data taken at 9:24am 18/12/2020
Written by: Yves, Head of Trading at Wirex
The Bitcoin price finally broke free from both the $19,500 resistance and the $20,000 psychological levels. The new all-time high (ATH) at $23,777 was reached yesterday and it is still hard to see anything that would prevent it from climbing further up. As usual during high trading activity, the BTC total fees paid increased to 163 BTCs, but are still far below this quarter’s high. The inflows to exchanges are also below the month high suggesting that HODLers are in no hurry to sell. Glassnode reports that “the number of BTC addresses holding at least $1mio has gone parabolic, increasing by 150%”, and Chainalysis reported on Friday last week that the number of addresses holding more than 1,000 BTCs increased by 17% in 2020 suggesting a larger institutional involvement.
BTC/USD performance since 2016 - Tradingview - a snapshot for posterity
Bitcoin is riding along the S&P500 Index. The U.S Equity benchmark reached new records when the Fed renewed its strong commitment towards expansionary monetary policy. The Fed will keep on injecting liquidity in the economy through asset purchases for $80bio in T-bills and $40bio of mortgage-backed securities MBS every month. It will continue to do so until price stability and employment fully recover. Furthermore, Congress is on its way to pass a $908bio relief bill: through asset purchases, the Fed is financing the government’s effort and keeping yields depressed. The U.S. monetary policy sent the greenback to new lows again this week. Cash remains a poor store of value as the DXY Index is down by a percentage point this week.
Another classic store of value, gold, has been losing steam since August. JP Morgan noticed that “the Grayscale Bitcoin Trust (GBTC) has seen inflows of almost $2 bio since October, compared with outflows of $7bio for gold ETFs”. They also suggest that if family offices decide to “tilt” their 3.3% gold ETFs allocation to Bitcoin, this could represent billions in cash investment. Institutional investors and high net worth individuals (HNWIs) certainly propelled the BTC/USD price to new historical heights this month.
Hedge funds are looking for alpha. At least, they’re looking to justify the fees they charge. They can’t ignore the BTC performance, or dismiss it categorically as an alternative asset, when they are struggling to perform (BTC/USD is up +311% this year). The Prequin Hedge Fund Performance update shows that hedge funds performed better in November, but their yearly performance is still significantly below the 14% return of the S&P500 Index, and obviously far from the Bitcoin returns.
Some of the best performing funds, based on their Q3 filings, invested in Bitcoin at an early stage (e.g. Ark Investment Management: since Q3 2017. 0.38% invested, or $56.7mil in GBTC). Others invested more recently. Bloomberg reported two days ago that Alan Howard, co-founder of one of the historically largest macro-hedge funds, namely Brevan Howard, was backing One River Asset Management, a smaller hedge fund that invested $600mil in Bitcoin and Ether before November 2020.
Other more classic tracker or index funds are also raising capital and launching. The Canadian CI Global Asset Management raised $72mil and completed its IPO on Wednesday. Bitwise Asset Management launched its 10 crypto index fund with $168mil AUMs. Bloomberg reports that Btwise’s premium exploded to 369%: it means that some unadvised investors would be willing to pay already more than $70K for a Bitcoin! Clearly, being an institution, a family office or a HNWI is no guarantee of qualification. There is absolutely no harm in avoiding or criticising cryptocurrencies when we don’t understand them, but investing millions when we still don’t understand is not only poor judgement, it creates negative associations that harm the Bitcoin’s reputation. An asset bubble doesn’t reflect systematically the quality of the asset, but more often the quality of its investors, or the quality of our explanations. If Alan Howard brings high value to Bitcoin as an investment through his expertise, trusts like Bitwise seem to be doing exactly the opposite.
Although the Ether (ETH/USD) performance is still lagging behind, the potential for the second cryptocurrency is all the more significant as it is still 54% below its ATH. The Chicago Mercantile Exchange Group (CME) set on Wednesday the launch date for Ether futures, scheduled for February 8th, 2021. The CME statement is clear: “Based on increasing client demand and robust growth in our Bitcoin futures and options markets, we believe the addition of Ether futures will provide our clients with a valuable tool to trade and hedge this growing cryptocurrency”. The Ether is on the right track to experience the same institutional boost that the number one cryptocurrency had all year.