| Figure 4
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JP Morgan Flows & Liquidity Retail investors’ euphoria returns08 January 2021 Why the approval of a bitcoin ETF in the US would be negative for bitcoin in the near term? - Optimism around the prospect of the SEC approving a bitcoin ETF in the US this year has risen in anticipation of SEC leadership changes. While the introduction of a bitcoin ETF in the US would be positive for bitcoin over the longer term, in the near term it could have a negative impact. The reason is a potential decline in the Grayscale Bitcoin Trust (GBTC) premium to NAV from the introduction of bitcoin ETF in the US, which would unwind a big portion of GBTC investments currently placed for monetizing this premium.
- An important support for the large premium to NAV in GBTC arises from the fact that many institutional investors are only allowed or prefer to invest in bitcoin in fund format for regulatory or other reasons. In fact, many of them are not even allowed to hold restricted shares of the Grayscale Bitcoin Trust via private placements given the 6-month lock up period, and are thus forced to pay a premium by buying these shares in the secondary market.
- The typical GBTC premium monetization trade involves borrowing bitcoin (typical cost of 5-7% per annum), placing these bitcoins to GBTC at NAV via private placement for in-kind shares locked up for 6 months, and hedge the exposure during the lockup period by borrowing GBTC shares (typical cost of 7- 10% per annum) and selling them short. Alternatively one could hedge via shorting CME futures, but this entails some basis and rollover risk. The cost of this GBTC premium monetization trade is around 10-15% per annum and this is why it has been difficult so far for the GBTC premium to NAV to fall below this threshold.
- Some institutional investors likely subscribed to GBTC (at NAV) during the second half of last year with the intention of selling after the 6m unlock period to monetize the premium (selling price minus subscription at NAV). Gauging by the amount of GBTC shares on Loan (around 8% of outstanding stock) and by the short base in CME bitcoin futures, we believe that the GBTC premium monetization trade could account for around 15% of outstanding GBTC stock. As the 6m unlock period expires, some of these institutional investors might sell GBTC during the first half of 2021 to monetize the premium. If it materialises, this selling pressure would put downward pressure on GBTC premiums.
- This unwinding of the GBTC premium monetization trade could become more violent if a bitcoin ETF is approved in the US. The introduction of a bitcoin ETF would erode GBTC’s effective monopoly status and cause a cascade of GBTC outflows and a collapse of its premium. ETFs allow for daily creation and redemption of shares and thus a more efficient arbitrage of the premium to NAV. A cascade of GBTC outflows and a collapse of its premium would likely have negative near-term implications for bitcoin given the flow and signaling important of GBTC.
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I think these are weak conclusions. Too much emphasis on the need for a decline in gold to fuel a rise in Bitcoin. I don't think they fully understand Bitcoin's scarcity dynamics, and how few consistently circulating BTC there really are.
You have to understand where they come from. Jp Morgan is (one of the best) investment banks in traditional finance. Hence their mindset is all about the difference between yielding and not yielding bearing assets. Scarcity is not a feature they are really understanding, as they are applying the traditional way of thinking in those investments. I am pretty satisfied, as it's a nice U-turn since the infamous Jamie Dimon statements a few years back. Just give them a few more years to complete their transformation.
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My point here is the following: "Why bother trying ti infer the price of Bitcoin from mining costs, when the Stock to Flow model already correctly captures the 95% of the value of Bitcoin? I am not that worried with that 5%"
Based on a very small sample. How long that plays out into the future, we shall see. I think stock-to-flow comes off as voodoo to many. It's just so out of touch with traditional fundamental analysis. But this long term upside based on an equalization of the market cap of bitcoin to that of gold for investment purposes is conditional on the volatility of bitcoin converging to that of gold over the long term.
This implies that the above $146k theoretical bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year. I think these are weak conclusions. Too much emphasis on the need for a decline in gold to fuel a rise in Bitcoin. I don't think they fully understand Bitcoin's scarcity dynamics, and how few consistently circulating BTC there really are. As for $146K being unattainable this year.....maybe, maybe not. Related to the above, I don't trust their ability to recognize the prospects for a speculative blow-off top.
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What's your comment on the suggestion that mining cost represents intrinsic value for Bitcoin?
Mining cost varies depending on location and some other factors and would you consider it to be the metric that gives Bitcoin its value and as such any price spike above that could be considered to be purely speculative?
As the article itself stated mining costs are becoming less and less relevant determining the value of bitcoin. My point here is the following: "Why bother trying to infer the price of Bitcoin from mining costs when the Stock to Flow model already correctly captures the 95% of the value of Bitcoin? I am not that worried about that 5%"
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Those are pretty impressive figures. $3 billion inflows into Bitcoin is quite significant and when you consider it's only being charted from Grayscale investments, it gives the idea that there is a global paradigm shift in investment destination as individuals and companies alike are trusting Bitcoin to preserve the value of their funds and speculatively give them profits.
What's your comment on the suggestion that mining cost represents intrinsic value for Bitcoin?
Mining cost varies depending on location and some other factors and would you consider it to be the metric that gives Bitcoin its value and as such any price spike above that could be considered to be purely speculative?
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JP Morgan Flows & LiquidityHas bitcoin equalised with gold already?04 January 2021Summary: - We believe that the valuation and position backdrop has become a lot more challenging for bitcoin at the beginning of the New Year.
- While we cannot exclude the possibility that the current speculative mania will propagate further, pushing the bitcoin price up towards the consensus region of between $50k-$100k, we believe that such price levels would prove unsustainable.
- Risk markets look vulnerable ahead of this week’s Georgia runoffs..
Relevant Bitcoin Parts: - We note that the spectacular bitcoin rally of the past few weeks has moved bitcoin into more challenging territory not only in terms of its positioning backdrop, but also in terms of its valuation. We had previously used two valuation metrics for bitcoin, one based on its comparison to gold and one based on its mining cost or intrinsic value.
- Bitcoin's competition with gold has already started in our mind as evidenced by the more than $3bn of inflows into the Grayscale Bitcoin Trust and the more than $7bn of outflows from Gold ETFs since mid-October (Figure 1). There is little doubt that this competition with gold as an "alternative" currency will continue over the coming years given that millennials will become over time a more important component of investors' universe and given their preference for "digital gold" over traditional gold. Considering how big the financial investment into gold is, a crowding out of gold as an "alternative" currency implies big upside for bitcoin over the long term. As we had mentioned previously in the Oct 23rd F&L, "Bitcoin's competition with gold," private gold wealth is mostly stored via gold bars and coins the stock of which, excluding those held by central banks, amounts to 42,600 tonnes or $2.7tr including gold ETFs. Mechanically, the market cap of bitcoin at $575bn currently would have to rise by x4.6 from here, implying a theoretical bitcoin price of $146k, to match the total private sector investment in gold via ETFs or bars and coins.
- But this long term upside based on an equalization of the market cap of bitcoin to that of gold for investment purposes is conditional on the volatility of bitcoin converging to that of gold over the long term. The reason is that, for most institutional investors, the volatility of each class matters in terms of portfolio risk management and the higher the volatility of an asset class, the higher the risk capital consumed by this asset class. It is thus unrealistic to expect that the allocations to bitcoin by institutional investors will match those of gold without a convergence in volatilities. A convergence in volatilities between bitcoin and gold is unlikely to happen quickly and is in our mind a multi-year process. This implies that the above $146k theoretical bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year.
|  | | Fig.1
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Well, the explanation is in the previous graph: |  | | Fig.1
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Cool idea for a thread, OP. It's kind of amazing to me how mainstream bitcoin has become in terms of its coverage in the financial news compared to when I started getting interested in it about six years ago. There was some coverage back then, but it was almost as if bitcoin was a freak-show asset that was performing like a carnival act. Now there's just straight reporting on it as if it were just another investment class. This caught my eye:  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.
legendary
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There is an interesting bit here:
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 result is the following graph: |  | | Fig.7
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JP Morgan Flows & LiquidityHow has the investment landscape changed during 2020?21 December 2020Summary: - In percentage terms, the expansion of the equity universe has been smaller than that of the bond or cash universe.
- Private asset classes lagged the growth of public asset classes.
- Alternative “currencies” such as Gold and Bitcoin have been the main beneficiaries of the pandemic in relative terms.
- Within equities, the EM Asia universe grew the most, while Latam contracted.
- With credit, the strongest growth has been in Euro HY.
- Among investor types, retail funds such as Mutual Funds and ETFs and SWFs appear to have seen double-digit growth in their AUM this year, thus increasing their share in the total investor universe. HFs, as well as pension funds and insurance companies saw low single digit AUM growth instead.
- We find it difficult not to characterize bitcoin as overbought at the moment.
- At the same time, we acknowledge that the inflows into the Grayscale Bitcoin Trust, at $1bn per month currently, are too big to allow any position unwinding by momentum traders to create sustained negative price dynamics similar to the ones seen before in the second half of 2019.
- Any signs of significant slowing in the flow trajectory for the Grayscale Bitcoin Trust would raise the risk of a bitcoin correction similar to the one seen in the second half of 2019.
Relevant Bitcoin Parts: - As the year comes to a close it is useful to look at how the investment landscape changed during 2020.
How have different asset classes and types of investors fared in terms of overall growth during a year dominated by the impact of the global pandemic and policy responses to it? Figure 1 and Figure 2 show the overall changes in broader asset classes in dollar terms as well as relative to their end-2019 levels, and includes the 4% contraction in global GDP for 2020 that our economists have in their forecast for context. The most striking increase has been in the total outstanding debt which in 1H20 had already increased by around $14tr, almost matching our previous projection for 2020 in total of $16tr 16tr (see F&L More debt, more liquidity, more asset reflation, Jul 6th). As a result, we now project total debt growth for 2020 of $21tr, reflecting continued strong bond issuance in particular. Of this total, the increase in bonds accounts for around $13tr reflecting a significant increase in government deficits as they sought to smooth the impact on incomes as well as record corporate bond issuance as companies sought to increase their cash buffers to weather the shock on cash flows. The remainder is a combination of bank loans, shorter-maturity paper such as bills, EM local debt and other non-marketable debt.
|  |  | | Fig.1
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In this thread I will collect various Research papers published by Wall Street Banks on Bitcoin.
Banking sectors have begun to cover Bitcoin in Various aspects. A few reports are quite remarkable, so will deserve their own thread. Some other are important for a minor reason, but maybe they are referenced on other news, or papers without proper reporting, and it is often difficult to read the original article.
I will use those to collate and reference into other thread, publishing graphs and paragraph linked to these research.
I won't always be able to post full documents to protect my sources, obviously, as often those materials come with a watermark.
All reported material will be quoted.
My comments will be out of quotes.
If you find some missing article, or want to read a particular one, just ask, I will unleash my hounds to fetch the missing pieces.
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