Daily Markets Update - September 15, 2020


  • $BTC jumped up 4.66% overnight to $10,700 to $10,800 range, and dominance sits at 56.7% 

  • Trading at 300 above 10d SMA expectations and overbought RSI levels

  • $ETH blockchain seeing tons of (yield) farmers shifting across various platforms in search for higher yields, leading to a temporary surge in gas fees during Americas’ trading session. $ETH inched towards $400 resistance again, trading at $380 currently, after Sunday’s sell off from $390 to $366. The spike in $ETH value coincides with the demand of DeFI and for gas fees

  • $DOT surpasses BCH as #5 large cap coin with all coins in the green ranging from +5-10% 


The Equity Temper Tantrum is Here -- And Here Comes the Stimulus-Jeff Dorman; Arca


US equities declined for the second straight week, as technology stocks experienced their worst pullback since March. The Nasdaq lost 4.1% week-over-week, leading the technology index roughly 10% below its all-time high reached just six trading days ago. To put this in context, the entire market capitalization of liquid digital assets is $340 billion -- Apple (AAPL) alone lost $340 billion in market cap in the first 10 days of September. Even though the VIX finished the week at 27, it approached 40 earlier in the week, an indication that volatility may be here to stay for the remainder of the year.

There was no single catalyst for the move lower, however, broad valuation concerns, skepticism about a compromise on a coronavirus stimulus package before the election, and signs of slowing progress in the labor market all contributed to the negative sentiment.   Two months ago, we pointed out that it would likely take an equity temper tantrum before Congress acts. Methinks Congress will be acting soon, and so does the market, which is why the VIX got slammed lower even as equities slid throughout the week. Moral hazard never left, but it’s definitely back.

Correlations and the VIX

The digital assets market has seen its fair share of volatility too. While Bitcoin ended the week basically unchanged, the week-over-week moves in other digital assets, most notably those tied to Ethereum and Decentralized Finance (DeFi), were not for the faint of heart. Of 209 tokens with a market cap greater than $25 million, over the past 7 days, 44 rose 10% or more while 22 fell over 10%. The DeFi index has traded in a 40% range since the beginning of September, including back-to-back 15%+ moves on weekends.


The “DeFi Perpetual Swap” Index, courtesy of FTX

Source: FTX


But while overall volatility is on the rise, inter-asset correlation is actually on the decline. Unlike the prior week when digital assets fell victim to old habits with a ferocious “student body left” broad-based decline, this past week showed just how far the digital assets market has matured in recent years. Of the 209 tokens in our universe, 118 gained week-over-week, while 91 lost value.   Further, the market even differentiated between assets within the same sector, as just about every sub-sector of digital assets showed similar price dispersion. While many digital asset naysayers like to point out how correlated “cryptocurrencies” are with each other, the data is now telling a completely different story. Bitcoin has become a macro asset, tied more to the fates of risk assets than to other digital assets, while the evolving digital asset universe has become a collection of idiosyncratic projects and companies. That’s tremendous progress, and very encouraging for research-based investing.

Back to Bitcoin, we were particularly interested in how Bitcoin has reacted during other periods when the VIX has risen above 30, as this has historically been a level that market participants have focused on. Our assumption was that Bitcoin always acted as a risk-asset whenever other markets saw heightened volatility. But even that was wrong. Below is every instance when the VIX has risen above 30, and how BTC reacted (or didn’t):


  • December 17, 2018: Bitcoin had just fallen 45% in the 30 days prior to the VIX spiking, but BTC rallied 10% in the week after the VIX crossed above 30. Bitcoin was a leading indicator.

  • February 27, 2020: The VIX crossed 30, and stayed above 30 for over 2 months, hitting a high of 83.   Bitcoin fell 10% in the immediate 5-day period following the first move above 30, and then fell over 50% in one day on March 12th just as the VIX exploded higher. Bitcoin definitely followed equity volatility.

  • April 20, 2020: The VIX was already above 30, but it spiked from 38 to 43 in one day. This turned out to be a head fake, as both stock and Bitcoin rose in the following 5-day period. In fact, BTC rose 30% over the next 10 days.

  • May 12, 2020: After having just dipped below 30, the VIX spiked again from 27 to 33 sending equities lower. Once again, Bitcoin ignored the move, and rose 10% over the next 5 days (as gold rallied too).  

  • June 11, 2020: The VIX spike was another head fake, rising from 27 to 40 in a single day. Stocks fell 4% over the week, then ended up rallying for 6 weeks thereafter. Bitcoin fell 4% that day too, but then was completely unfazed thereafter, trading in a narrow 5.5% range over the next 6 weeks.

  • July 13, 2020: The VIX spiked from 27 to 32, but Bitcoin only traded down 1% over the next 5 days.

  • September 3, 2020: The VIX jumped above 30, reaching 40, and BTC fell by 10%.   The VIX then spiked again on September 8th, but Bitcoin rose 3%.


Once again, pretty inconclusive data for Bitcoin. This constant correlation jumping is driving quant funds mad this year, as models break down seemingly every week. As discussed last week, Bitcoin has recently latched onto its newfound correlation with equities, but that too will likely disappear over longer time horizons (and is already dissipating). Our friend Noelle Acheson of Coindesk went even deeper discussing the on-again, off-again Bitcoin correlations and why we care so much.

This grasping for data to back a story reveals our very human need to put bitcoin in context of things we’re already familiar with. If it goes into a certain mental box, it’s easier to understand and easier to make decisions about. Boxes are comfortable. Yet, in the long run, they are unsustainable. For short-term market movements, what we think bitcoin’s narrative is doesn’t matter as much as what other people think bitcoin’s narrative is. Other people move the market, so we should know what asset framework they’re using. For long-term market movements, correlations matter more for portfolio diversification than for anything else. In the not-too-distant future, markets will hopefully be less confusing and even short-term covariance and other relationships might be steadier, and easier to use for planning purposes. By then, even bitcoin’s correlations might start to matter less for the story and more for the allocation calculations.

This made me think about a recent conversation I had with Ria Bhutoria, Director of Research at Fidelity Digital Assets, when she asked me if I was surprised by how Bitcoin is reacting to macro events this year. My response was that Bitcoin fits into so many different investment buckets, it’s almost impossible to be surprised by anything that it does. How many other assets in the world besides US Treasuries can be claimed by so many different types of investors?


  • Ark Invest fit BTC into its “Innovation bucket”, becoming the first public equity fund manager to own BTC in its ARKK ETF

  • Managed Futures investors claim BTC as a commodity, and is a big reason for BTC’s growing volumes on the CME.

  • Alternative investors claim BTC as an uncorrelated growth asset, capable of increasing Sharpe Ratios and diversifying overall returns.

  • Algo/Quant funds claim BTC as a trading vehicle

  • Digital Assets funds claim BTC as its benchmark

  • Market makers use BTC as collateral

  • Some publicly traded companies, like Microstrategy, claim BTC as a cash substitute

  • Macro hedge funds claim BTC as an inflation hedge


The list goes on and on. This may be why Bitcoin was once compared to a platypus.

More from Alts and DeFi:

  • $LINK currently at oversold levels at 12 range, range bound between 12 and 14 for the past nine days. Will be looking to break past this range with increased volumes coming from DeFi staking projects that incentivizes LINK-paired liquidity pools;

  • $YFI staying within striking distance around 40K levels, up 20% over the past 48 hours to $39,750 levels. ATH was reached last Friday at $44,000 and has been trading horizontally for the past 12 hours; 

  • $BNB drops slightly as the hype surrounding Binance Smart Chain and BurgerSwap cools down. $BNB drops from yearly highs of 32 to 29 range and at oversold levels. $BNB’s outlook is bright with potential capabilities of the chain to mimic ERC20 with its own BEP20. Will need to see if the community grows to follow in the TVL footsteps that currently Uniswap and the rest of the ETH20-based projects are seeing.

News that caught our eye:

  • A rise in cloud server attacks has been reported with the primary intent to mine cryptocurrency 

  • Crypto.com to leverage Chainlink for price feeds in latest DeFi move

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