GUESS WHOS BAKKT, BAKKT AGAIN
In 2019 three forces shaped the Bitcoin market at once. Bakkt launched physically settled Bitcoin futures, Coinbase reported heavy institutional inflows, and the United States yield curve inverted for the first time since 2007. Here is what each signal meant then and what actually happened to Bitcoin in the years that followed.
Key Takeaways
- Bakkt launched physically settled Bitcoin futures on 23 September 2019 through ICE Futures US and ICE Clear US, yet Bitcoin fell more than USD 1,000 the day after launch rather than rallying.
- Coinbase reported USD 200 to 400 million per week in new institutional crypto deposits in August 2019, an early sign of the institutional adoption that later moved the market.
- The 2 year and 10 year US Treasury yield curve inverted on 14 August 2019, the first inversion since 2007, and a recession did arrive in 2020.
- About USD 15 trillion of global debt carried negative yields in 2019, roughly 75 times the size of Bitcoin’s market cap at the time.
COFFEE ON CRYPTO
Monolith, a London-based banking alternative built on the Ethereum network, has partnered with Digix and MakerDAO to bring the world a Visa debit card. Developments like this are awesome for bringing real world cryptocurrency use cases to fruition. Digix itself is a unique offering as each of its tokens represent 1 physical gram of gold which is held in vaults across Singapore and Canada. Essentially, by holding the DGX tokens you can exchange in and out of physical gold bullion. And thanks to this latest expansion, now you can also hold cryptocurrency on a Visa debit card. So you can pay for anything in crypto that you’d ordinarily use your plastic for, whether that’s your morning coffee or down payment for a new car.
COINBASE CLAIMS HUGE INSTITUTIONAL INFLOWS
In August 2019, Coinbase chief executive Brian Armstrong wrote on Twitter that whether institutions would adopt crypto had been an open question a year earlier, and that the answer was now clear, with USD 200 to 400 million a week arriving from institutional customers. The comment followed Coinbase’s USD 55 million acquisition of Xapo’s institutional custody arm, which lifted its assets under custody past USD 7 billion across more than 120 clients. Grayscale was already absorbing more new Bitcoin than the network was issuing each week.
Coinbase, one of the largest cryptocurrency exchanges in the global market, this week commented to Cryptoslate on the large amounts of institutional money flowing into the cryptocurrency space. When asked about this specifically, Coinbase CEO, Brian Armstrong said:
“Whether institutions were going to adopt crypto or not was an open question about 12 months ago. I think it’s safe to say we now know the answer. We’re seeing $200-400M a week in new crypto deposits come in from institutional customers.”
Let’s take a moment to think about that figure … $200-$400 Million USD per week in new crypto deposits just on Coinbase. Or, conservative numbers around $11 Billion USD a year. Imagine the upside when the large players really start investing capital into these markets, something around $1-$2 Billion USD a week. Greyscale, whom I’ve talked about before, is a small investment firm when compared with the large blue-chip listed companies out there, but they alone are already outstripping the market’s new supply for new Bitcoin. It’s no surprise that with Bitcoin halving coming May 2020, there’s going to be an inevitable push on price, due to basic fundamentals and demand outstripping supply.
INVERTED YIELD CURVES & BITCOIN
Digix was notable because each of its DGX tokens represented one physical gram of gold held in vaults in Singapore and Canada, letting holders move in and out of allocated gold. Paired with a Visa debit card, the idea was that people could spend crypto on ordinary purchases, from a morning coffee to a deposit on a new car. Real world spending rails were an early proof point that crypto could reach beyond speculation.
Bottom line: Everyday crypto payments were still experimental in 2019, but the direction of travel toward regulated, spendable digital assets was already clear.
Reuters reported earlier this week, “On Tuesday, the curve between two-year and 10-year notes compressed to 1-1/2 basis points, the flattest since 2007”. The curve overall has been in a gradual flattening for some time, meaning that the variation in reward vs risk has been reducing steadily. Surely when people are faced with negative yields, giving a government or country $100 only to get back $95 in a year or 15 years time is a waste of your time. Would you be happy if your super or pension fund invested in a negatively returning bond? Because that’s exactly what many are doing!
Right now $15 Trillion USD of global debt is tied up in these negatively gearing assets. That’s 75 x Bitcoin’s current market cap. It’s only a matter of time when global uncertainty mixed with unchecked quantity easing fuels the next Bitcoin run. But maybe we’ll see a new all-time high exceeding $20K USD sometime next year?
FEAR & GREED
Alternative.me Fear and Greed index has been hovering around the mid 30s for the majority of the week which signals uncertainty in the market. While the news of Bakkt launching in September gave it a temporary lift into the 40s, the reality is, the market feels like it wants lower. There’s a general consensus that the $10K USD Bitcoin mark is a fair and reasonable support level. But the concern is that if it’s broken, then $9K USD comes into play. And if you wanted to be significantly fearful, then maybe even $7K USD plus change. If you believe in the long-term play of Bitcoin, and are not a trader, then it might be a good idea to continue to accumulate on these weaknesses.
TECHNICAL ANALYSIS
The Bitcoin charts look to be forming a bullish pennant. The graph below shows how these could potentially play out. Keeping in mind the short term bullish news for Bakkt launch and the global economic outlook being poor with inverted bond yields. Expect to see more investors seeking out safe haven and storage of value assets such as Bitcoin. Always dollar cost average on any pullback to $10k or below with the mindset that short term we could see lower but the longer term horizon is bullish.
Conclusion:
The events of 2019 showed how quickly the Bitcoin market can turn, from the launch of Bakkt to an inverted yield curve, and how the long term direction rewarded patient accumulation. Institutions kept buying, the halving tightened supply, and Bitcoin went on to reach highs few predicted at the time. The clearest lesson is that consistent accumulation through the cycle beats trying to time it.
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