Update: [News Flash] A few hours after we posted this article, Bitcoin broke through $20,000 and garnered enough momentum to push above $21,000, after flirting briefly with the $22k level. As of the time of writing, it is trading solidly above $21k, partly buoyed by surging demands from institutional investors. Ether, the second largest cryptocurrency by market cap, has been moving in tandem with Bitcoin. Riding on BTC’s boom, ETH briefly broke its yearly high set on Dec. 1, and momentarily crossed over the $650 mark — a new yearly high.
Meanwhile, the CME Group’s announcement of imminent ETH futures contracts overlapping with Bitcoin’s raging bull is hardly a coincidence. If history is any indication, CME’s current move mirrors its gate-crashing introduction of regulated BTC futures contracts to the crypto derivatives world, at the height of the 2017 bull run. The CME Group exemplifies how institutional demands continue to spill into other leading digital assets.
- Both BTC and ETH have experienced intraweek volatility but managed to close near where they have opened
- Bitcoin’s correlation with S&P 500 and gold are on gradual decline, implying that the digital asset has once again become an uncorrelated asset
Bitcoin started Week 50 at $19,360 and closed at $19,180. Buyers dominated flows at the start of the week, but soon lost steam as BTC failed to establish support at $19,300. Significant profit-taking was observed around $19,000, which triggered consecutive price plunges to around $17,500. Over the weekend, BTC has aggressively reclaimed lost territories and managed to tread above $19,000. It seems that after a few days of direction-less swings, BTC has finally exited the “wait and see” mode.
Top 10 Cryptos
The market dominance of Bitcoin bounced back slightly from last week to 64.41%. Here is a breakdown of market dominance of other major altcoins.
ETH has moved in tandem with BTC. It has slided to the lower region of $500 due to profit-taking but established solid resistance at around $520. Over the weekend, what looked like a tapped-out momentum blazed forward and buoyed the price in the upper $550 region.
Despite the upward momentum over the weekend, Bitcoin’s entity-adjusted SOPR, an indicator showing how much P&L of Bitcoin holders have posted, may exhibit signs of short-term bearish sentiment. A value greater than 1 signifies that sales are on average gaining profits, while values below 1 shows sales posting a loss. As evident in the chart, Bitcoin’s SOPR has been gradually declining since late November, proof to the micro-bearish sentiment over sellers making less profits. However, historically, SOPR declines often correspond with sideways price movement, hinting at a potential of upward correction once it drops below 1.
While the profit-taking is still in process, net flows indicate that bitcoins are leaving exchanges. That suggests continued demand on the spot markets.
Despite some volatilities in market sentiment, the Fear & Greed Index is once again back above 90, pointing to a growing (over)confidence in the current bull momentum.
Altcoins & DeFi
XRP made headlines over the weekend with the snapshot airdrop event. However, its price has dropped sharply since and is currently down approximately 15%. The number of unique addresses interacting with the network has plummeted, suggesting a setback in fundamental strengths.
On the other hand, Total Value Locked in DeFi protocols has bounced back to $14 billion, after the price plunge in the beginning of the week, and is currently testing waters near $15 billion.
The narrative of Bitcoin as an inflation hedge against the Fed’s reckless printing is now mainstream: Financial media channels such as CNBC and the FT are asking if the USD is about to be dethroned by Bitcoin. The winds of fate now smile on the crypto industry — TradFi heavyweights like Guggenheim and Blackrock are now endorsing Bitcoin. It appears like crypto has come a long way since its supposed main use case as a “drug dealer’s currency” — what could go wrong?
Astute investors know to buy into a narrative, when it isn’t a narrative yet — with price and sentiment at such frothy levels, we think caution is warranted. Or at least a hedge if you’re a HODL-er. With no shortage of bullish arguments out there, this week we’ll play devil’s advocate.
Consider the following:
Battle of the Inflation Hedges
Bitcoin’s proponents have been so successful — the Gold/Bitcoin price now is at multi-year lows. Bitcoin’s correlation with both Gold and S&P 500 is on steady decline, a signal of decoupling from major assets as Bitcoin made significant comebacks in the past months.
Historically, Bitcoin has been a largely uncorrelated asset. Since the beginning of 2020, we have observed growing correlation between Bitcoin and major financial assets, especially during the March liquidity crunch and the U.S. election week in November.
BTC vs. Monetary Policy
BTC adjusted for USD money supply, the global reserve currency, is now pricing in similar levels compared to 2017. In absolute terms, the price of Bitcoin is on par with that in 2017, however, M2 — a proxy for the U.S. money supply — has increased significantly since the beginning of 2020. This implies that Bitcoin is becoming relatively more expensive against the backdrop of aggressive money printing.
Back to the Futures
Funding rates that have relatively calmed down since the past weeks’ spike, seem to be on the surge again, implying that after excess leveraged long positions got cleaned out, market participants are getting off the sidelines. Premiums have remained flat in the futures market, with an average annualized rate of 16.5% as the expiry date draws close.
MicroStrategy issues $400 million convertibles to fund even more Bitcoin purchases. Its CEO Michael Saylor is levering up his personal portfolio big time, with massive price appreciation expected to happen within the next three years.
ETH 2.0 Staking Service
My EtherWallets joins major crypto service providers in offering more ETH 2.0 staking services. The expected staking returns may likely come down as with more Staking-as-a-Service become live.
Grayscale’s Assets Under Management have posted a staggering gain of 430% since the beginning of the year. The company has now locked up around 2.5% -3% of BTC and ETH in circulation. Significant arbitrage opportunities present themselves as Grayscale shares are trading at large premiums in the primary market, which indicates growing interest from both institutional and retail investors.
What to Expect?
It looks like there is light at the end of the tunnel for Mt. Gox creditors, finally. The Mt. Gox trustee presented a draft of the rehabilitation plan to the Tokyo District Court on Tuesday, Dec. 15. The Court and an examiner will review the draft plan and determine whether to proceed with the rehabilitation proceedings that involve the fate of approximately 141,600 bitcoins and 142,800 bitcoin cash. Should these creditors choose to take profit at the current price level, a massive sell-off could be triggered. The immense selling pressure might prove to be a bearish signal for future price movements.