Bloomberg’s senior commodities strategist, Mike McGlone, recently released a mid-year crypto perspective, which states that Bitcoin’s volatility should continue to decline as the asset behaves more like gold. The report also says that primary demand and adoption indicators remain positive.
The report concludes that Bitcoin is prepared for a breakout with a resistance target of $13,000. While this perspective is defensible, the arguments presented in the article appear to be wrong. The correlation metrics of the past six months have moved Bitcoin away from gold coverage status, as it has been operating in sync with the S&P 500 most of the time.
As for the aforementioned increase in demand, the recent entry into the Grayscale Investment funds cannot be interpreted as an influx of new money into space. The same can be said of the unprecedented increases in open interest on Bitcoin futures, as each derivative instrument needs a buyer and a seller of the same size.
Bitcoin’s Correlation with Gold and the S&P 500
One of the reasons why Bitcoin attracted the attention of investors during the last few years is the lack of correlation between digital assets and traditional investments.
There have been periods of parallel returns, mostly caused by the same socio-political and economic headwinds that affect all major asset classes.
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 price of gold, although recent data points to the highest negative figure since December 2018.
The negative correlation implies performances in the opposite direction, so there is no case for building an argument in reverse.
BTC realised volatility has just returned to its November 2018 levels
Grayscale Bitcoin Trust (GBTC) input stream
Bloomberg’s report states that the increased inflow to Grayscale Investments‘ funds is a sign of rising investor sentiment. The funds are similar to an ETF and could be considered a good indicator of investor demand. The GBTC’s strong appetite is unquestionable, having added over 53k Bitcoins after the halving, as reported by Cointelegraph.
This fund has historically traded at a significant premium over its net asset value (NAV), or the market value of the Bitcoin Rush contained in it, as shown in the graph above.
This difference is mainly due to the inability of retail investors to buy shares directly from Grayscale Investments, whose funds are intended for accredited investors only.
The two ways in which professional investors purchase GBTC shares directly from Grayscale is by transferring USD, or by making ‚in-kind‘ contributions by transferring through BTC.