🧘‍♂️The Truth About Bitcoin

Market Meditations | May 24, 2022

Dear Meditators

Smart money has been all-in on risk-off sentiment lately.

Interest rates and inflation are getting higher than Bob Marley fans while Bitcoin goes from being called an inflation hedge to a risk asset depending on the day of the week.

Luckily, the data exists independently of influencers, we just have to know how to use it.

A new tool just arrived courtesy of a major player with big skin in the game.

A major player that has also become the first crypto company to enter the Fortune 500.

Today’s Meditations: 

  • Coinbase Institute Reveals the Truth About Bitcoin
  • South Korea Putting An End To LFG Disruption
  • Deep Dive Into Adoption

⏰ Top Headlines


?️ The Right Tool For the Job

The Coinbase Institute published its first Monthly Insights Report in tandem with the official launch announcement last week.

The inaugural publication provides insights into market movements of the crypto economy and traditional finance, analysing empirical data to assess correlation and volatility.

Volatile Tendencies

Source: Trading View: 23/05/2022 – Logarithmic BTC/U.S. Dollar chart featuring Binance.us. 

As we can see on Trading View, there’s no denying the volatile nature of Bitcoin. But does it deserve its reputation as a comparatively volatile asset?

Another Face In The Crowd

Cryptocurrency is volatile by nature, but Bitcoin has a surprisingly stable track record when compared to other coins and tokens.

  • The report found that in a sea of over 18,000 cryptocurrencies, Bitcoin has the lowest volatility, followed by Bancor, Bitcoin Cash, Stellar and Ethereum.
  • Further findings actually found a negative relationship between market size and volatility, suggesting the largest cryptocurrencies by market cap enjoy the lowest volatility.

If looking to minimise your risk in this market, there’s a convincing argument being made that coins and tokens in the top 10 might carry with them the least amount of volatile price action.

Hedge Your Bits

A revolving narrative surrounding Bitcoin’s ability to serve as a hedge against inflation, alternative to gold, or store of value is a common occurrence.

The Coinbase Institute compared BTC to a number of perceivably more conservative investments.

Source: Coinbase Institute: May 2022 – Crypto Risk and Traditional Markets Risk: A Comparison

  • While both BTC and Ethereum showed higher volatility than more conservative commodities like precious metals and oil, they were not at the top of the list.
  • Daily volatility for gold and silver was the lowest in the comparison, coming in between 1% and 2%, whereas BTC and ETH were more similar to natural gas and oil at 4%-5%.

Crypto is a more volatile investment than some commodities, but not all.

Placed into context, Bitcoin’s reputation as a risk-on asset might be misplaced, depending on personal risk tolerance and assessment.

Taking Stock

A popular approach to the crypto-stocks comparison pits BTC against indices. The data produced in the report takes issue with this method.

  • When compared to the S&P and NASDAQ, Bitcoin and Ethereum come in as 3-4 times as volatile.
  • The comparison is skewed, however. Stock indices are baskets of many stocks, designed for low volatility. Comparing any single asset to these is a flawed strategy.
  • When compared to individual stocks in the Nasdaq 100 index, Bitcoin’s volatility was significantly lower than a number of stocks including Docusign, Lucid, and Moderna.

When volatility is a key factor in a developing investment strategy, it’s important to make sure the quality of research is high. Being diligent in analysing similar data types is the only way to produce reliable results.

Nothing should be taken for granted when investing, and doubly so when cryptocurrency is your weapon of choice. Accurately assessing risk is an integral part of any responsible strategy. Making sure you have the right tools for the job is paramount.

Ready for more? Read the first report in the series of coming publications from the Coinbase Institute here.


? Korea Limiting Moves

According to analysis platform DataLight, South Korea currently ranks third in the world’s cryptocurrency markets based on active traffic to exchanges. Despite not being considered legal tender, crypto has grown side by side with regulation since 2017, as the government looks to provide protection to retail.

  • Police in Seoul are trying to freeze the assets of the Luna Foundation Guard (LFG) following the UST de-peg and Luna price collapse.
  • The cybercrime unit has asked exchanges to block LFG from withdrawing corporate funds due to suspected embezzlement. However such a freeze is not compulsory by law.
  • Meanwhile, Terra’s co-founder and CEO Do Kwon is now having criminal and civil lawsuits filed against him for allegations of fraud.
  • In other news, two of the top four exchanges in South Korea have issued investment warnings about Litecoin.
  • UPbit and Bithumb are both considering delisting the coin since it’s recent Mimblewimble Extension Blocks (MWEB) upgrade.
  • The upgrade enhances privacy by allowing transactions to be sent between the extension block and the main chain while hiding the addresses and amount.
  • Such obfuscation is incompatible with South Korea’s financial laws, which require KYC systems and other anti-money laundering measures to be in place.
  • UPbit even added that “for deposits deposited using the Mimblewimble function, the outgoing wallet address cannot be verified in Upbit, so it may not be possible to return it”.

For more on anonymous crypto mixers, check out our short overview.


?️ Diving Deeper Into Adoption

The Federal Reserve Board of the United States has published its ninth annual study into the Economic Well-Being of US Households and for the first time, the report has included statistics on cryptocurrency use.

  • The report concluded that in 2021 crypto was favoured as an investment vehicle rather than a means of transaction.
  • Approximately 46% of those surveyed had an income of $100,000 or more, while 29% had an income of under $50,000.
  • Those who held crypto for investment purposes also had access to disproportionately high income, almost always had a traditional banking relationship, and typically had other retirement savings”. 
  • Only 2% of adults said they used crypto to buy something or make a payment in the last 12 months, and 1% surveyed said they used it to send money to friends or family.
  • Amongst the combined 3% of adults who used crypto for purchases or money transfers, 13% did not have access to traditional bank and credit accounts.

This report provides some fascinating insight and allows us to observe ‘real world’ adoption outside of the crypto bubble many of us are in. However, due to the small sample size and the delay in data, the statistics may be slightly exaggerated.


? Read 

  1. Crypto Risk and Traditional Markets Risk: A Comparison
  2. Is BTC “As Good as Gold”?

? Listen

  1. How to Survive Volatile Markets with Koroush AK

Twitter 

  • It’s another risk-off day in crypto markets, with major assets trading in the red and the ether-bitcoin exchange rate (ETH/BTC) pointing to a continued worsening of investor sentiment: by @godbole17- Forbes Crypto

We’re Watching

https://www.weforum.org/events/world-economic-forum-annual-meeting-2022


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??‍♂️✍️ Stories in this newsletter were written by Isambard FAKai.A, Nick T., Max P., Kimia K., Ellen B. and Koroush AK. Graphics were produced by Ellen B.


Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.

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