BTC Futures Slip Into Backwardation.
Two Prime’s CIO, Nathan Cox, was featured in CoinDesk after BTC futures on the Chicago-based CME exchange slipped into backwardation for a few days. “Backwardation” is a condition sometimes observed in commodities markets where prices on near-month contracts exceed those for further-out delivery dates.
Cox said, “BTC’s backwardation does not necessarily imply tighter supply conditions . . . Oil spot and futures markets have very different inputs into the calculation, and the oil demand outlook can be quantified much more explicitly than digital assets, which tend to be an indication of pure price expectation versus actual usage or demand.”
Elon Musks Tweets Cause Market Confusion.
Elon Musk took crypto investors on a wild ride this week, beginning with the message that Tesla would no longer accept bitcoin as a form of payment due to climate concerns. The drama continued when Musk shared a cryptic tweet implying that Tesla might sell off its cryptocurrency holdings and concluded with another tweet on Wednesday in which Musk claimed Tesla has “diamond hands,” signaling that it would not sell its holdings after all. The saga acts as a reminder of just how volatile cryptocurrencies are, even in a bull run, and confirms the value of mitigating losses with investment strategies like hedging.
Old China FUD Returns.
Market volatility may also have been provoked by reports that the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China reiterated their stance on banning crypto services.
“Virtual currency’s prices have soared and plummeted recently, resulting [in] a rebound of speculative trading activities of virtual currency,” the agencies said. “It has seriously damaged the safety of the people’s investment and damaged the normal economic and financial orders.”
Nathan Cox, Two Prime’s CIO, responded to the news saying, “At first glance, China’s decision to reaffirm previous bans seems predicated on the volatility of returns and guided as a concern for the safety of its citizens. [However], the decision is much more a function of monetary control and the flow of information. Digital assets like bitcoin provide citizens with anonymity and the ability to move assets freely (often out of the country). China has made it clear that this type of autonomy is prohibited. Control the mining of bitcoin, but don’t allow citizens to use it.”
Is Gold The New Bitcoin?
This week revealed that not all institutional investors are prepared to handle bitcoin’s volatility. According to a new analysis by J.P. Morgan strategist Nikolaos Panigirtzoglou, some investors are dumping bitcoin in favor of gold, reversing a recent trend that’s played out over the last two quarters. “Perhaps institutional investors are fleeing bitcoin as they see its previous two-quarter uptrend ending and thus seek the stability of traditional gold away from the rapid downshifting of digital gold,” Panigirtzoglou wrote.
The move acts as a reminder that institutional adoption of crypto has a ways to go and reaffirms the importance of leveraging volatility, capturing upside, and reducing downside risk when it comes to digital asset investments.
Cathie Wood Predicts $500,000 Bitcoin.
Despite its recent plunge, many major investors maintain their confidence in bitcoin’s strength. Cathie Wood, the star fund manager and founder of ARK Investment Management LLC, said on Wednesday that she still believes bitcoin will hit $500,000. “You never know how low is low when a market gets very emotional,” she said. “We were looking at all the indicators this morning. They are all suggesting that we are in the capitulation phase, which is a really great time to buy, no matter what the asset is.”
Bitcoin evangelist Michael Saylor also doubled down on his investments, tweeting “I’m not selling” to his 900,000 followers Wednesday morning in a post that received more than 40,000 likes. Saylor is the co-founder of MicroStrategy, which currently holds more than 92,000 BTC.