Week 27: July 3, 2019: Industry + BTC Report: Bitcoin Trades Flat - But Headlines Stay Positive

Goldlight Team
  • Updated
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BTC news has been driving price off lows this week. View the Full PDF here

Here’s what you need to know:

  • Demand for BTC in high inflationary countries like Zimbabwe and Argentina is outpacing supply
  • BTC’s biggest trading pair USDT finally gets their money back
  • Institutional financial markets are showing demand for new BTC backed products

Industry headlines are mainly positive as well:

  • Libra gets a temporary ban as regulators scramble to write laws which will pave a clear path for future crypto innovation
  • China callsBTC a “Safe Haven Asset” amid global economic tensions
  • UK regulators approve the first 100M euro crypto hedge fund
  • The next president of the European Central Bank may be crypto friendly

In this issue: 

  • Price Reports: BTC is down -0.07% over the last 7 days - it has outperformed ETH (-1.42%) EOS (-0.38%), and Stellar (-3.56%).
  • Technical Analysis: BTC Prepares for a Breakout
  • Bitcoin Price Drivers:
  • #1: Bitcoin is being adopted as an alternative store of value to local currencies in countries with high inflation (exactly what it was designed to do)
  •  #2: The biggest thing backing the cryptocurrency market - USDT - finally gets some good news
  •  #3: More Financial Markets are Adopting BTC
  • Sentiment Analysis: BTC Sentiment Bottoms Out as Technicals Get Favorable
  • Industry News Drivers: After a roller coaster week, we're stabilizing
  • Fun BTC Memes (ok, we didn't get to that today, but tomorrow)
  • Market Cap: $326B
  • BTC Dominance: 62.3%
  • 7 Day Rating (June 28 - July 3 2019)
  • BTC $11,421 Rating: BUY
  • ETH $290 Rating: HOLD
  • EOS $6.03 Rating: HOLD
  • XLM $0.104 Rating: SELL

See you Friday for the ETH report. Subscribe now to get it in your inbox, or if you want to join Tradecipher early, become an early member.

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 BTC Price Report:

We give BTC a BUY recommendation, but suggest that users buy AFTER price breaks past $11,500

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BTC has formed a technical pattern known as an inverse head and shoulders. An inverse head-and-shoulders pattern signals an end to a market downturn.

  • Once price breaks through the resistance level (1) it supports the idea that the market uptrend from the past few months is ready to continue once more 
  • It is best to buy when price breaks above resistance at $11,500 (1) 
  • Once BTC breaks through $11,500, it is expected to continue to - and past - the following resistance levels:
    • $11,800
    • $12,200
    • $12,500

BTC Price Drivers This Week

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#1 Bitcoin is being adopted as an alternative store of value to local currencies in countries with high inflation 

Zimbabwe, Venezuela, Argentina, and Iran - what do all these countries all have in common?

As of May, all of these countries local currencies have had inflation rates over 50%. This means that half of a citizen’s wealth disappears within a year of them putting money in a bank. 

Many people in these countries have started to keep their money in Bitcoin, since their local currency loses value quickly. In South Africa, BTC is being sold at a markup of 7% on the Luno exchange due to high demand. Citizens are selling South African Rand to buy BTC driving up prices both locally and abroad.

What’s causing this demand? Fear of the past

In November of 2008, Zimbabwe’s inflation rate hit 897,000,000,000,000,000,000,000% - that’s not a typo - as the government printed Zimbabwean dollars until they became worthless.

This past week Zimbabwe discussed banning foreign currency to the “stop illegal money trade” which they blame for rising inflation. However, citizens do not believe the illegal money trade is to blame -  indeed, lawyers for human rights groups are petitioning the government in the hopes of stopping the proposed ban on constitutional grounds. Meanwhile, locals fear that the hyperinflation of a decade prior may soon return

What's the solution? Buy BTC

BTC has significant advantages over the Zimbabwean dollar, and other highly inflationary currencies.

  • Fixed supply -  more BTC cannot be printed to meet rising demand, meaning it cannot be devalued by a central bank or government, unlike sovereign currency
  • Lower risk - while BTC is volatile, the local currency in a hyperinflationary country may face demonetization, becoming essentially worthless.
  • High Returns - BTC price in the long run has always gone up.
  • Fungibility - BTC is easily exchanged to more stable currencies like the USD, EUR, CNY or CHF(Swiss Franc) 

These advantages drive people in countries with a hyper-inflationary currency to buy Bitcoin. This increases prices on local exchanges, as the local supply struggles to meet demand, and affects the price on exchanges abroad.

BTC Price Drivers This Week

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 #2 The biggest thing backing the cryptocurrency market - USDT - finally gets some good news

Trust has finally been restored in USDT

Tether Ltd. - the management company of the largest USD backed stable coin - received good news this week after months of legal proceeding - it will soon be 100% backed by USD, as initially promised.

Tether’s shortfall was due to a loan made to Bitfinex, which announced yesterday that they had started paying Tether Ltd. back ahead of schedule. Thus Tether reserves are finally increasing

What happened?

iFinex Inc -  which operates both Bitfinex and Tether created a short term loan from Tether to Bitfinex.  Earlier this year, Bitfinex lost $850M of client and corporate funds. To cover their tracks and ensure the Bitinex Exchange’s solvency, Tether Ltd. loaned Bitfinex $700M in cash to continue the flow. 

If this sounds shady, that’s because it is. Comingling client and corporate funds and then diverting them to a subsidiary to cover losses is against US law.  Tether and Bitfinex, however, won a stay in court - preventing the NY AG from pursuing matters further - because they were able to show where the lost funds were, and that investors were not adversely affected.

What’s the good news?

Bitfinex has begun repaying their loan ahead of schedule. They paid Tether Ltd. $100M USD to rebuild USDT reserves. Bitfinex stated the early repayment was due to “ its financial position at the end of the second quarter of 2019.” This indicates Bitfinex and Tether are both healthy - alleviating fears of a collapse

Why does this matter?

USDT has the 2nd highest trading volume of any crypto asset. Traders use USDT on almost every available exchange because they are able to sell from BTC or other tokens to USDT to protect themselves from a price decline.  The CEO of Kraken - a top trading exchange - recently said he believes what Tether is doing with Bitfinex is just a “very transparent reflection of what is happening at the banking system level and with all the exchanges” He mentioned that in the past, the growth in supply of tether, as recently seen, is identical to the growth in deposits of US Dollars on his exchange. As one of the largest trading pairs provides clarity around this murky situation - many fears have been cleared up that the price increases of BTC may not be quite what it seems.

BTC Price Drivers This Week:

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 #3 More traditional financial markets are adopting BTC

Things are heating up in the financial sector for Bitcoin. The Chicago Mercantile Exchange (CME) traded a record $1.7B worth of Bitcoin contracts on June 27th, Bitmex plans to launch their Bitcoin zero coupon bond and the London Block Exchange issued a Bitcoin-denominated zero bond that’s available on the Bloomberg Terminal. 

These regulated products and increasing volume suggest the institutional world is heating up to Bitcoin.

What are Bitcoin zero coupon bonds?

A bitcoin zero coupon bond is non-USD security that trades at a deep discount and can be redeemed at maturity for its full face value plus interest - all in BTC. These bonds don’t pay interest on a set schedule like traditional bonds but instead offer interest to the purchaser when the bond expires. Since they don’t pay interest on a fixed schedule - they are sold at deep discounts.

Why do they matter?

Zero coupon bonds are useful because investors receive absolute certainty of receiving a fixed amount on a fixed date. This is useful for multibillion-dollar funds such as pension funds who know for certain what their needs are for ten years down the road using financial modeling. These products allow on an institutional level - for those who are holding onto Bitcoin indefinitely to lend BTC at a reasonable rate of interest and be paid back in BTC. 

The US bond market is $41T and if institutions start purchasing BTC and lending it in this manner - corporations may take an increasing interest in receiving income via BTC.

Sentiment: Use Technicals To Confirm The Move
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The combination of a strong technical analysis pattern and relatively low sentiment (2) suggest that BTC is primed for a breakout 

  • We recommend using technical analysis in conjunction with sentiment to make investment decisions
  • If sentiment is at a high, but technicals look weak - prices are nearly confirmed to fall
  • If sentiment is at a low, but technicals look strong - prices are nearly confirmed to rise

Industry Headlines

Crypto threatens the global banking system:

Europe Opens Up to Crypto

Additional:

That’s it for the BTC + Industry News weekly report from June 28 - July 3, 2019. Make sure to subscribe to get Fridays ETH report. Full reports are free until July 9, 2019, at which they will only be available for Tradecipher Members.

Additional Readings And Sources

Tradecipher Take (TT) #1: Bitcoin is being adopted as an alternative store of value to local currencies in countries with high inflation (exactly what it was designed to do)

Tradecipher Take #2: The biggest thing backing the cryptocurrency market - USDT - finally gets some good news

Tradecipher Take #3: More Financial Markets are Adopting BTC