Another Red Day Across Markets: Hot Money Flows Out of DeFi & OI Sinks

After opening the day higher, bitcoin, gold, S&P 500, and Nasdaq are dropping further. Meanwhile, the US dollar is 1.3% in the past four days.

Crypto markets are looking weak after losing a great deal of value Thursday, but of course, not as much as some of the tech stocks did.

Tech stocks started declining just as we entered September. Over the past three days, Tesla shares dropped 18% while Apple lost $365 billion in value, which is not only more than the market cap of 491 companies in the S&P 500 but also the entire market cap of crypto.

The strong performance of the stock market since March has been primarily because of the tech stocks, which got sold off this week as investors worry about the continuing crisis in the US jobs market.

After hitting new all-time highs on Wednesday, S&P 500 and tech-heavy Nasdaq both fell 3.5% and 4.9%, respectively. Randy Frederick, the vice-president of trading and derivatives for Charles Schwab said,

“Some of the stocks have gotten a little pricey, and what the actual cause is to spark this sell-off is difficult to say. The leading sector for quite a long time has been the Nasdaq, which is very heavily weighted in technology stocks, so people just saw this as an opportunity to take the profits off the table.”

Also, the US trade deficit expanding to the widest level since 2008, debt set to exceed the size of its economy next year for the first time since World War II, US-China tension heating up, and upcoming elections in November could be playing a part too here.

An Opportunity to Rebuild

A blow to the sentiments in the crypto market came not only because tech stocks went into sharp reverses but also “hot money flow (outflow) from DeFi,” said Denis Vinokourov of the prime broker, Bequant.

DeFi had a record $9.5 billion total value locked in it on Wednesday, which has now come down to $8.6 billion, as per DeFi Pulse. He said,

“It is a reminder that crowded trades bring with it a lot of volatility when someone begins to unwind their positions. Digital asset trades are more than aware of such dynamics, and while the bulls may be feeling particularly salty about the reversal of fortunes, the pull back offers an opportunity to rebuild.”

After falling to nearly $10,000 level yesterday, bitcoin strengthened only to follow equity markets and trading at $10,350. The crypto market, however, remains in heavy red with a few exceptions like TRX, EOS, DGB, CELO, and STORJ.

The futures market is also looking identical to the spot with open interest falling to $439 million. Volume meanwhile surged on CME, recording $1.1 billion and $941 million on Wednesday and Thursday, respectively.

The same is the case for perpetual swaps, the volume is rising, and open interest is falling, the trend suggesting a substantial amount of long positions got liquidated over the past couple of days.

On OKEx, the quarterly futures saw a negative premium for the first time since mid-May, which is “indicative of extremely pessimistic market sentiment.” Vinokourov said,

“The futures curve also flattened aggressively as leverage buyers were the first ones to look for cover, while in the options market the skew profile also offers plenty of opportunities to capture on market mispricing.”

In the short term, the losses have quite obviously turned people bearish towards BTC. Analyst Don Alt, who has been calling for a drop for some time now, has put his target to about $8,000 now, which isn’t really outlandish as several 30% to 40% pullbacks have been usual during the last bull cycle. But for other traders, “If it goes to 8 or 7k then it goes back to 4 to 5.”

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Author: AnTy

Gold Beating Bitcoin for Over 2 Months Now; A New ATH for Bullion is Imminent

Precious metals are enjoying the gains with gold rising 1.23% today to reach $1,840 per ounce today although it is Silver which has been stealing the show by having its highest finish since 2016.

XAU/USD chart
Source: TradingView XAU/USD

With the government and central banks releasing excessive stimulus, the new normal is benefiting the metals just as much as it is stocks which have been rallying hard throughout 2020.

The expectation for even more stimulus and lower interest rates amidst the rising debt and increasing coronavirus infections, slow economic recovery, and US-China tensions have prompted investors to keep buying the yellow metal.

“I wouldn’t be surprised to see gold test the all-time highs set in 2011 at around $1,900 per ounce,” said Thomas Taw, head of APAC iShares investment strategy at BlackRock previously.

With rates at virtually zero, gold and the likes of bitcoin becomes far more attractive when the real yield on alternative investment becomes negative.

Also, a meeting of European Union leaders in Brussels is also in agreement on a huge spending program of €1.82 trillion (over $2 trillion USD) while US lawmakers are set to start talks over an additional coronavirus aid bill.

All the money central banks are pumping in the market means further currency debasement which should help gold “profit as a store of value” and of course Bitcoin.

However, for now, gold is stealing the thunder with bitcoin down 6% since May 7th when the market topped at just above $10,000. Also, billionaire investor Paul Tudor Jones announced his fund was buying the digital asset calling Bitcoin the “fastest horse” and an inflation hedge while gold has jumped 7.5% during the same period.

While bullion has been enjoying all the bullish factors, bitcoin has been stuck in a rut all this time after surging to $10,000 in the aftermath of the March sell-off. The range bitcoin has been trading has been getting tighter and tighter, one month price range has been actually at an all-time low, with volatility declining as well.

Today, however, after a long time, bitcoin is making some moves, rising above $9,400 with ‘real’ trading volume also increasing albeit slowly to $1.3 billion.

Meanwhile, Citigroup analysts say gold hitting a new all-time high is “only a matter of time.” The yellow metal is already up 20.5% YTD.

The precious metal has already posted fresh records in G-10 and major emerging market currency this year. Gold is expected to climb to a new ATH in the six-to-nine months with a 30% probability that it’ll top $2,000 an ounce in the next three-to-five months. Last month, Bank of America made even a higher top prediction at $3,000 per ounce.

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Author: AnTy

Bitcoin Fork Successfully Prevents a 51% Attack that Could Have Resulted in a $75k Loss

On July 10, the Bitcoin Gold team saw an extremely long attack chain of over 1300 blocks, which have been mined since July 1, 2020, against the BTG network.

As per the announcement, the team has prevented the attack after detecting it early on and alerting the exchanges and mining pools about the potential attack.

The team released a new updated version of the Bitcoin Gold network at block 640,650, the most “honest” block mined by MiningPoolHub before the attack. This update, which wasn’t public knowledge, rejected the attacker’s chain when it was released on Friday.

For the attack, the perpetrator rented hash power on July 1 from NiceHash, a mining service provider, to secretly mine an alternative chain. The chain was mined for ten days and was 1,300 blocks long. On July 10, the secret chain was released by the attacker in an attempt to steal 8,000 BTG worth over $75k.

Now, everyone is required to upgrade their nodes to make sure they are on the honest chain.

“51% attack on BTG defeated by a user-activated soft fork providing a checkpoint and hence explicitly banning the attack chain. Excellent news,” commented Ethereum co-founder Vitalik Buterin. “In PoS, in such cases, the attacker would lose many millions of dollars to slashings/inactivity leak,” he added.

Bitcoin Gold might have successfully stopped a block reorganization attack, but it’s not the first time such a thing happened. The network has a history of reorg attacks, it faced a $70k attack earlier this year and then back in May 2018 lost $18.6 million in a double spent attack.

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Author: AnTy

BTSE Crypto Exchange Launches Bitcoin-Denominated, Tether Gold (XAUT) Futures Contracts

Bitcoin (BTC) has long been referred to as ‘digital gold’ with the prospect of becoming a store of value. However, the digital coin has not lived to its said expectations to the shiny metal but one exchange is aiming to change this with the launch of Bitcoin priced futures tracking the price of Tether Gold (XAUT).

BTSE cryptocurrency exchange announced the launch of future contracts of Tether Gold (XAUT) priced in BTC rather than the dollar or Tether (USDT). This raises the questions of volatility and the possible forced liquidations of these contracts in case of wild price swings.

However, a statement from the company assures traders that the contract is bound to be less volatile than the dollar, as Gold and BTC price enjoy a positive correlation to each other.

The ‘safe haven race’

According to one of the spokesperson at BTSE Exchange, the new derivative products will allow the traders bet between Bitcoin and Gold as their preferred safe haven asset. The BTC-priced perpetual contract tracks the value of one Tether Gold (XAUT) token, which in turn tracks the value of one ounce of gold.

This is a first-of-its-kind product allowing traders to directly bet on whether the demand and value of BTC competes favorably with its physical gold counterpart as a store of value.

However, the volatility of both assets relative to the dollar is a reason to be cautious on trading this particular asset.

How risky are the XAUT/BTC futures contracts?

Perpetual contracts always run the risk of forced liquidations, especially on margin trades if the price variates too much, leaving the holder of the contract at a loss. In the past few months the Bitcoin derivative traders have witnessed millions of dollars’ worth of contracts liquidated as the price of BTC swung wildly between $10,000 and $3,500 in 2020.

Gold uncharacteristically also witnessed wild price swings in the first half of 2020 as COVID-19 pandemic affected a class of assets. Such wild swings may set the XAUT/BTC futures contract on a high liquidation ratio that may well keep most traders from it. However, the BTSE spokesperson said,

“If the two assets are positively correlated, then the price volatility of this new instrument is, by right, even lower than Gold/USD.”

The price of gold and BTC however does not show a strong positive correlation since the March “Black Thursday crash” when both SoV assets fell and rose dramatically in a week.

BTSE Exchange is quickening its steps to introduce new products on its platform, recently adding Turkish stablecoin, Bilira, to help the struggling economy.

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Author: Lujan Odera

Despite the Selloff, Bitcoin Generated Far ‘Superior Returns’ than Traditional Assets During COVID-19

In March, as COVID-19 spread throughout the world, every asset, be it US equities, bitcoin, gold, or bonds, they all accelerated declines. Initially, bitcoin experienced significant losses but only to stage a strong rally of 155%.

Just like bitcoin recovered its losses, gold initially declined as investors fled to cash only to rebound and reclaim its safe-haven status.

Source: TradeBlock

Now, if we compare the performance of three investment portfolios, the one with 60% equity and 40% bonds, the second one comprising 55% equities, 45% bonds, and 10% gold; and the one with the same composition as the previous one but bitcoin replacing gold, the portfolio with the digital asset is the best choice.

With an investment of $1000, even a modest allocation to hard assets provided better returns, and in the case of bitcoin, it triumphed over the other two.

Source: TradeBlock

Moreover, a modest bitcoin allocation would also have generated greater risk-adjusted returns as measured by the Sharpie ratio found TradeBlock. Risk-adjusted returns analyze the attractiveness of returns based on the unit of risk undertaken to generate those returns.

As such, the Sharpe ratio of the three portfolios is calculated at 0.259, 0.276, and the one with the bitcoin having the highest one at 0.608. But still, bitcoin generated more returns than the other two portfolios during the coronavirus pandemic.

During this period, the US Federal Reserve expanded its balance sheet to a new high at over $7 trillion. Fed has been ramping up its asset purchasing programs since 2008 only to reduce it in 2017 but it accelerated dramatically in recent months to prevent the economic fallout triggered by the pandemic.

Meanwhile, the economic downturns saw several large money managers that have been staying away from digital currencies jumping into bitcoin. Just last month, Paul Tudor Jones announced that his firm’s BVI fund has a 1 to 2% allocation to bitcoin through the purchase of cash-settled futures contracts.

The motivation behind this was the implications of unprecedented bond-buying and fiscal spending by global central banks in recent months.

“As central banks ramp up asset purchasing efforts, ‘hard-money’ inflation hedges are seeing renewed interest.”

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Author: AnTy

Here’s Why Bitcoin & Gold Didn’t Surge During the Enormous Volatility in Q1 2020: Report

The reason behind the safe assets like gold and bitcoin not surging despite the coronavirus pandemic creating enormous volatility in the global financial markets is the “intense and large-scale manipulation,” states a report by the University of Sussex.

The report published on May 14 points out how during the 2008 crisis, the correlation between the S&P 500 and gold was about minus 40% but this time around it was +20%.

“As funds flow out of equities one would expect demand for gold and bitcoin to increase,” said Carol Alexander, Professor of Finance at the University of Sussex Business School.

But what happened this time around is that safe havens behaved completely differently. Both gold and bitcoin fell at the same time as US equities.

Safe haven take a hit along with stock market

After the equities market crashed in March 2020, gold had its worst week in eight years when it should have been its best. This was because of the massive shorts on COMEX gold futures, she said.

S&P 500 crashed 33.9% in March and has already climbed above 3,000, up over 34% since the sell-off. The precious metal meanwhile dropped 11.7% from the multi-year lows and is currently at $1,726 per ounce.

However, while the S&P 500 only continued upwards since the fall, gold is down 1.7% from $1,756 in mid-April.

A behavior also is seen in Bitcoin.

BTC fell 63% from February high but recovered and went up 163% to above $10,000 only to now trade for around $8,850.

The report mentions that since its birth in 2009, the world’s leading digital asset has been uncorrelated with any traditional asset. But this time, bitcoin’s correlation with SPX was +63% and remains “unsettlingly” high at 40%.

Bitcoin was “driven down by some pretty obvious manipulation bots on the unregulated crypto derivatives exchanges, especially BitMEX,” Alexander said.

Rarely seen before manipulation affect the markets

On tracking the trades on both gold and bitcoin markets, it was found that there have been detailed huge sell orders on gold futures and massive pump and dump on copper futures in recent months.

Some single trades on COMEX were extremely large — innately clear contraventions of US laws on market abuse. But with the regulators busy in the current time of distress, these manipulations even the large scale ones remain off the radar of regulators. She said,

“We are witnessing financial market manipulations on a scale and frequency that have rarely been seen before.”

Also, large spoofing orders on key cryptocurrency exchanges have been detected.

But those placing these trades are not the only biggest beneficiaries of these attacks but also the holders of US dollars and US assets.

Both of them have become the primary sources of positive returns for global investors in attempts to “curtail the recent trend of some central banks to diversify their reserves away from the US dollar.”

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Author: AnTy

Gold Breaches $11 Trillion, Bitcoin’s Annual Issuance Rate at Parity with Gold

In the current macro backdrop, both bitcoin and gold have recorded an increase in their prices.

Earlier this month, macro investor Paul Tudor Jones said bitcoin reminds him of gold in the 1970s and that bitcoin is the best bet in the ‘The Great Monetary Inflation.’

Talking about the hedge against the inflation which he sees coming from central bank money-printing, he bets on gold and treasuries with a “growing role for Bitcoin.”

American billionaire hedge fund manager Paul Singer in his April investor also said the fair value of gold in the current macroeconomic environment is “literally multiples of its current price” and “one of the most undervalued investable assets existing today.”

Recently, gold’s market cap breached the $11 trillion mark.

In the coming years, the market size for non-sovereign stores of value is expected to expand dramatically which spells good for bitcoin as well.

Recently, Bitcoin underwent its third halving, which reduced its annual issuance rate at 1.8% to parity with gold. And this has been while the top four central banks alone printed a combined $4.1 trillion over the past three months to fight off the effects of Covid-19.

btc vs gold halving
Source: MessariCrypto

“There are few opportunities with as much asymmetric upside as Bitcoin if it were to become successful,” noted Messari in its latest report.

Bitcoin with its sovereignty, secular tailwinds, and upside is an attractive option however, it has a long way ahead as to reach gold’s current market cap, the digital currency needs to rise 63x from its current levels.

[Also Read: Professional Money Managers Loading Up on Bitcoin Post Halving]

New banks are what matters more?

In the first quarter of 2020, central banks have been printing money relentlessly and slashed the rates to zero.

The lower rates affected the banks which eat into their interest margins as such various financial stocks are sitting at near YTD lows.

If we look at the traditional old banks, the likes of Goldman Sachs ($59 bln), Citigroup ($87 bln), and Western Union ($7.5 bln) are at their 3 to 5 years low while Wells Fargo at $95 bln market cap is at its 10 year low.

Even Warren Buffet has been selling his banks’ stocks including that of Goldman Sachs, JPMorgan Chase, U.S. Bancorp, Bank of New York Mellon, Wells Fargo, and Bank of America.

Bitcoin meanwhile with a market cap of $170 bln is up 25% YTD but still down 54% from its ATH in 2017.

“Maybe banks make the old economy worse, and FinTech (including digital assets) makes it better?” said Jeff Dorman, CIO at Arca.

But not just bitcoin, new finance companies like Paypal, Stripe, Square, and even stablecoins are making new highs or are near their peaks. As analyst and investor Howard Lindzon said,

“People say markets can’t move higher without the financials (banks) but maybe the new ‘banks’ are what matter more.”

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Author: AnTy

When the US Declared Owning Gold Illegal & Why Bitcoin’s the Way to ‘Seize your Freedom’

On May 1, 1933, US President Franklin D. Roosevelt outlawed gold. He declared Americans withdrawing their gold and currency from the banking system a “national emergency” and ordered banks to close to prevent the export and hoarding of gold or currency.

These steps were taken in response to Roosevelt’s promise to end the Great Depression which drew national employment up to 25% and gutted the economy which began with the 1929 stock market crash.

But he couldn’t print enough money to tackle the situation, like today. The Federal Reserve Act of 1924 limited the amount of money that can be printed by the government as all paper money had to be backed by 40% of gold.

As such he declared a national emergency but even that couldn’t prevent runs on banks and gold drain. By issuing Executive Order 6102, Roosevelt made gold ownership illegal and punishable up to ten years in prison on noncompliance.

But the Great Depression didn’t end and in 1937 the stock market collapsed by 90% and unemployment further soared.

The US government then removed the gold standard in 1971, the last remaining restraint on federal deficits.

The ban on owning gold wasn’t lifted until 1974.

The result of removing the gold standard was deficit mounting while the purchasing power of the US dollar continued to decline. A dollar in 1913 has the same buying power as $26 in 2020.

As for the current outlook, several US presidential candidates have said that “we can always print more money” as we have been seeing for the past couple of months in response to the coronavirus pandemic. This is already increasing the risk of currency debasement.

Bitcoin’s distinct advantage over gold

Historically, the government seized gold when the fiat currency became utterly devalued and gold is most valued.

Could it happen again? Given the fact we may be facing another financial crisis, “Yes, The U.S Government Can Still Confiscate Gold” according to GoldTelegraph. Maybe not in the near future but it could very well happen in the long term.

Pointing out how it has already happened in 1933, Dan Held, Director of Business Development at crypto exchange Kraken said, “Seize your freedom. Buy Bitcoin.”

The last quarter also revealed the physical delivery shortcoming of gold. Also, while “Bitcoin markets have been relatively efficient amid recent macroeconomic turmoil (…) global gold markets that have been dislocated for the duration of a few weeks,” observed Coinbase in its latest report.

Although both are scarce and globally accessible units of value, bitcoin doesn’t rely on fragile physical supply chains like gold. As a result, recently there have been severe shortages of gold coins and bars.

Coronavirus lockdown disrupted gold refineries, miners, and supply chains but Bitcoins protocol continues to function as designed and this halving will make Bitcoin about as scarce as gold which is already teleportable.

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Author: AnTy

Gold’s Demand as a Safe Haven Rises in the West But Falls in the East Due to COVID-19: WGC

Trading near a seven-year high, gold is heading for its biggest monthly gain since 2016 as central banks ramp up the stimulus to keep up the economy after being damaged by the coronavirus pandemic.

Gold rallied in 2020 as investors sought safe haven amidst the unprecedented monetary stimulus sparked concern about currency debasement. The bullion is up over 13% YTD compared to Bitcoin’s 25% gains.

Stimulus-Boost-Gold
Source: Bloomberg

In 2020, the precious metal’s allure as a store of value boosted as evident from the fact that gold ETFs saw their highest quarterly inflows in four years amidst the global uncertainty and financial market volatility, as per the latest report of the World Gold Council.

Total gold investment demand that includes bars, coins, and gold-backed exchange-traded funds (ETFs) all soared, increasing 80% YoY in the first quarter to a high of 3,185t fueled by the COVID-19 pandemic.

The global gold demand in value terms reached $55 billion, the highest since Q2 2013 and climbed to new record highs in Indian rupees and Turkish lira, among other fiat currencies, and to an eight-year high in US dollars.

Diversion between East and West

While the demand for gold rose in the west to the levels last seen after Donald Trump’s election and Brexit vote, the bar, jewelry, and coin consumption in India and China dropped to multi-year lows amidst the coronavirus-led lockdowns at higher prices.

“It was an interesting diversion between East and West,” said Louise Street, a market intelligence manager at the council.

In China, the first quarter saw gold consumption declining 48.2% y/y to 148.63t along with the country’s gold production which was down 10.9% y/y. Secretary-General Zhang Yongtao who also noted the increased prices said,

“Since the outbreak, the country has adopted strict prevention and control measures (and) consumer demand has faced an impact.”

Though difficult to forecast demand due to the virus, gold’s safe haven appeal is “very much prominent,” Street said while gold ETFs in Europe and North America dominated purchases, funds in China and India also saw large increases in buying last quarter.

“Gold demand will continue to feel the effects of Covid-19 for the rest of 2020,” Street said.

“In particular, the divergence between investment in gold-backed ETFs and consumers via jewelry will likely continue until there is greater economic and market certainty.”

Central bank hoarding gold too

Meanwhile, central banks continued to amass gold, which grew by 145t in Q1 amidst heightened volatility and uncertainty, but down 8% from 1Q19. WGC is expecting the global gold reserves to slow sharply.

The most significant purchases were made by the consistent recent buyers, with Turkey by far the biggest buyer during quarter one, accounting for 50% of the Q1 global total. Other central banks viz. UAE, India, Kazakhstan, and Uzbekistan increased their official gold reserves by at least a tonne.

The largest gold buyer since the end of 2005, Russian central bank meanwhile, announced with no explanation that it would suspend its gold buying from April 1st, but it hasn’t been completely ruled out. Recently, it drew down reserves to protect its currency in the face of lower oil prices and economic impact of the coronavirus outbreak, pushing their gold’s share of total reserves at 21%.

Total gold supply also fell 4% in Q1 due to coronavirus lockdowns that hit mine production and gold recycling.

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Author: AnTy

Paxful P2P Exchange Rolls Out Bitcoin Trading With Gold After High User Demand

The Peer-to-Peer (P2P) crypto exchange Paxful has launched trading between Gold and Bitcoin (BTC) in response to customer demand.

The service offers a transfer procedure and a swap option. The parties need to negotiate terms first, after which the transfer of gold will take place in person. The BTC holder has to send the funds into a Paxful escrow until the gold seller confirms the transfer and the receipt is approved. This is when the BTC gets released by Paxful. The process has to take place in 21 days since the payment has been initiated. In case it doesn’t, the parties go through dispute arbitration.

KYC Transfer Protocols to Be Respected

The trades with gold must respect the exchange’s Know-Your-Customer (KYC) transfer protocols if they’re valued at more than $50, says a press release. Paxful has recently started using crypto intelligence tools from Chainalysis. Its CEO, Ray Youssef, says the procedure for gold trading is formal and similar with bank transfers because it’s executed by listing the payment method, whereas the payments are not negotiated on the platform. Here’s what he said on how the service is evolving:

“Our users were already starting to do this on quite a large scale. We weren’t aware of it because it was difficult to track. We actually had to go in and talk to people.”

No Other Crypto Exchange Offers the Feature

The new gold feature is unique among crypto exchanges, putting Paxful on the list of go-to crypto firms when it comes to services that are rather ignored in the industry. Countries like Venezuela, Nigeria, Ghana and Malaysia will be able to benefit from it. Youssef says these countries are usually neglected by companies that only focus on the US and Europe. His exact words about this were:

“The west is not the entirety of the world. The vast majority of humans are outside of the west in emerging markets and they are hungry, they’re not going to let anything stop them – COVID-19, Ebola, they don’t give a damn, they’re going to continue to do business.”

He also predicted that trading goods between people in person is going to be irrelevant in the long run in case of a pandemic, especially in Africa. Meanwhile, Paxful didn’t have a problem with the global shutdown and had in March a 27% increase in registrations.

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Author: Oana Ularu