| Figure 5
legendary
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One Piece I forgot to add: JP Morgan Flows & LiquidityUS retail investors’ call option buying rises to new highs2 February 2021Will the CME launch of ethereum futures contracts reverse recent price dynamics in a repeat of Dec 2017? - In past F&L’s we have noted the gradual maturing of the cryptocurrency space as the influence of institutional investors has grown over time since the listing of CME bitcoin futures in Dec 2017.
- This week will see the launch of ethereum futures at CME with cash settlement as with CME bitcoin futures. The listing of ethereum futures on a regulated exchange should serve to enhance the crypto market structure by allowing investors to gain exposure to the second most important cryptocurrency as a diversifier to bitcoin, or for simply hedging existing ethereum exposures. As with CME bitcoin futures, one criticism with cash-settled futures is that they may only allow for imperfect hedging for existing holders of ethereum as hedgers are susceptible to price risk associated with converting ethereum to cash at maturity. And there is an issue of potential manipulation with cash-settled contracts as settlement is based on a collection of spot prices from a number of exchanges with variable liquidity, which traders may be able to manipulate around the time of the futures contracts expiry. While that was also the initial criticism with CME bitcoin futures, some of these criticisms eventually proved overstated as evidenced by the relative growth of cash settled CME bitcoin futures vs. physically settled Bakkt bitcoin futures on the Intercontinental Exchange.
- Initial volumes are likely to be low, echoing the initial listing of cash-settled bitcoin futures by the CME and CBOE in December 2017. At the time, the listing of CME bitcoin futures coincided with all-time highs in bitcoin prices, and researchers at the San Francisco Fed suggested that, by providing a market where bearish positions could be more readily expressed, the listing of these futures contributed to the reversal of bitcoin price dynamics. In a similar vein, it may be that this week’s listing of ethereum futures contracts will be followed by negative price dynamics by enabling some holders of physical ethereum to hedge their exposures.
- A successful launch of ethereum futures this month is likely to be followed by options on ethereum futures, perhaps as early as 2022, in a similar manner to the launch of options on bitcoin futures in the first quarter of 2020. That would expand the alternatives for investors to manage price risk for ethereum , the second most important cryptocurrency with a market cap of $170bn.
No pictures or graphs here. This was the original text.
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legendary
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<...>That is the most common strategy between traditional wealth and asset managers. Now that everyone's talking bitcoin they are suggesting a tiny exposure to counterbalance stocks, bonds and other traditional assets. Usually they propose between 1-5% btc exposure. Which is not bad on a multi-million portfolio.
As I wrote elsewhere (on my infamous Proudhon post).
When I decided to buy bitcoin I made a few back of the envelope calculation. The first one was about gold parity, pointing to 350k dollar at the time (now more in the 500k region).
A second one was about the answer of the following question: what if everyone put 1% of their financial wealth on bitcoin.
So a few computation (getting updated figures for gold parity consistency):
World financial wealth (Credit Suisse 2020) : 360 Trln
1% : 3.60 Trillion
This has to becdivided over
21 million bitcoins (I want a conservative number)
Target price: 170,000 USD
Not bad.
Bullish.
My body is ready.
This is why I am particularly excited when I hear someone suggesting a tiny %age allocation to bitcoin in big portfolios.
legendary
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Another one! Wall Street is on fire on those reports: Understanding Bitcoin Does bitcoin belong in asset allocation considerations?KEY TAKEAWAYS - Among an increasing number of investors and portfolio managers, bitcoin is considered a legitimate and distinct asset class.
- Bitcoin, by design, is a finite asset, with both a unique supply and a unique demand dimension, and as its network increases, bitcoin’s value and durability could increase even faster.
- Seen as a form of “digital gold,” bitcoin may act as a stable store of value and potentially offer protection against inflation—and even hyperinflation.
- Bitcoin, however, faces risks from volatility, competitors, substitutes, regulation, and other factors; further, bitcoin may not be an appropriate or prudent diversifier for all portfolios.
- In my view, some investors may wish to consider bitcoin, alongside other alternatives, as one component of the bond side of a 60/40 stock/bond portfolio
This one sports a more traditional approach. Very interesting on a the proposition in adding Bitcoin to a financial portfolio. That is the most common strategy between traditional wealth and asset managers. Now that everyone's talking bitcoin they are suggesting a tiny exposure to counterbalance stocks, bonds and other traditional assets. Usually they propose between 1-5% btc exposure. Which is not bad on a multi-million portfolio.
legendary
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Another one! Wall Street is on fire on those reports: Understanding Bitcoin Does bitcoin belong in asset allocation considerations?KEY TAKEAWAYS - Among an increasing number of investors and portfolio managers, bitcoin is considered a legitimate and distinct asset class.
- Bitcoin, by design, is a finite asset, with both a unique supply and a unique demand dimension, and as its network increases, bitcoin’s value and durability could increase even faster.
- Seen as a form of “digital gold,” bitcoin may act as a stable store of value and potentially offer protection against inflation—and even hyperinflation.
- Bitcoin, however, faces risks from volatility, competitors, substitutes, regulation, and other factors; further, bitcoin may not be an appropriate or prudent diversifier for all portfolios.
- In my view, some investors may wish to consider bitcoin, alongside other alternatives, as one component of the bond side of a 60/40 stock/bond portfolio
This one sports a more traditional approach. Very interesting on a the proposition in adding Bitcoin to a financial portfolio.
legendary
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After years of blockchain not bitcoin useless brainwash now all the big banks and the wall street firms have to spend liters and liters of ink on BITCOIN which is the only thing that has ever mattered here! Thanks for sharing, this might fill my night's insomnia.
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A very interesting and complete review of Bitcoin and Blockchain Technologies BITCOIN At the Tipping PointA 100 plus long piece. I will report here the conlcusions: Conclusion
The philosopher Schopenhauer once remarked that “All truth passes through three
stages. First it is ridiculed. Second it is violently opposed. Third it is accepted as
being self-evident.”187 Though this sentiment was expressed more than 150 years
before the emergence of Bitcoin, the introduction and evolution of the
cryptocurrency illustrates this very human response to change.
The idea that a new payment system relying on a decentralized cryptographic
approach to facilitate transactions in an extrajudicial manner might gain traction and
challenge traditional payment rails seemed like a pipedream in the early days of its
release. This gave way to denouncements and restrictions as governments, banks,
and regulators sought to limit its growth. As recent events have shown, however,
that resistance may now be melting away.
Large institutional investors and organizations are choosing to participate in and
support Bitcoin. Regulators are beginning to lay the groundwork for the asset to
potentially enter the mainstream. Governments themselves are being pressured
and many are re-considering their own currency offerings. The vision of Bitcoin as a
force that will transform the world may seem self-evident in just a few more years.
The fact this progression has occurred in just over a decade makes Bitcoin
remarkable regardless of its future.
Throughout this journey, the perception of what makes Bitcoin unique continues to
morph. Bitcoin is now many things. To some, it is a payment system based on new
technology set to potentially drive a re-wiring of the entire payments landscape. To
others it is a new currency that can store value in a unique way and marks a new
model of issuance beyond the control of any one nation. Many focus on the
limitations imposed on Bitcoin’s supply and liken it to digital gold, focusing on its
value as an asset class. Those thinking about its future see the potential for Bitcoin
to become a global facilitation currency helping to reduce the friction and complexity
of cross-border trade.
What Bitcoin has undoubtedly become is the inspiration for a rapidly evolving
blockchain-based economy. Its core innovations were the building blocks that
launched this ecosystem and those innovations themselves are now being
extended and levered in new ways that are remaking the world of commerce and
finance. Bitcoin’s existence has helped create a new landscape that in turn has
spawned a whole set of altcoins and created a new, decentralized cryptocurrency
market.
All of these views about Bitcoin’s potential and how it influences and helps to inspire
new business models emerging in the blockchain domain are what leads us to call it
the North Star. Whether it maintains this position and how far the potential
transformation it has inspired extends are both unknowable at this time, but
Bitcoin’s journey has clearly entered a new stage.
Our goal in this paper has been to help readers understand Bitcoin’s past, present,
and possible future. Armed with a fuller understanding of what has driven Bitcoin’s
growth and how it has spurred so much additional innovation and disruption should
allow readers to better assess and determine their own view about Bitcoin’s value
and understand how future news may facilitate additional growth or force a
retrenchment and re-evaluation of its potential.
Very long, yet interesting read. Thanks to @Plutosky who made me aware of this.
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JP Morgan Flows & LiquidityDid Q4 rebalancing flows materialise?9 February 2021
- While bitcoin got another boost with Tesla’s announcement this week, the 8% allocation of its cash reserves to bitcoin is unlikely to be followed by more mainstream corporates.
- Irrespective of how many corporates eventually follow Tesla’s example, there is no doubt that this week’s announcement changed abruptly the near-term trajectory for bitcoin by bolstering speculative institutional flows via bitcoin futures as well as retail flows.
- How sustained this week’s price surge becomes would depend in our opinion on whether less speculative institutional flows like those behind the Grayscale Bitcoin Trust follow suit.
Speculative bitcoin flows surge following Tesla’s announcement - Tesla’s announcement this week that it has invested $1.5bn in bitcoin or 8% of its corporate cash reserves surprised markets by the magnitude of the purchases and re-invigorated expectations that other corporates will follow with their cash reserves. Although we are skeptical that Tesla is a typical corporate and its example will be followed by more mainstream corporates, we recognize that Tesla’s announcement broadens corporate sponsorship, after a gap of five months with no corporate treasury announcements beyond MicroStrategy and Square last August. In our opinion, the main issue with the idea that mainstream corporate treasures will follow the example of Tesla is the volatility of bitcoin. The typical portfolio of a corporate treasury consists of bank deposits, money market funds and short-dated bonds. As a result, the annualized vol of a typical corporate treasury portfolio is around 1%. This implies that even small allocations of 1% to bitcoin would cause a big increase in the volatility of the overall portfolio. For example, if a corporate treasurer allocates 1% of her 1% vol portfolio to bitcoin, the overall portfolio volatility will rise from 1% to 1.3%, or more than a one-quarter increase. This is because of the large 80% annualized vol of bitcoin.
- Irrespective of how many corporates eventually follow Tesla’s example, there is no doubt that this week’s announcement changed abruptly the nearterm trajectory for bitcoin by bolstering inflows and by helping bitcoin to break out above $40k. This reduces one downside risk that we saw previously with bitcoin, i.e. the idea that if its price fails to break out above $40k, the momentum signals would keep decaying till the end of March, inducing further unwinding by momentum traders. The opposite is now happening. With bitcoin breaking out above $40k, momentum traders are forced to amplify the current upmove by rebuilding their long bitcoin futures positions.
- Indeed, our position proxy based on CME bitcoin futures, the preferred vehicle of momentum traders and other speculative investors, saw a sharp almost $1bn increase this week (Figure 4) pointing to intense buildup of futures positions. As a reminder to our readers, to infer positioning in bitcoin futures, we use our open interest position proxy methodology that we also apply to other futures contracts, where we look at the cumulative weekly absolute changes in the open interest multiplied by the sign of the futures price change every week. The rationale behind this position proxy is that when there is a price increase, the net long position of spec investors increases also with the magnitude of the increase determined by the absolute change in the open interest. It does not matter whether the open interest rises or falls, as the net long position can increase either via fresh longs (increase in open interest) or a reduction of previous shorts (reduction in open interest). And vice versa. When there is a price decrease, the net long position of spec investors decreases also, with the magnitude of the decrease determined by the absolute change in the open interest. It does not matter whether the open interest rises or falls, as the net long position can decrease either via fresh shorts (increase in open interest) or reduction of previous longs (reduction in open interest).
|  | | Figure 4
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Morgan Stanley: Why Crypto Is Coming Out of the ShadowsIf you were trying to doom a newly invented currency to irrelevance, naming it “cryptocurrency”1 would have been a crafty first step. “Crypto” means hidden or secret, and often describes a target of popular suspicion and fear, as in crypto-fascist or crypto-communist. But now, despite the jitters natural in a global pandemic, cryptocurrencies are rapidly gaining popular support as alternatives to gold (a store of value) and the dollar (as a means of payment).
Nice read. Not very technical, but I guess ti is written for their general customers, rather than their agents.
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fillippone : good finds. I wouldn't use Tesla as a benchmark as it is overvalued as a company, and it's not that special, it's still a car company, with some technology that doesn't really work yet (self-driving).
Bitcoin on the other hand is its own beast, and it is special for a couple reasons, one being the limited supply, the other being the mother/father of crypto.
I'll keep that in mind : "current mining cost of $11k" and set up a buy order at that price...wait, I already did some time ago, I guess we think alike with JPM...
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This is a good thread and I noticed that other stocks/assets has been seriously lagging behind Bitcoin which has been seeing some huge increases in price. I am happy about that, and as we are now starting to have a lot of institutions that are becoming part of this great community I believe there will still be more to it, so I look forward to that. Stocks typically return 8-10% annually in aggregate, so 15% is quite robust.
Yep, I also noticed that, 15% is an improvement. Although in the case of bitcoin, I think it’s because it is still new and when it grows huge it might stop being as volatile, and the up and down wouldn’t be as much as it is now.
legendary
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<...> There are plenty of individual stocks that have outperformed bitcoin in the time period shown in the graph, however the graph only shows a single asset versus a broad asset class, so it is misleading in that it's not a like comparison.
I do agree. Think of Tesla. The stock had a better return than Bitcoin this year. Not only, TSLA had a greater volatility than bitcoin during such period. This is something that I usually oppose to someone telling me "bitcoin is a toxic, volatile asset".
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★777Coin.com★ Fun BTC Casino!
I would not have expected stock values to lag that far behind bitcoin, considering stocks have been in a prolonged bull market for over a decade now--but nonetheless the bitcoin growth numbers are incredible! There's certainly been huge demand for it, particularly by all those companies that bought it as an alternative to cash (like MicroStrategy). Whew. It's been one hell of a year in many ways, but at least one positive that came out of 2020 is that bitcoin reached a new ATH.
Stocks typically return 8-10% annually in aggregate, so 15% is quite robust. You have to remember that this is an the entire asset class of all stocks, and it's weighed down by a significant number of under performers. You would see the same weighted down effect if you looked at the entire crypto asset class instead of just bitcoin, and crypto as a whole would be significantly weighed down by the vast majority of under achievers. There are plenty of individual stocks that have outperformed bitcoin in the time period shown in the graph, however the graph only shows a single asset versus a broad asset class, so it is misleading in that it's not a like comparison.
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It is awesome that JP Morgan type of companies are finally seeing what we have seen for a decade now. Bitcoin has always been a great investment if you could make it at a good level but these companies never really understood or seen that for a long time. We are finally seeing these companies making a change and they are really doing it for smart reasons as well basically validating what we have been doing so far.
Five years ago or so if you invested 100k into bitcoin all-in and you said it is going to go up people would say that you were gambling your money away and you would be losing a lot of money from that investment, today people are investing tens of billions of dollars into bitcoin from huge corporations, that 5 year change from 100k being risky to tens of billions of dollars is basically a way of saying people who bought bitcoin were smart people and not idiots like people claimed back then.
What puzzles me the most is how the banking sector, that has traditionally poached the best mind across all sectors, due to the financial power they had (for years salaries in the banking sector have been well above average), completely oversaw this opportunity. I can understand if we were talking about central bankers, the real target of the bitcoin revolution. But all other banks could well thrive in a new bitcoin standard, nevertheless, they decided to keep the eyes shut until the phenomenon was too big to ignore, and then they decided to ride it...
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It is awesome that JP Morgan type of companies are finally seeing what we have seen for a decade now. Bitcoin has always been a great investment if you could make it at a good level but these companies never really understood or seen that for a long time. We are finally seeing these companies making a change and they are really doing it for smart reasons as well basically validating what we have been doing so far.
Five years ago or so if you invested 100k into bitcoin all-in and you said it is going to go up people would say that you were gambling your money away and you would be losing a lot of money from that investment, today people are investing tens of billions of dollars into bitcoin from huge corporations, that 5 year change from 100k being risky to tens of billions of dollars is basically a way of saying people who bought bitcoin were smart people and not idiots like people claimed back then.
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