Overnight, the price action south accelerated further and the severity of the aforementioned cascade saw Bitcoin crash into the low $17,000 zone. At the same time, Ethereum fell from $600 all the way down to $504. As alluded to in the recent commentary, the steep contango structure that prevailed up until now finally narrowed. Only time will tell whether this is the beginning of a longer and more extensive correction but the overall market structure is very different to the last time Bitcoin traded near these levels. As such, the base scenario remains intact for now.
In terms of news flow, CoinDesk reported that the Coinbase CEO took to Twitter Wednesday night to blast the U.S. Treasury Department’s rumored plans to attempt to track owners of self-hosted cryptocurrency wallets with an onerous set of data-collection requirements. If the whispers are to be believed, outgoing Treasury Secretary Steven Mnuchin is preparing to tamp down on one of the fundamental tenets of the cryptocurrency ethos: the ability of the individual to hold their crypto themselves.
In addition, Malta-based cryptocurrency exchange OKEx has reopened withdrawals five weeks after an abrupt suspension. In a short blog post on Thursday, the exchange announced that it was lifting the freeze at 08:00 UTC and pointed users to a compensation and loyalty program in an attempt to appease disgruntled users.
Galaxy Digital’s bitcoin funds raised $58.7mln in their first year as predominantly high-dollar buyers staked their claim to the surging cryptocurrency. As reported in two form D filings, Galaxy Institutional Bitcoin Fund LP raised $55.1mln while its smaller brother, Galaxy Bitcoin Fund LP raised $3.6mln. Both funds launched last November.
Thank you all for being part of our journey. Happy Thanksgiving from Bequant.
