Monthly Archives: September 2021

When the stock market sells off sharply as it did on Monday during the Evergrande meltdown bitcoin and other cryptoassets often sell off too.

This always surprises people. Skeptics come out of the woodwork and shake their heads, noting sarcastically: I thought cryptoassets were supposed to be uncorrelated.

I find this baffling.

If there is one thing everyone agrees on about crypto, its that its a risky investment. Why, then, are we surprised when crypto sells off during risk-off moments?

I know that crypto gets billed as an uncorrelated asset, and it is: Over any meaningful period of time, the correlation between crypto and the stock market is about 0.2, which is very low. But a general lack of correlation doesnt guarantee crypto will zig when the market zags over the short term. It means it will offer uncorrelated returns over months and years, which it has, historically.

The people who expect crypto to precisely offset the market fail to understand what actually drives crypto performance. In reality, there are three main drivers of crypto returns. If you want to understand why different crypto assets move the way they do, you have to understand how these three main drivers interact.

Driver 1: Risk-On/Risk-Off Appetite

The first major driver of crypto returns is risk appetite. As mentioned, cryptoassets like bitcoin are risky investments. When investors get nervous, they sell risky assets. When they get bullish, they buy.

Thats true of all risky assets, and thats what we saw on Monday, when crypto traded down in line with stocks. You see the same effect on other risky areas of the market, including in the disruptive technology ETFs offered by Cathie Wood and ARK Invest.

Crypto responds to risk-on/risk-off dynamics.

Driver 2: Industry-Wide Factors

The second major driver of crypto returns is industry-wide factors. That means news and developments that impact the entire crypto industry, or certain sectors of the industry.

Regulation is a good example. Regulators in Washington and elsewhere today are debating issues like how to regulate stablecoins, crypto exchanges, and the DeFi space. Good news on the regulatory front would lift the price of the crypto market as a whole, while concerns about overreach could drive the market lower. Youre seeing that today as the market reacts to Chinas ban on crypto trading.

Another example is education. Ive been on the road for the past two weeks speaking to literally thousands of institutional investors and financial advisors about crypto at multiple conferences. This kind of education multiplied by all the other people doing the same thing has an industry-wide benefit and is a long-term driver of returns. Knowledge breeds confidence.

Driver #3: Asset-Specific Drivers

The third driver of returns is factors that impact individual cryptoassets and their use cases.

For example, the price of ether is up significantly this year due in part to booming interest in NFTs, or non-fungible tokens, which are tied to the Ethereum network. Bitcoins price is up less in part because its not exposed to the NFT boom.

By comparison, bitcoins price is more responsive to central bank activity and concerns about inflation than ethers, since bitcoins primary use case is as digital gold.

Different cryptoassets and their related blockchains provide different services and are targeted at different markets. As they succeed or fail and as those markets grow or ebb the returns of the specific asset feel the impact.

What This Means for Investors

Understanding the interplay between these three factors is key to understanding how cryptoassets perform.In the early days of crypto, investor risk appetite was the only factor that mattered. Crypto was extremely speculative at the time and use cases were abstract. As a result, risk-off sell-offs (and risk-on bull runs) were extreme. Cryptoassets regularly moved 10% or more on individual days.

Today, industry and asset-specific drivers have come to predominate. There are days like Monday when risk factors can overwhelm the market, but on most days, crypto is driven by factors like regulation and institutional adoption. This is why crypto exhibits low correlations with stocks and other markets when measured over time, even if correlations can spike to 1 during risk-off moments.

Long term, as the markets mature, I expect asset-specific drivers to become the dominant or at least a larger driver of returns. You can already see this in markets, where assets like Solana are showing spectacular returns (up more than 9,000% year-to-date) as they are increasingly perceived by investors as an alternative to the overcrowded Ethereum blockchain. I expect the correlations between different cryptoassets to decrease as their distinct characteristics and use cases become more evident. There is no particular reason why bitcoin (which acts as digital gold) should be highly correlated with ethereum (which is the platform for DeFi, NFTs, and other applications) over the long term. It is today, because they are both buffeted by significant industry-wide forces and risk-appetite dynamics. But in a mature, steady state, they should have fairly distinct return patterns.

Meanwhile, dont let short-term returns fool you: Cryptoassets trading down on risk-off days are just a reminder that its still early in crypto, and that crypto is a risky asset. This risk factor can overwhelm the industry and asset-specific drivers in the short term. But over the long term, crypto has demonstrated a low correlation with other assets, and that lack of correlation seems likely to persist over time.

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The Three Drivers Of Crypto And Bitcoin Returns - Forbes

Bitcoin (BTC) was busy losing its overnight gains on Sept. 27 as resistance continued to prove too much for bulls.

Data from Cointelegraph Markets Pro and TradingViewshowed BTC/USD dropping to around $1,000 below overnight highs of $44,400 on Bitstamp on Sept. 27.

The move constitutes a rejection at a critical zone to break, Cointelegraph contributor Michal van de Poppe explained, with $42,000 now the key level to hold for a higher low.

Bitcoinis acting in an increasingly narrow range, he summarized in his latest YouTube update.

Right now, were stuck, he said, pointing to $47,000 as next should the $44,600 zone be reclaimed.

On the downside, the zone between $38,000 and $40,000 remains valid for a bounce, while a complete failure of the range as support would then send BTC/USD toward its 2021 opening price, around $28,000.

If $42,000 is lost, I think were going to have into the lows here and take the liquidity beneath the low before were going to have an actual reversal at this stage, van de Poppe concluded about short-term price action.

As Cointelegraph reported, volatility was broadly anticipated thanks to the imminent vote on the United States governments infrastructure bill, which could come as soon as Sept. 27.

Combined with residual fears over Chinas latest ban on crypto transactions, the bad-news narratives continued to hold major sway into the new week.

Altcoins mimicked Bitcoins lack of general direction on the day, with most of the top 10 cryptocurrencies flat over the past 24 hours.

Related:China fear is now infrastructure bill fear 5 things to watch in Bitcoin this week

Only Solana (SOL) managed to put in a convincing move, up 6.5% to $145 at the time of writing.

Despite being uninspiring throughout September, altcoins are nonetheless due for a major resurgence, popular trader Pentoshi forecast.

This, he said, should take a similar form in Q4 2021 as the same time last year part of a general expectation that Bitcoin will shoot higher before the year is out.

Few understand. Q4 last year alts were at [all-time lows] vs BTC, he reasoned.

While September is tipped to end on an average note for the markets, October could bring about the start of the Bitcoin renaissance first, with a worst case scenarioclosing price of $63,000.

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Bitcoin breaking new highs in Q4 will temporarily turn alts to dust Analyst - Cointelegraph

Twitter on Thursday announced it will now allow users to tip their favorite creators on the social network using bitcoin.

The company introduced tipping as a test feature back in May as a way to experiment with helping creators earn payments from their followers for the content they post on Twitter. The company announced Thursday that its Tips feature will now roll out globally to all Apple iOS users this week and will become available for Android users in the coming weeks.

Previously, users could tip with fiat currency using more traditional payment services such as Square's Cash app and PayPal's Venmo. Twitter will integrate the Strike bitcoin lighting wallet service so creators can receive bitcoin tips. The company will also allow users to add their bitcoin address to send and receive these cryptocurrency tips.

Twitter does not take a cut of any money sent through its Tips feature.

The integration of bitcoin to Twitter's tip feature is hardly surprising considering CEO Jack Dorsey is one of the most vocal supporters of the cryptocurrency.

In just the past few months, Dorsey has tweeted that he is trying his hand at bitcoin mining. He said he doesn't think there is anything more important to work on than bitcoin and he has even said that his hope is bitcoin will bring about world peace.

Additionally, Twitter on Thursday said it is also experimenting with a feature that would allow users to authenticate and showcase their collections of NFT digital assets on the social network. The company did not provide much detail or any specifics about this blockchain project, but said it's another way to support creators who make digital art.

Besides blockchain, Twitter also announced its plans to launch a creator fund for users who host Spaces audio rooms as a way to incentivize more live audio events. Last year, the company debuted Spaces, which is a feature where users can hear and chat with others in audio-only virtual rooms. The company hopes the upcoming fund will incentivize more users to host live audio events on Twitter.

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You can now get paid in bitcoin to use Twitter - CNBC

Which would you rather have?

As bitcoin continues to show remarkable resilience in the wake of a renewed clampdown in China, Deutsche Bank has updated its research material on the cryptocurrency sector by drawing parallels not only between bitcoin and gold, but also between Ethereum and silver.

Marion Laboure, senior economist and market strategist at Deutsche Bank, made the comparisons on a new research page outlining her perspective on the worlds two most valuable digital currencies.

History shows that humans had always a strong willingness to store their money in an asset which is different from the day-to-day working arrangements of governments and authorities, she said in filmed remarks about the concept of safe-haven assets, which have a limited supply on the planet and therefore cannot have their value manipulated by central banks.

Until recently, gold has been this primary asset. So I could envision bitcoin to be a kind of digital gold where people can store their value as well.

This is not the first time that a major investment bank has drawn an analogy between the worlds leading cryptocurrency and the worlds most valuable precious metal. In January, J.P. Morgan strategists opined that bitcoins competition with gold has already started and that millennials are likely to trigger a crowding out of gold owing to their preference for digital assets.

However, financial institutions have largely avoided making the same comparison between Ethereum and silver.

The worlds second largest cryptocurrency has a market cap roughly half the size of bitcoins, but is favored by some owing to its adoption of smart contracts automated scripts of code that improve the functionality of a blockchain.

Broaching that subject, Laboure added in written remarks: Bitcoin is clearly the pioneer, and the most traded crypto. Its market cap is ways bigger than the market cap of the number two Ethereum, which offers many applications and use cases, such as decentralized finance (DeFi) and non-fungible token (NFT). If bitcoin is sometimes called digital gold, Ethereum would then be the digital silver!

Its unclear whether Laboures commentary on Ethereum is a personal viewpoint or a reflection of deeper policy assessment at Deutsche Bank.

Numerous other cryptocurrencies have, in the past, laid claim to the title of digital silver.

Charlie Lee, the founder of Litecoin one of the earliest cryptocurrencies spawned from bitcoins seminal codebase said in 2011 that he wanted to create something that is kind of silver to bitcoins gold. Ultimately, however, Litecoin failed to keep pace with broader innovation in the sector and now ranks just 17th in CoinMarketCaps list of the most valuable cryptocurrencies.

Unlike bitcoin which stands alone as the oldest and largest cryptocurrency, and the only one to have won mainstream institutional support Ethereum faces stiff competition from a number of rival protocols that claim to offer the same advanced functionality.

Fellow top-ten coins Cardano, Binance Coin, Solano and Polkadot all deploy smart contracts on their native chains or correlated para-chains.

If one of these cryptocurrencies matures into the dominant platform for DeFi and NFTs, then there could be merit to giving it the label of digital silver. Demand for silver is driven not just by its reputation as a precious metal with limited supply and aesthetic appeal, but also its practical use in a number of industries ranging from semiconductors to photography to dentistry.

However, Laboure is jumping the gun when she suggests that Ethereum has seen off competition for the title.

And even if it does become widely recognized as digital silver, theres a sting in the tail for investors. For all its use cases, the market cap of silver is about one-ninth the size of the market cap of gold.

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If Bitcoin Is Digital Gold, Then Ethereum Is Digital Silver: Deutsche Bank - Forbes

Cryptocurrencies have started off the week on a bright note as virtual coin prices rose over the past 24 hours, signalling a rise in momentum. Prices of all popular virtual coins fell on Friday after top Chinese regulators banned cryptocurrency trade and mining.

Bitcoin, the worlds largest cryptocurrency, rose above $44,000 or over 5 per cent higher than its value 24 hours ago at 11:40 am. The cryptocurrency's 24-hour trading volume rose marginally to $911 million and market capitalisation increased to $831.45 billion.

Ether performed even better as it rose over 11 per cent from its price 24 hours ago. It was trading at $3,142.86 and the market capitalisation rose to $368 billion. The trading volume over the past 24 hours stood at $922 million.

A broad-based recovery has been seen on Monday after a short spike in volatility following the Evergrande crisis in China.

Most other altcoins including XRP, Cardano, Polkadot, Stellar, Dogecoin, Chainlink, Uniswap and Litecoin also remained positive.

Commenting on the positive momentum, Hitesh Malviya, cryptocurrency and investment expert, Bitcoin is showing some strength on lower time frames, and we could expect the price to retest $47,000-$48,000 area. A clean breakout above these levels will make the whole market bullish again, but the rejection around these levels will open the path to $36,000.

Edul Patel, CEO and Co-founder of Mudrex, a global algorithm based crypto investment platform, said, The new week began with a bang for the cryptocurrency market.

Over the past 24 hours, the total traded volumes saw a sharp increase of over 20 per cent, and the total market capitalisation went past $1.95 trillion. Although Bitcoin rose above the $44,000 mark, the star performer of the day was the largest altcoin, Ethereum, he added,

This week might be a game-changer for the altcoins.

Cryptocurrency

Price (US Dollar)

24-hour change

Market cap (Billion)

Volume (24 Hours)

Bitcoin

43,867.84

4.43%

$823.64

$925.84 million

Ether

3,093.87

9.65%

$362.96

$935.35 million

Dogecoin

0.206472

-0.53%

$29.06

$1.06 billion

Litecoin

161.07

1.27%

$27.12

$1.05 billion

XRP

0.967020

5.22%

$96.74

$3.87 billion

Cardano

2.24

0.69%

$72.51

$267.38 million

DISCLAIMER: The cryptocurrency prices have been updated as of 12:30 pm and will change as the day progresses. The list is intended to give a rough idea about popular cryptocurrency trends and will be updated daily.

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Cryptocurrency prices today: Bitcoin rises above $44,000, Ether jumps sharply - India Today

London, UK, Sept. 27, 2021 (GLOBE NEWSWIRE) -- Bitcoin Profit is proud to introduce its latest software. As going in depth and searching for the quality bitcoin trading platforms nowadays is considered a traditional way. Cryptocurrencies have undoubtedly established themselves as pure digital gold with an intimidating market size projected to reach $4.94 billion by 2030 according to a Bloomberg report. But just like any other financial instrument, getting a piece of the action might prove difficult especially for new investors and ordinary everyday people who require some coaching and guidance.

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Bypass to the hectic searching

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The comprehensive line for traders

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Media contact

Company: Bitcoin ProfitContact Name: Herald JonesE-mail: service@bitcoinprofit.appLocation: 12 Aldermans Hill, Palmers Green, London N13 4PJ, United KingdomWebsite: https://www.bitcoinprofit.app/

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Bitcoin Profits Introduces The Global Solution For Traders - GlobeNewswire

El Salvador this month became the first country to adopt a cryptocurrency in this case, bitcoin as legal tender. I say the first, because others might follow. But they should think twice, because the idea is highly dubious and likely to be economically dangerous for developing countries in particular.

I will admit that I dont understand the need for cryptocurrencies at all. Like many economists, I fail to see what problem they solve. They arent well designed to fulfil any of the classic functions of money a unit of account, store of value, or means of payment because their prices are so extraordinarily volatile. This volatility is not surprising, because cryptocurrencies are backed neither by reserves nor by the reputation of a well-established institution, such as a government or even a private bank or other trusted corporation.

In fact, bitcoin and its fellow cryptocurrencies were born from an anarcho-libertarian distrust of central banks. True, many central banks, especially in developing countries, have a history of debasing their currencies. But adopting bitcoin as legal tender makes little sense for El Salvador.

In 2001, El Salvador adopted the US dollar as legal tender to ensure the monetary stability that the countrys national currency, the coln, had historically failed to deliver. The reform worked: the countrys annual inflation rate, which had substantially exceeded 10% between 1977 and 1995, has declined markedly since the adoption of the dollar. It has been below 2% since 2012, and close to zero since 2015 a rarity in Latin America.

Giving up the monetary independence afforded by issuing ones own currency carries costs particularly, the loss of the ability to adjust monetary policy in response to local economic conditions. El Salvador already accepted this when it adopted the dollar. The costs would be even greater if a currency as unstable as bitcoin were the sole national currency. But President Nayib Bukele instead decided to designate both bitcoin and the dollar as legal tender. The logic behind that decision is surreal.

Bitcoin has not been well received in El Salvador. Domestic residents dont want to be obliged to accept it. International markets also are unenthusiastic. Moodys downgraded El Salvadors debt in July, and S&P could follow suit. The spread between the interest rate that the government must pay on its debt and the US Treasury rate has increased sharply since the plan to bitcoinize was first announced in June.

There is one function that cryptocurrencies do appear to serve: facilitating illegal transactions. Needless to say, this is not a use that should be encouraged. Even worse in terms of the general welfare, mining cryptocurrencies such as bitcoin which relies on blockchain technology to verify transactions requires staggeringly large amounts of energy and thus harms the environment.

Moreover, even if one accepts a role for one or two cryptocurrencies, the number that have been created is bafflingly large: anywhere from 6,000 to 11,000 (or as many as 70,000 digital tokens). The entire notion of the usefulness of money is that people choose to use the same currency that others do, thereby minimising transaction costs. They cant evaluate and keep track of the creditworthiness of dozens of issuers. Money is a sort of natural monopoly, which is why governments long ago took over responsibility for its provision.

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In the mid-19th-century US, for example, private banks and other institutions issued an estimated 8,000 competing private currencies. As US Federal Reserve governor Lael Brainard has noted, that period is now notorious for inefficiency, fraud, and instability in the payments system. This is essentially why central banks were created.

The logic that works against a large number of currencies at the national level also applies internationally. This is one reason why the dollar remains by far the leading global currency. The world does not have room for 11 international currencies, let alone 11,000.

If the chronic US fiscal and current-account deficits had resulted in a strong long-term downward trend in the dollars value, one could imagine people shifting away from the greenback and seeking alternatives. But this has not happened, and particularly not during the period in which cryptocurrencies have risen. And US inflation was remarkably low during this time (though lately it has risen in tandem with the economic recovery).

Some, including Bukele, claim that cryptocurrencies will bolster financial inclusion by giving unbanked people access to financial services and lowering transaction costs for small cross-border payments such as migrants remittances. The latter are particularly important to El Salvador, having averaged about 20% of GDP annually over the past two decades.

But bitcoin is unlikely to be the solution. Other means of bringing down such transaction costs appear more promising. And holding or transacting in such an unstable asset is a particularly bad idea for people with low incomes, who can ill afford to sustain price swings as large as 30% in a single day. Bitcoin has quadrupled in price over the last year, which is part of the attraction. But what goes up also comes down.

Another disadvantage is that even the digitally savvy run the risk of forgetting passwords and losing their bitcoin. And at least half of El Salvadors population have no access to the internet in the first place.

Many aspects of cryptocurrencies are baffling, not least the success of a joke such as Dogecoin. But El Salvadors adoption of bitcoin as legal tender is perhaps the strangest and potentially most worrying example of all.

Jeffrey Frankel is a professor at Harvard Universitys John F Kennedy School of Government. He served as a member of President Bill Clintons Council of Economic Advisers

Project Syndicate

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El Salvadors adoption of bitcoin as legal tender is pure folly - The Guardian

Sep 25th 2021

DIVERSIFICATION IS BOTH observed and sensible; a rule of behaviour which does not imply the superiority of diversification must be rejected both as a hypothesis and as a maxim, wrote Harry Markowitz, a prodigiously talented young economist, in the Journal of Finance in 1952. The paper, which helped him win the Nobel prize in 1990, laid the foundations for modern portfolio theory, a mathematical framework for choosing an optimal spread of assets.

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The theory posits that a rational investor should maximise his or her returns relative to the risk (the volatility in returns) they are taking. It follows, naturally, that assets with high and dependable returns should feature heavily in a sensible portfolio. But Mr Markowitzs genius was in showing that diversification can reduce volatility without sacrificing returns. Diversification is the financial version of the idiom the whole is greater than the sum of its parts.

An investor seeking high returns without volatility might not gravitate towards cryptocurrencies, like bitcoin, given that they often plunge and soar in value. (Indeed, while Buttonwood was penning this column, that is exactly what bitcoin did, falling 15% then bouncing back.) But the insight Mr Markowitz revealed was that it was not necessarily an assets own riskiness that is important to an investor, so much as the contribution it makes to the volatility of the overall portfolioand that is primarily a question of the correlation between all of the assets within it. An investor holding two assets that are weakly correlated or uncorrelated can rest easier knowing that if one plunges in value the other might hold its ground.

Consider the mix of assets a sensible investor might hold: geographically diverse stock indexes; bonds; a listed real-estate fund; and perhaps a precious metal, like gold. The assets that yield the juiciest returnsstocks and real estatealso tend to move in the same direction at the same time. The correlation between stocks and bonds is weak (around 0.2-0.3 over the past ten years), yielding the potential to diversify, but bonds have also tended to lag behind when it comes to returns. Investors can reduce volatility by adding bonds but they tend to lead to lower returns as well.

This is where bitcoin has an edge. The cryptocurrency might be highly volatile, but during its short life it also has had high average returns. Importantly, it also tends to move independently of other assets: since 2018 the correlation between bitcoin and stocks of all geographies has been between 0.2-0.3. Over longer time horizons it is even weaker. Its correlation with real estate and bonds is similarly weak. This makes it an excellent potential source of diversification.

This might explain its appeal to some big investors. Paul Tudor Jones, a hedge-fund manager, has said he aims to hold about 5% of his portfolio in bitcoin. This allocation looks sensible as part of a highly diversified portfolio. Across the four time periods during the past decade that Buttonwood randomly selected to test, an optimal portfolio contained a bitcoin allocation of 1-5%. This is not just because cryptocurrencies rocketed: even if one cherry-picks a particularly volatile couple of years for bitcoin, say January 2018 to December 2019 (when it fell steeply), a portfolio with a 1% allocation to bitcoin still displayed better risk-reward characteristics than one without it.

Of course, not all calculations about which assets to choose are straightforward. Many investors seek not only to do well with their investments, but also to do good: bitcoin is not environmentally friendly. Moreover, to select a portfolio, an investor needs to amass relevant information about how the securities might behave. Expected returns and future volatility are usually gauged by observing how an asset has performed in the past. But this method has some obvious flaws. Past performance does not always indicate future returns. And the history of cryptocurrencies is short.

Though Mr Markowitz laid out how investors should optimise asset choices, he wrote that we have not considered the first stage: the formation of the relevant beliefs. The return from investing in equities is a share of firms profits; from bonds the risk-free rate plus credit risk. It is not clear what drives bitcoins returns other than speculation. It would be reasonable to believe it might yield no returns in future. And many investors hold fierce philosophical beliefs about bitcointhat it is either salvation or damnation. Neither side is likely to hold 1% of their assets in it.

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This article appeared in the Finance & economics section of the print edition under the headline "Just add crypto"

Link:
Why it is wise to add bitcoin to an investment portfolio - The Economist