Bloomberg’s senior commodity strategist Mike McGlone recently released a mid-year crypto outlook, the It is claimed that Bitcoin’s volatility should continue to decrease as the asset behaves more like gold. According to the report, indicators of primary demand and acceptance remain positive.
The report concludes that Bitcoin faces an outbreak with a resistance target of $ 13,000. Although this perspective is justifiable, The arguments presented in the article seem to be wrong. The correlation metrics of the past six months have pushed Bitcoin out of gold hedging status Most of the time it was operated synchronously with the S P 500.
In terms of the above increase in demand, The latest entry in the grayscale investment funds cannot be interpreted as an entry of new money into the room. The same applies to unprecedented increases in open interest for bitcoin futures.Because every derivative instrument needs a buyer and a seller of the same size.
The correlation of Bitcoin with gold and the SP 500
One of the reasons why Bitcoin has attracted investor attention in recent years is the lack of correlation between the digital asset and traditional investments.
There have been periods of parallel performance mainly caused by the same socio-political and economic headwind that affects all major types of assets.
The 30-day correlation of Bitcoin with gold (red) and the SP 500 (blue). Source: TradingView
The story to be told in 2020 is the growing correlation between Bitcoin and the S P 500. No clear trend has been found in the gold price, although recent data indicate the highest negative value since December 2018.
The negative correlation implies performance in the opposite direction, so there is no case to construct an opposite argument.
Inflow of grayscale bitcoin trust (GBTC)
The Bloomberg report says the increased inflow to Grayscale Investments funds is a sign of optimistic investor sentiment. The funds are similar to an ETF and can be seen as a good indicator of investor demand. GBTC’s great appetite is undeniable as more than 53,000 bitcoins were added after halving, as reported by Cointelegraph.
The premium of the grayscale bitcoin trust GBTC at net asset value (NAV). Source: YCharts
This fund has historically traded at a substantial premium above its net asset value (NAV) or the market value of the bitcoin it contains, as shown in the chart above.
This difference is mainly due to the inability of retail investors to buy shares directly from Grayscale Investments, whose funds are only intended for accredited investors.
Professional investors can purchase GBTC shares directly from Grayscale by transferring USD or in kind by transferring through BTC.
Product entry of grayscale investments by type. Source: grayscale
The latest data from the end of 2019 show that almost 80% of the grayscale investment entries were “in kind”, which means that there was not necessarily any buying activity. These BTCs may have previously been bought by professional investors or borrowed from large OTC trading desks.
For example, Genesis, a leading OTC and credit company, closed the fourth quarter of 2019 with active loans worth $ 545 million, Cointelegraph reported.
Although there is clearly a final buyer for these GBTC stocks, it cannot be said that this current increases the buying pressure on the market.
In fact, BTC is moving from the hands of professional clients to Grayscale Investments as a custodian. This is regular trading, similar to the $ 82 billion trading volume on regular exchanges in the past 30 days.
Open interest in Bitcoin futures
The Bloomberg report too leads the growing open interest in CME bitcoin futures as a sign of maturity and as a positive price indicator. Since then, this has not been the case in many ways Medallion Funds’ recent market entry of $ 10 billion definitely cannot be associated with long-term investments or even a fundamental upward trend.
So these quantitative arbitration trading tables perform both long and short operations It is impossible to correlate this increasing activity with bullish or bearish cases.
Not to mention that CME Bitcoin futures are financially settled instruments, which means that No actual BTC moves after the contract expires.
Finally, The Bloomberg report shows that trading futures on a regulated US stock exchange is critical to traditional market acceptance. Even if you take into account the physical future of BAKKT with BTC billing, BTC in your care will not be accepted as a margin.
Traditional market acceptance has nothing to do with trading derivatives since Bitcoin is designed to work independently without the need for ETFs and financial instruments.
Actually, Conventional adoption is more likely when large mutual funds directly engage in Bitcoin.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every step of investment and trading involves risks. You should conduct your own investigation when making a decision.