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Pirate Weekly Meeting | 2.19.2020




How Bitcoin Became Crypto’s Answer to Wine, Whisky and Watches

As Bitcoin trading volumes decline, the asset is being seen as something more like a rare asset than a tradeable currency.



In brief

  • Data says Bitcoin is being used more as an investment than a tradeable currency.
  • The currency is seen more as a hedge against volatility in fiat markets.
  • It’s now behaving more like assets including fine wine, rare whiskies and classic cars.

Little over 12 months ago, the amount of Bitcoin sloshing through the markets was double that of the second most liquid asset, Ether, the currency of Ethereum. Today the opposite is true. 

In fact, Bitcoin’s trading volume has been declining since 2018, but as we’ve seen in this year, Bitcoin’s price has been ticking up, surpassing $13,000 for the first time this year. 

Bitcoin’s volumes have been declining. CREDIT:

While we know Bitcoin’s price goes up as well as down all the time, crypto market watchers in 2020 seem to be coming to similar conclusions: the nature and scope of this recent Bitcoin bull run looks and feels different. 

In today’s Market Watch (in association with AAX) we’re going to explore why this is and why Bitcoin is now being treated in a similar way to how investors buy and hold luxury items such as wine, whiskey and watches. 

Bitcoin becomes an asset 

First, let’s take a look at how Bitcoin trader behaviour has changed. 

The number of Bitcoin addresses holding more than 0.1 coins, (currently about $1,188) is at an all-time high, and the number of addresses holding more than 100 coins (currently $1,188 million) has reached a six-month high, according to Glassnode.

The number of crypto whales, those holding more than 1,000 BTC has also hit an all-time high in August of this year.

It’s not difficult to see why. According to analytics site Glassnode: “98% of all unspent Bitcoin transactions (UTXOs) are currently in a state of profit.”

This has been a trend that’s been maturing over several years, according to Grayscale’s valuing Bitcoin report. In the paper, Grayscale noticed a marked increase in the number of holders–people holding Bitcoin for longer than three years–versus speculators, people who have moved Bitcoin in the last 90 days. 

Bitcoin is a HODLers delight. CREDIT: Grayscale

The report also indicates that there has never been a higher level of Bitcoin owned for more than a year. Bitcoin is becoming a store of value, and not a trading currency, which we’ll explore more in the next section. 

Ethereum and Tether become the currency of crypto 

As we said earlier, as little as a year ago, Bitcoin was the lifeblood of the cryptocurrency liquidity markets. But things are different now. 

The Ethereum blockchain is now processing more than twice the daily transaction volume of the Bitcoin blockchain, riding a massive wave of growth in stablecoins and the DeFi apps that use them.

A new report from crypto research firm Messari on Q3 activity in DeFi and stablecoins has revealed that the current rolling 30-day average for Ethereum is around $7 billion; Bitcoin’s is under $3 billion.

If current rates hold, Ethereum is on track to see more than $1 trillion in annual transaction volume, a major reversal from 2019, when Bitcoin transaction volume was more than double that of Ethereum. 

Tether, however, isn’t just the most traded stablecoin—Messari found that over the summer, it grew to surpass even Bitcoin with a rolling 30-day average transaction volume of nearly $3.5 billion.

Bitcoin has been toppled from its traditional perch, which is another reason why Bitcoin’s outlook is becoming more a luxury asset than cryptocurrency du jour. In the last section, we look at the similarities between how Bitcoin behaves and how other luxury assets do. 

Bitcoin the fine wine of crypto 

When investors look at whether an asset or commodity is investment-worthy, one aspect they pay attention to is something called the stock-to-flow model. 

This a figure calculated by dividing the existing supply of a commodity with that commodity’s annual production growth. Commodities with high stock-to-flow ratios include gold, silver, wine, art, classic cars, watches and yes, Bitcoin. Let’s take gold as an example.

The World Gold Council says that approximately 190,000 tons of gold has ever been mined. Let’s call this the stock. Every year, the gold industry pulls out of the ground somewhere between 2,500-3,200 tons. This is the Flow. In this instance, the stock to flow ratio of gold is 59. This means it would take 59 years at the current rate to mine 190,000 tons of gold. Meaning its value will hold very well. 

Bitcoin’s stock-to-flow has behaved with a high correlation to this model. In essence, Bitcoin’s value is predicted to go up as the amount of Bitcoin produced trends down with time thanks to the way the network has been built.  

Bitcoin’s stock to flow model. CREDIT:

Assets like these are also seen as a hedge against market volatility. 

Most market watchers look at gold as a symbol of investor intent. When the markets are down, the price of gold tends to go up. Which is true, as the charts below attest. As stock markets have become more volatile this year because of COVID-19, so has the price of gold as investors flock to it as a safehaven.

Gold and silver are hedges against market volatility. CREDIT: Goldinfo

But buying and storing gold is difficult, and involves a legion of middlemen who charge for this privilege. 

When investors can’t get their hands on bullion, they look to other rare assets to put their money in, like wine, whisky and watches, among other luxury items. 

The aforementioned assets have to contend with similar aspects of supply and demand, scarcity and availability, which has made investors seek out rare items to hold as an investment. Take whisky for example.

According to the Knight Frank Wealth Report, the rare whisky sector has grown in value by 564% in the past 10 years, with a 5% gain this year. Fine art is up 141%, wine 120%, cars 194% and watches 60%. As stock market performance has faltered this year thanks to a global recession, investors are picking up the finer things and holding them, because like gold, there isn’t many of these luxuries being producted or coming on to the market each year, so their value increases. Let’s look at watches in more detail, in particular, Rolex. 

Rolex makes approximately 800,000 watches per year, giving it a steady supply. However, the availability of those watches is scarce. Waiting lists for popular models can be as high as five years, and access to those waiting lists are given to existing clients who have bought Rolexes before. 

Rolex also regularly discontinues ranges, increasing their scarcity. For example, one type of Rolex, nicknamed “The Hulk” (because it’s all green) was discontinued this year causing its price to spike 200% in a few months. 

That’s lead to a grey market where the price of Rolex watches surpasses what you’d pay at retail, if you could get hold of one, making them a surprisingly good investment. The same applies to certain types of wine, art and cars: there aren’t a lot of them, and they perform better than other asset classes. Just like Bitcoin. 

Bitcoin isn’t gold 

While Bitcoin is often compared to crypto’s answer to gold, this column contends that it’s more akin to a rare consumer commodity than gold thanks to how it’s managed, bought and sold. 

The supply and distribution of gold is handled by big institutions and state actors. It’s also heavily regulated to prevent fake gold entering supply – although it’s harder to keep counterfeit precious metals out of the supply chain than people first thought. 

The supply and distribution of fine items like wine or watches is not managed in the same way. Instead, it’s a marketplace more akin to buying and selling of cryptocurrency. There are brokers, and exchanges, buying and selling to individuals and companies in a more fluid way without the same federal or institutional oversight. And many people want to keep it that way

Bitcoin, like a fine wine gets scarcer with age, and investors are loving it. 

Sponsored by AAX

This sponsored article was created by Decrypt Studio. Learn More about partnering with Decrypt Studio.

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Grayscale invests $300m in a day to grow its crypto portfolio



Grayscale Investments continues to grow its cryptocurrency portfolio by adding $300 million in assets under management (AUM) in a day

Grayscale Investments revealed that it had added $300 million worth of cryptocurrencies to its digital assets portfolio over the past 24 hours and over $1 billion in the last week. This information was relayed by Grayscale CEO Barry Silbert via a tweet yesterday.

The crypto fund manager noted that it had $6.3 billion in AUM as of October 15. However, it has added $1 billion in cryptocurrencies over the past week, and the company now controls $7.3 billion worth of digital assets.

Silbert stated that the company “Added a cool $300 million in assets under management in one day. The additional sum brings the total assets held under management to $7.3 billion”.

The funds are held in the company’s trust for Bitcoin (BTC) and Ethereum (ETH), in addition to Grayscale’s digital large-cap fund. This latest development comes less than 48 hours after PayPal announced its entry into the cryptocurrency market, with Bitcoin surpassing the $13,000 mark afterwards.

Each Grayscale report is delayed by 24 hours, which means that this data refers to the previous day’s figure.

The cryptocurrency funds manager reported that its Litecoin (LTC) Trust recorded the highest growth since the last report. Grayscale reported that its LTC Trust increased by 7.5%, while their Zcash (ZEC) Trust increased by more than 6% over the past 24 hours. Grayscale also has extensive holdings in other cryptocurrencies such as Ripple (XRP), Ethereum Classic (ETC), Bitcoin Cash (BCH), Horizen (ZEN) and Stellar Lumens (XLM).

Grayscale might be increasing its cryptocurrency holdings after raising massive funds in the third quarter of the year. Grayscale’s financial report for Q3 2020 revealed that it had bought over $1 billion in investment across all its cryptocurrency trusts. This year, Grayscale has raised $2.4 billion, which is more than twice the total amount they obtained for the years 2013 – 2019.

The investment firm revealed that 81% of investment in the third quarter came from institutional investors, while another 57% came from people investing in multiple products.

With the crypto fund manager now holding over $6 billion in AUM, it means that Grayscale controls around 2.5% of the total Bitcoin supply, currently above 18,000 BTC. The Bitcoin supply is capped at 21 million, which means that roughly 2.5 million bitcoins are left to be mined.

Grayscale isn’t the only company that is increasing its stakes in cryptocurrencies at the moment. MicroStrategy recently bought $425 million worth of Bitcoin, and Jack Dorsey’s Square Inc. invested $50 million in Bitcoin.


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Stellar to skip Protocol 14; Cites issue with validator crashes



In an announcement, Stellar said that the Stellar public network will no longer upgrade to Protocol 14 on October 28, skipping straight ahead to Protocol 15.

Protocol 15 is reportedly the same as Protocol 14 but fixes an issue that could have caused validators to crash, reports Stellar.

After the Stellar testnet upgraded to Protocol 14, the Stellar Development Foundation (SDF) continued testing and discovered that two rare, specifically constructed transactions could have caused validators to crash.

Fortunately, Protocol 14 was not yet live on the public network, and no one submitted either transaction on the testnet, so no validators actually encountered the bug.

The SDF stated that,

“This discovery is exactly the kind of thing the testnet is designed to bring to light: long before we suggest a change to the public network, we thoroughly test it in a sandbox environment, and leave plenty of time to root out and correct potential problems so they never go live in a production environment.”

There is a scheduled validator vote to upgrade the public network to Protocol 15, which is already live on the testnet, on November 23.

While this may seem like a delay, the date was intentionally pushed back by the SDF in order to ensure that those running Stellar Core or Horizon have enough time to install Protocol-15.

Reportedly, those running Stellar SDK and have a Protocol 14 version installed don’t require an update.

Protocol 15, brings with it two new features – Claimable Balances and Sponsored Reserves which will allow apps and services built on Stellar to appeal to a much broader audience.

For instance, onboarding users is now a lot easier using these new features along with Fee Bumps.

Previously, users had to find a third-party exchange in their jurisdiction to buy XLM and transfer that XLM into their wallet, accounting for the need to maintain sufficient reserves to cover trustlines and offers. This was exceedingly difficult for the non-crypto literate user.

Protocol 15 addresses this pain point with the introduction of these new features, as highlighted by the SDF,

“After Protocol 15, a wallet can offer in-app deposits via a Stellar anchor, who can accept a user’s funds in their local currency and immediately create a Claimable Balance.  The wallet can then cover lumen reserves and transaction fees on behalf of a user, so the user can start using the app pretty much immediately without knowing anything about blockchain or cryptocurrency.  The user experience is seamless, and makes sense to crypto-enthusiast and the non-crypto literate alike.”


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