November 23, 2020 The top stories in bitcoin, crypto and more – all in one place, delivered daily By Daniel Kuhn If you were forwarded this newsletter and would like to receive it, sign up here.
Top shelf The U.S. government is using Circle's USDC to bypass Venezuelan blockades. Chainalaysis is looking to raise $100 million in fresh capital at a $1 billion valuation. Billions of dollars from institutional players are flowing into Coinbase. And VanEck found that bitcoin is less volatile than a quarter of S&P500 stocks, reigniting the case for a bitcoin ETF.
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Quick bites
Market intel Leveraged buyers Some BTC traders may have become overleveraged during the recent rally above $18,000, according to one key metric. The average level of the "funding rate" across major exchanges has risen sharply from 0.023% to a five-month high of 0.087% in the past 48 hours, according to data source Glassnode. The funding rate reflects the cost of holding long positions – measured by the premium derivative plays pay over spot prices. A higher number indicates excessively bullish, and therefore overbought, conditions. In such situations, a pullback or consolidation can trigger an unwinding of longs, leading to a deeper drop and a pick up in price volatility. XRP pumps XRP, the native asset of the XRP ledger, is riding 16-month highs. On Saturday the third-largest crypto by market cap climbed to $0.437564, the highest price since July 2019, according to the CoinDesk 20. It has continued to rise, with minor contractions, since. Now above the $0.50 level, XRP has appreciated over 120% since the start of the year.
Webinar: How to Value Ethereum The penultimate episode of How to Value Ethereum explores the metric of gas costs. How is gas calculated? What is its unit of account? And why is it an important metric to valuing Ethereum?
Find out the answers to these questions by registering for How to Value Ethereum, episode 3, on Nov. 24.
At stake Volatility, market data and ETFs A new analysis from VanEck, a major investment management firm, found that bitcoin is less volatile than the S&P's benchmark stock index.
The report, published Nov. 20, compared BTC to the companies listed on the S&P 500, finding the cryptocurrency was less volatile than 22% of these stocks over the past three months. "Historically, bitcoin has been discussed in the news and among investors as a nascent and volatile asset outside of the traditional stock and capital markets," the report reads. VanEck attributed this volatility to bitcoin's relatively small total market size, regulatory blockers and limited participation from traditional asset managers.
But bitcoin's volatility is not an aberration, as over the 90-day period measured ending Nov. 13 some 112 stocks experienced as much or more price volatility. Further, over the past year, 29% of S&P stocks were more volatile than bitcoin.
As CoinDesk Director of Research Noelle Acheson noted in a September newsletter, volatility is frequently and erroneously conflated with risk. "Volatility is a metric, a number, a measurement. Risk is an ambiguous concept," she writes, adding that volatility can be an attractive attribute for a well-weighted portfolio.
In Acheson's analysis, she found bitcoin volatility is often correlated with the asset's price direction: That is, when the price comes down, so usually does the volatility.
In comparison, the CBOE Volatility Index (VIX), which measures the S&P 500 implied volatility, tends to move inversely to the S&P 500. "The average 60-day correlation between the two for the month of August was -0.84, an almost perfect negative association. Using bitcoin's 30-day realized volatility as a proxy for a bitcoin VIX, we get an average 60-day correlation for August of 0.45. A very different scenario," she found.
What's more, bitcoin's volatility is more measurable than traditional markets, as the crypto trades 24/7 freely across the world. More data points means more data to analyze.
It's for these reasons, bitcoin's similar volatility and market information, that many feel comfortable for agitating for a BTC exchange-traded fund. As reported, U.S. regulators have been hesitant to accept crypto ETF products, often citing a lack of cohesive market data.
But a sober look at the real market conditions may point the other way.
VanEck ends its report saying: "While there are no U.S. bitcoin exchange-traded funds (ETFs) available today, we believe such products may show similar volatility characteristics – based on the comparison above – as many stocks in well-known indices and ETFs, such as the S&P 500 and related products."
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