Ark Invest, which focuses on investing in disruptive innovation like AI and biotech, thinks bitcoin could more than 10x in the next five years from the current $200 billion market cap to $3 trillion.
In a comprehensive analysis they suggest bitcoin can capture numerous markets, starting with settlement networks for value exchange. They say:
“In the United States alone, deposits totaling $14.7 trillion generate $1.3 quadrillion in settlement volumes between and among banks each year.
If it were to capture 10% of those settlement volumes at a similar deposit velocity, we believe the Bitcoin network would scale more than 7-fold from roughly $200 billion to $1.5 trillion in value.”
They don’t quite explain why banks would use bitcoin to settle instead of their own Fed systems, but another potential market is asset protection.
“With good public and private key management, we believe bitcoin cannot be seized,” they say. Thus:
“In our view, a sensible allocation to bitcoin would approximate the probability that a corrupt or misguided regime will confiscate assets – whether by fiat money inflation or by outright seizure – during an individual’s lifetime.
If that probability were 5% on average globally, bitcoin’s market capitalization, or network value, could vault more than 10-fold from $200 billion to $2.5 trillion.”
This is further complemented by bitcoin being better than gold in the view of Ark Invest, stating:
“Supporters often refer to bitcoin as digital gold because it improves upon many of physical gold’s characteristics.
Not only is bitcoin scarce and durable, but it also is divisible, verifiable, portable, and transferable, all of which protect from the threat of centralization.
According to our research, if it were to take 10% share of the physical gold market, bitcoin’s network value could increase nearly $1 trillion, 5 times its $200 billion base today.”
This somewhat overlaps with the inflation related potential market, especially in medium to under developed countries:
“While Bitcoin has not evolved enough to service an entire economy, we believe demand for bitcoin in emerging markets should increase as its infrastructure reaches critical mass.
If bitcoin were to capture 5% of the global monetary base outside of the four largest fiat currencies – US dollar, yen, yuan, euro – its market cap could increase by $1 trillion, as shown below, a 6-fold increase from $200 billion today to roughly $1.2 trillion.”
Then we get to the most interesting part of the analysis which is worth reading in full because our highlights can’t do justice to that thorough analysis of bitcoin as a strategic investment.
“Untethered from traditional rules and regulations and, generally uncorrelated to the behavior of other asset classes, bitcoin could serve as a strategic allocation in well-diversified portfolios, despite its volatility.
We believe the low correlations among traditional asset classes and bitcoin should minimize idiosyncratic risks and lower overall volatility, resulting in higher risk-adjusted returns.
To illustrate bitcoin’s low correlation relative to other asset classes, we calculated the 90-day rolling correlation between bitcoin and nine other assets over the 10 years from May 2010 through June 2020, [pictured, featured image]. As suggested by this sample, for the most part bitcoin has been uncorrelated to traditional asset classes and various stocks.”
This quality of bitcoin as an uncorrelated asset class has long been established now with this report also concluding “the correlations for each asset tend to center around zero, indicating little to no correlation.”
But then they look at other factors which an interested institutional investor might consider, like trading volumes. They say:
“Aggregated in different ways, bitcoin’s trading volume ranges from $200 million to $12.4 billion per day.
For a buy-side institution deploying fresh capital, U.S Dollar Markets on major exchanges is perhaps the most relevant. Given $200 million in daily trading, a buy-side institution limited to 10% of the volume could deploy roughly $20 million per day.
Including the major fiat currencies, however, bitcoin’s daily trading volume triples to $600 million, the U.S. dollar accounting for roughly half of the total.
Stablecoins more than triple bitcoin’s daily trading volume once again to $1.9 billion, thanks primarily to Tether. Adding cryptocurrencies to the mix increases trading volume by $700 million.
Finally, accounting for nearly 80% of the total, derivatives expand bitcoin’s daily volume more than five-fold to $12.4 billion, giving institutions limited to 10% of the volume an opportunity to deploy $1.2 billion per day.”
Bitcoin trading volumes are however small compared to an entire asset class like equities which handle about half a trillion a day with bitcoin’s trading volumes being more like that of a stock, higher than Google for example but lower than Facebook.
In addition, “bitcoin often is more liquid than the average publicly traded equity,” they say.
Then they analyze what all this means in their view regarding capital allocation in line with the modern portfolio theory.
“With hindsight, to construct a portfolio with bitcoin while maximizing the Sharpe Ratio or minimizing volatility at the efficient frontier, an investor would allocate between 0.27% and 6.55% to bitcoin,” they say. Looking forward:
“According to three 5-year simulations, each a function of bitcoin’s total addressable market (TAM) opportunities,
- 1% of TAM, or $1.1 trillion
- 5% of TAM, or $5.5 trillion
- 10% of TAM, or $11 trillion
…the suggested bitcoin allocations range from 0.03% to 26%.
Based on this analysis, investors seeking to minimize volatility would allocate between 0.03% and 1.28% to bitcoin.
Investors seeking to maximize Sharpe Ratio would allocate between 4.8% and 25.78% to bitcoin.”
A quarter of the portfolio is at the low end for many cryptonians, but for investment managers dealing with billions or even trillions, it sounds like the low end for the braver ones is 5%.
So general advice now perhaps should evolve to allocating between 1% to 5% of investable capital for maximum potential reward while minimizing potential risk.
Circle’s new partnership will bring USDC stablecoin to Solana blockchain
With several blockchains integrating the USDC stablecoin last week, crypto payments tech firm Circle announced today that it would now make the dollar-backed stablecoin available for the Solana blockchain, after partnering with the firm. According to Circle, Solana, the blockchain behind decentralized exchange Serum, supports up to 50,000 transactions per second (tps).
This surpasses Ethereum’s transaction rate which is approximately 15 TPS for a fee of about $1.5 in October. Moreover, Circle said in a statement:
USDC for Solana is part of Centre and Circle’s broader mission to bring the USDC standard and protocol to multiple blockchains, and builds on existing support for USDC on Ethereum and Algorand, and upcoming support for USDC on Stellar.
Co-Founder of Solana, Anatoly Yakovenko, believed that stablecoins were critical for sustaining the interests of teams looking to build DeFi products on Solana. Meanwhile, in September, Tether also announced its planned integration Solana, which according to the blockchain would enable building high-speed dApps. Yakovenko had then said that with Tether’s integration Solana which was originally designed to support transactions at Nasdaq speed would amp up its transaction rates.
So far, three other blockchains such as Ethereum, Algorand, and Stellar also support USDC, while Tether has been launched on eight blockchains like Ethereum, EOS, Liquid Network, Omni, OMG Network, Algorand, and Tron.
According to Circle, USDC has grown nearly fivefold, approaching 3 billion in circulation, as public blockchains become more open and global. However, adoption for both USDC and USDT stablecoins has increased with various blockchains integrating the stablecoins from this year on.
However, Founder and CEO, FTX, Sam Bankman-Fried, said that having USDC natively on Solana would give the next generation of decentralized applications access to liquid, fast pricing and capital.
Binance Coin, Cosmos, Dash Price Analysis: 21 October
Binance Coin broke beneath its uptrend of the past month, although this could be a temporary haven for the asset than a reversal in trend. Cosmos had bearish momentum while Dash experienced a period of high volatility and registered big gains but was unable to hold on to them all.
Binance Coin [BNB]
BNB has been in an uptrend (cyan) since early September and reached a local high of $33.38. Using the Fibonacci Retracement tool for this move, alongside some historic support and resistance levels, we can see the regions of interest for the coin.
BNB retraced just past the 61.8% level, and since then was making consistent higher lows. The asset faced stiff resistance at the $32 region and was pushed down to $28.6 before climbing once more.
Support at $29 and the 23.6% retracement level at $29.77 should be defended by bulls in the coming days, or the price can slide toward $27.5.
In recent days, the momentum has been bearish for the asset. It is possible that BNB retests the 23.6% level and drops in the coming days, or BNB could find refuge in the $29 region for a few days.
Beneath $29, $27.5 is another region of interest for traders.
The price surged to $6 in the past couple of weeks but buying volume was not present behind the rise, shown by the OBV.
Subsequently, the price plunged as low as $5 before bouncing.
Buyer activity has been contained within the highlighted region on the OBV. A breakout to either side in the next few days would determine the direction of ATOM’s market.
DASH formed a broadening triangle and appeared to breakout upwards. However, it was rejected immediately and the pattern invalidated as the price dipped beneath the previous high of the pattern.
The MACD showed that momentum was still strongly bullish with the asset, and price may test resistance at $77 in the coming days.
Ethereum Lags Behind Bitcoin, But Analysts Think a Big Move is Coming
- Ethereum’s price has been significantly underperforming that of Bitcoin as of late
- While the benchmark cryptocurrency is now trading at fresh yearly highs, Ethereum is still down nearly 30% from its 2020 highs
- This underperformance is quite surprising to investors, as this latest Bitcoin rally is one of the few that has occurred in full isolation
- Altcoins have not been able to match its momentum throughout the past few days, but it remains unclear as to how long this trend will persist
- Today, news regarding PayPal adding support for Bitcoin helped move its price higher, but they are also adding support for Ethereum
- Once the market takes notice, it could help send ETH flying higher
Bitcoin is currently trading at a new yearly high, with bulls being in full control of its uptrend as sellers struggle to gain any traction. Ethereum, however, is still consolidating at $380.
The lack of selling pressure above $12,000 is a promising sign for Bitcoin, but it is imperative that Ethereum rallies and matches its momentum, or else serious downside could be imminent.
Currently, ETH is trading above its key support at $380, which has acted as heavy resistance on multiple occasions as of late.
One analyst believes that a continued bout of trading above this level could lead it up towards $410 in the coming few days.
Ethereum Lags Behind Bitcoin Despite Bullish PayPal News
At the time of writing, Ethereum is trading up just under 4% at its current price of $382.
This is around where the crypto was trading just a few days ago, while Bitcoin hovered within the lower-$10,000 region.
Its inability to gain any momentum is interesting, because the PayPal news that helped drive Bitcoin higher today was equally relevant to Ethereum, as the FinTech giant is also adding support for buying, selling, and storing ETH.
Analyst: ETH Must Defend $380 to Break Above $400
While sharing his thoughts on where Ethereum might trend in the near-term, one analyst explained that $380 is the crucial level to defend.
He notes that a continued bout of trading above this level could open the gates for a test of its next resistance at $388, followed by a move up towards $410.
“ETH: My next gameplan looking a little something like this if we can flip resistance,” he said while pointing to the levels marked on the below chart.
Image Courtesy of Chase_NL. Source: ETHUSD on TradingView.
The coming few days should provide serious insight into Ethereum’s outlook, as its continued reaction to $380 will be critical for understanding where it trends in the weeks ahead.
Featured image from Unsplash. Charts from TradingView.
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