Bitcoin’s Ascent to $16k Kaiko Data – Medium

Kaiko Factsheet: November 16, 2020

This week in cryptocurrency markets:

  • Bitcoin broke $16k for the first time since January of 2018 in a momentous rise spurred (again) by an announcement from PayPal.
  • Ethereum’s YTD returns at +245% is more than double that of Bitcoin’s +120% returns.
  • Bitcoin trading volume undergoes more extreme surges and collapses than Ethereum’s, as shown using a 7-day moving average.
  • Bitcoin’s confusing correlation narrative became more confusing this week.
  • Market depth held steady as Bitcoin breached $16k, unlike the previous week which saw bid depth collapse as Bitcoin tore through the $14k and $15k price levels.

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Price Movements

7-Day Price Change

Biden for crypto. It was a mixed week in cryptocurrency markets, with many altcoins in the red while DeFi tokens continued their resurgence. Overall, sentiment remains high as President-elect Biden made a series of crypto-friendly appointments, the most prominent being Gary Gensler as lead of the financial policy transition team. Gensler has expressed positive views on cryptocurrencies in the past, and served as an advisor to MIT’s Digital Currency Initiative, one of the world’s forefront crypto research communities. The next few years are seen as a critical “make or break” period for cryptocurrency regulation in the U.S. as agencies increasingly crack-down on exchanges and crypto-assets, with a reported $198 million in financial penalties to date.

Bitcoin breaks $16k. For the first time in 3 years, Bitcoin crossed the $16k price level following news that Paypal had launched cryptocurrency trading for all U.S. customers. Nearly all BTC holders are now “in the money” as the price reaches highs not seen since the 2017/18 bull run. Bitcoin retraced to $15.9k over the weekend, but still ended the week up 3%.

BTC outperforms everything (except ETH). Bitcoin has been dubbed 2020’s “Best Performing Asset” but its YTD returns pale in comparison to ETH’s +245%. Yet, the oldest crypto-asset has attracted more attention from traditional financial actors for its +120% returns (compared with +30% for Nasdaq, +10% for S&P, and +24% for Gold).

The “Bitcoin as store of value” narrative gained traction this week following the release of a report by JPMorgan noting that the Grayscale Bitcoin Trust is outperforming Gold ETFs. In addition, billionaire investor Stanley Druckenmiller announced this week that he had placed his bets on Bitcoin saying “if the gold bet works, the bitcoin bet will probably work better because it’s thinner and more illiquid and has a lot more beta to it” (not necessarily positive attributes). Square also claimed that its Cash App had sold 1.63 billion of BTC in Q3 2020, wrapping up yet another week filled with positive institutional news.

Download October Report

Cryptocurrency markets are through the roof in November, but take some time to look back at last month’s biggest market events.

Trading Volume

Bitcoin volume trends up. We took the 7-day moving average of daily trading volume to better understand how volume has evolved over the past 6 months for BTC and ETH-Dollar trading pairs. We can observe that BTC volume is far more volatile than ETH volume, and undergoes more extreme surges and collapses over time. ETH volume has seen a sustained increase since mid-July, despite the end of its “summer bull run.” While ETH’s volume as a percentage of Bitcoin’s has fallen since the summer, it has managed to hover just below $1 billion traded daily.

DAI stablecoin breaks $1B market cap. Tether’s competition is heating up in the increasingly crowded stablecoin space. This week, it was reported that Maker Dao’s DAI stablecoin broke a market capitalization of $1 billion for the first time, meaning that there are now one billion DAI in circulation. DAI usage grew exponentially during DeFi-mania and the stablecoin is currently a top 5 token on Uniswap ranked by Total Value Locked. On centralized exchanges, DAI volumes have also grown exponentially since early summer, as depicted in the chart above. DAI is created when collateral, such as ETH, is locked into the Maker Protocol.

Volatility and Correlations

Volatility surges in cryptocurrency markets. The spreads between BTC and ETH’s volatility curves continued to narrow over the past week as the cryptoassets experienced dramatic price swings while breaching (and then retracing from) multi-year highs. In traditional markets, volatility increased only slightly as the rally following positive vaccine news was more muted than expected. Week-on-week, stocks and gold didn’t fare too well which indicates investors are wary of the complexities in quickly distributing a vaccine before further economic damage.

Bitcoin’s confusing correlation narrative. Bitcoin’s “store of value” narrative grew this week along with its correlation with Gold (considered the ultimate store of value), which has now doubled since the start of November. However, Bitcoin’s correlation with stocks (considered a riskier asset class), particularly tech stocks, has also grown. What’s going on? As we point out in our October Market Report, Bitcoin has shown no consistent correlation narrative over the long term. Over the short term, we can definitely observe trends, especially as institutions pay more attention to BTC as a store of value. Yet, BTC’s correlation with traditional assets may be a temporary response to macro events such as the election and vaccine news, rather than an informed consideration of the crypto-asset’s value proposition. No matter, its weakening correlation with cryptocurrencies such as ETH and XRP further bolster its unique “store of value” proposition which not many crypto-assets claim. Correlation narratives are as volatile as Bitcoin’s price, so let’s see what next week brings.

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Kaiko’s pre-processed order book data is available through our REST API for 30,000+ trading pairs on 85+ exchanges, with 1 month of history:

Market Depth — Compare liquidity across trading pairs with the cumulative quantity of bids and asks at intervals ranging from .1% to 10% from the mid price.

Price Slippage — Simulate the bid-side slippage and ask-side slippage for custom buy and sell order sizes, calculated directly from raw order book snapshots.

Order Book Averages — Determine the average market depth, price slippage, and bid-ask spread for custom intervals of order book snapshots ranging from 1 minute -1 day.

Order Book Liquidity

Bid and ask depth converge. Market depth did not collapse as Bitcoin breached $16k, unlike the previous week which saw bid depth plummet as Bitcoin tore through the $14k and $15k price levels. Market makers often group orders around key price levels, so a sharp drop is expected once the price moves above (or below) a certain level. The convergence of ask and bid depth could indicate that a temporary stabilization has occurred at Bitcoin’s current range, as both price takers and market makers absorb the recent price movements.

Ask depth rises for ETH-USD pairs. The spread between ask depth and bid depth widened considerably this week as buying pressure built in the run-up to ETH’s multi-year highs. We can observe that the price of ETH matched the trend of ask depth, which indicates that market makers were accommodating increased buy-side trade volume. ETH’s market depth differs from Bitcoin’s because their price movements have varied considerably over the past two weeks, with ETH only recently commencing a bullish run while Bitcoin has been on the rise since mid-October.

Kaiko Research Insights

Our latest in-depth research pieces published to our blog.

1. An Analysis of Cryptocurrency Whale Trade Size and Direction: Trade data can reveal rich insights about an exchange’s user base. In this report, we explore the trade size, direction and count of transactions on 11 exchanges, with a focus on “whale trades.”

2. Bitcoin Historical Volatility — Why the Calculation Methodology Matters: In this article, a few methods for calculating historical volatility are reviewed and an important note of caution is drawn on the interpretation of sudden drops in volatility that have been shown on various crypto research pieces in the recent past.

3. Why Cryptocurrency Exchange Infrastructure Matters: On March 12–13th, cryptomarkets experienced a nearly unprecedented market sell-off across all exchanges and trading assets. We look at ‘Trade Count,’ or the number of trades that occur over a time interval, to understand why so many exchanges struggled to keep up.

Any redistribution of charts appearing in this Factsheet must cite Kaiko as the sole provider and creator. This Factsheet was written by Clara Medalie, developed by Anastasia Melachrinos with help from the Kaiko team. This is not financial advice.

Bitcoin’s Ascent to $16k was originally published in Kaiko Data on Medium, where people are continuing the conversation by highlighting and responding to this story.

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