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Crypto Derivatives & The Looming Shadow of Institutional Investment

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Bitcoin has had a stellar 2019 so far. Year-to-date, the cryptocurrency has gained a jaw-dropping 200%, shocking investors the world over.

While crypto investors are used to such moves, Bitcoin’s strength comes as the macroeconomic and geopolitical stage has started to rapidly deteriorate. This dichotomy has resulted in many economists, investors, and even politicians starting to give Bitcoin a nod as a store of value and a safe haven.

And while BTC’s momentum has clearly tapered off since the blow-off top in late-June, this narrative doesn’t seem to be losing steam one bit.

Finally Trading Alongside Gold

Bitcoin has long been touted as an alternative to gold. The precious metal shares a number of characteristics with the cryptocurrency: decentralization, non-sovereignty, scarcity, fungibility, among others.

But only recently has Bitcoin begun to trace the price action of gold. In fact, as spotted by Bloomberg, the correlation between the two assets has nearly doubled in the past six months, rising to just over 0.842 from 0.496. Just look to this chart from Binance’s research division, which shows that when gold spiked due to a fresh Trump tariff, so did the world’s favorite cryptocurrency.

Speaking to CNBC’s “Fast Money” panel, Brian Kelly of BKCM touched on this correlation. According to Kelly, this is a clear sign that investors playing macro trends are starting to use “Bitcoin as a currency hedge”, which would be a massive step forward in the cryptocurrency’s life cycle.

He adds that the correlation between Bitcoin and gold is likely to continue, especially as there are “multiple currencies around the world breaking down at the same time and institutional investors that are actually embracing this asset class.”

In fact, the industry investor called the

macroeconomic backdrop a “perfect storm” for Bitcoin to become further acknowledged as a store of value, which is likely what BTC needs to kickstart the next leg of the ongoing bull market.

Kelly wasn’t the only investor on CNBC to have perpetuated the safe haven narrative. Not 24 hours after his “Fast Money” segment, Jihan Bowes-Little, an investor of Coinbase through his venture fund Bracket Capital, went on CNBC’s “Squawk Box” to argue that Bitcoin’s strongest use case is “as a stored value”.

And just a week earlier, Circle’s Jeremy Allaire explained that he sees that “the broader theme of, you know, Bitcoin specifically, crypto more broadly participating in these global macro forces is becoming more and more clear.”

There Remain Naysayers

Despite the clear correlation and the countless respected individuals claiming that Bitcoin is becoming a fully-fledged safe haven, there are a few that claim this narrative is catching on too fast.

As reported by Blockonomi previously, an investment strategist at the anti-crypto (it banned clients from making cryptocurrency payments) Bank of Montreal explained that Bitcoin can’t be a safe haven due to its volatility.

Brian Belski argued that Bitcoin’s current investment appeal is mainly derived from its “sexy” values, effectively calling it a fad and an asset will little or no inherent value.

And Forex.com analyst Fawad Razaqzada told Reuters that the recent correlations seen between Bitcoin and gold are nothing more than short-term trends, and are thus not indicative of BTC’s long-term potential as a hedge against risks.

Razaqzada elaborated that due to cryptocurrency companies and exchanges being so susceptible to hacks, it would be hard to classify Bitcoin as a safe haven play.

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Bitcoin

Bitcoin (BTC) Price Still Follows Stock-to-Flow Model Despite 48 Percent Correction

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The Bitcoin price is still in line with the much-talked-about stock-to-flow model. Will the coin rally in 2020?

While Bitcoin’s massive 48 percent correction from its yearly high of $13,700 might cast doubt on the new bull market, it actually remains in line with the stock-to-flow (STF) model. Hence, it is not unreasonable to assume BTC could see another rally after the upcoming halvening if the model is valid.   

The first scarce digital object 

The STF model, which was aims to predict the price of the leading cryptocurrency based on its scarcity, was developed by Dutch crypto analyst Plan B.

Commodities with a high STF ratio (the existing stockpile divided by the annual production) are preferred by investors because they are gradually becoming more scarce. For example, gold, which boasts a market cap of $8.4 trln, has a

ratio of 62 while silver only has 22 due to its higher supply growth (1.6 percent and 4.5 percent respectively).         

BTC’s STF ratio is currently at 25 but it will increase after the next halvening in May 2020. The miner reward for each block will be reduced from 12.5 BTC to just 6.25 BTC. It is expected that the ratio will reach 50, which would put “digital gold” very close to the yellow metal. 

Bitcoin Price

image by @100trillionUSD 👉MUST READ

“Almost entirely nonsense” 

However, not everyone is amused by Bitcoin’s STF model. In early November, economist Alex Krüger called it “massively overhyped.” 

Krüger downplays the importance of the supply side if the demand for Bitcoin is not factored in. He believes that demand is the most important factor that drives the BTC price. 

He further doubled down on his criticism, claiming that the model is “almost entirely nonsense.”

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Global Debt to be Worth $12 Million per Bitcoin by Year End

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Bitcoin has achieved market capitalization close to some of the biggest corporations, ranging between $100 and $300 billion. But taken in proportion to the size of the world’s financial system, BTC may have a different valuation.


Debt Issuance Shows No Signs of Slowing

The bloated worldwide debt, fueled by extreme quantitative easing in the last decade, will reach $255 trillion by the end of the year, reported Reuters. The analysis of the Institute of International Finance estimates each person on the planet would carry $32,500 in debt.

“With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said in a report.

Due to bitcoin’s limited supply, it is possible to chart the size of global debt-fueled finance in BTC terms. One bitcoin (as per current aggregated supply) will have to be worth over $12 million to describe the size of the worldwide debt.

The growth of debt comes from governments and government companies, as well as non-financial businesses. A debt bonanza analysis by Bank of America Merill Lynch shows that government debt has ballooned by $30 trillion, companies added $25 trillion, households $9

trillion and banks $2 trillion. All of that additional debt has been accrued since the bankruptcy of Lehman Brothers in the fall of 2008.

Instead of entering a decade of stagnation, central banks poured in liquidity to boost all sectors, leading to significant asset valuation growth. In spite of that, the financial sector carries debt which is 240% of the world’s gross domestic product.

Bitcoin Still Valued Low in Comparison to Size of Financial Sector

It is somewhat difficult to reconcile the idea of sound money, which BTC aims to be, with a debt-fueled economy. But in a way, the current market price of bitcoin reflects the fact that not all funds in circulation are sound, and that debt-based economic activity has been the chief driver of asset valuations in the past decade.

If bitcoin’s value was matched to real economic output, it would be about 60% lower, at around $4 million per BTC. But the presence of debt skews nominal prices.

This potential BTC price has far outpaced the historical highs of the coin. Based solely on the crypto market, bitcoin has peaked around $20,000 in Korea, and at $19,600 in other markets. Some predictions see bitcoin price going to $50,000 again. Experts admit BTC would have reached higher bids if the futures markets did not start swaying the price as well.

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Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Sell the rallies– key theme ahead?

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  • Crypto markets uninspired by short-lived optimism.
  • Top 3 widely traded coins to shed 4+% each on the week.

The world’s no. 1 digital coin, Bitcoin, is seen fading its tepid recovery from 2.5-week lows of 7,007, as we head towards the weekly closing. However, the second most traded cryptocurrency, Ethereum and Ripple, both cling to minor recovery gains so far this Sunday but the further upside lacks momentum, as sellers continue to lurk. The total market capitalization of the top 20 cryptocurrencies now stands at $195.25 billion, as cited by CoinMarketCap.

The top three coins are seen resuming last week’s downtrend into a fresh week ahead, with FXStreet’s Confluence Detector tool enabling to highlight key supports and resistances for better trading decisions.

BTC/USD: Bears headed to November lows

As explained here, Bitcoin failed to sustain it recovery near the $ 7,200 mark, as stiff resistances are aligned there, with the confluence of the previous high on the 4-hour chart and 23.6% Fibonacci Retracement (Fib) level of the weekly price action.

However, if the bulls manage to take out the last, the next resistance near the 7,265 region, the 23.6% Fib of the monthly price action. A break above which will expose the 10-day Simple Moving Average (DMA) at 7,332.

Given that the bears have returned, a test of the 2.5-week lows at 7,007 is back on sight. Note that the multi-week lows also intersect with the Pivot Point 1 Week S1 and Bollinger Band 1D lower, making it a critical demand zone. Should this support be breached, it is likely to accelerate the downside momentum towards 6,750 – Pivot Point 1 Week S2.

ETH/USD: Stiff resistances are packed just ahead of 144

Ethereum has pared the recovery gains, as a pack of resistances just ahead of the 144 handle restricts its every upside attempt. The resistance

zone is a confluence of the Fib 38.2% 1W, previous high on the 4-hour chart and Pivot Point 1D R1.

A sustained break above the last will intensify the recovery momentum towards the next resistance aligned near 147.50, where the 23.6% 1M and 61.8% 1W coincide.

To the downside, the earlier support around 143, the intersection of the 38.2% Fib 1D and previous low on the 15-minutes sticks, is already breached, opening floors for further declines towards the 140 handle – the previous week low.

XRP/USD: Bearish bias intact while below 0.2225

Ripple is seen consolidating around 0.2170 levels, as the immediate upside remains capped near the 0.2180 region (38.2% Fib 1D/ 5-HMA). 

A break above that level, the coin is likely to test the day’s high at 0.2197 beyond which the 0.2220-0.2225 supply zone will grab buyers’ attention. That level is the key confluence of the 200-HMA, 38.2% Fib 1W and 100 4-hour SMA.

On the flip side, the next support is directly seen near 0.2157, which is the previous week low. Sellers are likely to aim for the minor support of the Pivot Point 1W S1 at 0.2135 if the bearish momentum picks up pace.   

See all the cryptocurrency technical levels.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Source: fxstreet

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