Market Update 18th – 24th March 2020

In Markets

Bitcoin has performed well this week in the face of the ongoing financial apocalypse. Bitcoin is up 27% from this time last week to trade under $11,100 at the time of writing. Bitcoin Cash saw a similar rise, while Bitcoin SV jumped 50%. Forks aside, altcoins have risen but considerably less. Ethereum is up 19.4%, XRP (10.4%), Litecoin (16.8%), EOS (19.6%) and Stellar (10.8%). The S&P 500 is almost 35% down from its peak – but this crisis may have some time to run with losses during the Tech Wreck reaching -49% and the GFC crash topping out around -60%. But as the old saying goes: crisis equals opportunity – which is worth remembering with the ASX back where it was in 2012 and NAB shares stuck in 1996.

Source: Independent Reserve Bitcoin/AUD chart

In Headlines

Fed Reserve announces ‘unlimited’ money printing

The US Federal Reserve has revised its US$700 billion money printing plan upwards and now says it will be ‘unlimited‘. Interestingly, investors worldwide have been flocking to the US dollar as a ‘safe haven’, which has seen the British pound fall 11.9% and the Aussie dollar down 12.1% since March 9. The crypto community thinks unlimited money printing is good news for Bitcoin and the price spiked 13%. A delighted Plan B (author of the stock to flow model) called it “full Zimbabwe … less than 50 days before the halving”. Cardano co-founder Charles Hoskinson said it makes the US dollar look like Ponzi scheme OneCoin while market analyst Mati Greenspan said: “This is basically the reason Bitcoin was created. One of Bitcoin’s main objectives is to counter the notion that money creation can be inexhaustible.”

‘Bitcoin is a Safe Haven’ narrative back on

The recovery in the Bitcoin price saw Coin Desk and Cointelegraph both argue this week that the ‘safe haven’ narrative for Bitcoin remains intact. In a blog, Binance CEO CZ argued Bitcoin is not a perfectly uncorrelated safe haven and that it will take a hit when markets fall. However: “Fundamentally, Bitcoin or cryptocurrencies have not changed. They still work. They are still in limited supply, no one can arbitrarily print more of it. With fiat being printed at a record pace, you decide what will happen, in time.”

Is Bitcoin decoupling from stock markets?

Bitcoin has been moving in tandem with stock markets of late, literally from hour to hour. But despite his Adaptive Capital crypto fund falling victim to the volatility this week on-chain analyst Willy Woo believes the decoupling may already have been. Posting a chart comparing the current crash to 2008, he wrote: “Decoupling of safe havens from equities showing hints it may have begun (i.e. when BTC and Gold go bullish). We’ll have more confirmation in a week.” In related news, according to the Washington Examiner, if the crisis deepens there are plans for a nationwide ‘shelter in place’ lockdown that includes grounding all passenger planes for a month and halting share markets for a week to stop panic selling. If that happens, Bitcoin truly will be uncorrelated.

The bear case for BTC

Crypto trader Jonny Moe told his 17,000 followers he was “bullish as hell” about where Bitcoin was heading in the long term. But in the short term “if you just look at the chart, all I can see is this large bear flag right into horizontal resistance” and tipped a price in the low US$4,000s (around A$7,000s).

Crypto stats of the week

Searches for Bitcoin on Chinese search engine Baidu have surged 183 percent in the past 30 days. The amount raised by Initial Coin Offerings plummeted 95% year on year in 2019 to just $631 million, while equity funding raised $4.76 billion. The correlation between Bitcoin and gold futures sentiment is now at 0.72, up from just 0.02 in February. This week block times on the Bitcoin network surged above 14 minutes, the first spike since November 2018. The hashrate fell to 82 TH/s during the week (but has since partially recovered). According to Nic Carter, this week’s Bitcoin difficulty adjustment will see it reduced by up to 15%, making it the third or fourth biggest drop in Bitcoin history.

Record volumes on exchanges

Crypto exchanges are seeing a lot of trade activity from the volatility. Binance.US reports “unprecedented trading volumes” especially in Bitcoin said CEO Catherine Coley. “We are also seeing heightened interest in stablecoins as investors recognise the importance of hedging volatility during highly uncertain times,” she said. MyEtherWallet CEO Brian Norton said it has also seen record trading due to the fall in the ether price. “We have never seen these numbers, not even during the big crash in winter 2018. Any dip in prices will cause a shift in transactions, but this one is record-breaking in terms of taking one action: Buy cheap ETH.”

BTC halving and price shocks. Should we worry?

With the recent Bitcoin price fall from US$10k to $6k, people are asking: What’s the incentive for miners? On top of this, when the block reward is halved from 12.5 to 6.25 BTC, miners are getting a mandated 50% drop in income. Will this be enough to keep the lights on? Will most miners leave? Could this trigger some kind of death spiral in the mining space where the security of bitcoin is compromised, and the blocks take forever to confirm? We don’t think so. The bitcoin protocol is self-correcting in this regard – as miners turn their rigs off, the difficulty level will decrease, meaning that the block time stays at approximately 10 minutes, and that the remaining miners become more profitable. Because there’s less competition, they mine blocks and earn more rewards.

Could a death spiral play out and drag the price to $0? While theoretically possible, in reality it’s probably not going to happen as there are too many assumptions that aren’t likely. If you’re interested, have a read here for more details.

Until next week, happy trading!

Independent Reserve Trading Desk