Digital assets are known for their volatility, but lately Bitcoin volatility has been doing one thing and that is trend lower. Some will point to the introduction of institutional grade platforms like Bakkt as the underlying factor. The bottom line is that lower volatility is yet another indication that the asset class is maturing, the wild swings are no longer as prevalent. Specifically, 1-month volatility is close to its lowest level since April. Bitcoin may not have been trading like a pink sheet stock or junk bond but there are plenty of events that could make that happen. In particular, the November 4 deadline set for Ifinex to present a case for the NYAG lawsuit to be dismissed is looming on the horizon. Should Ifinex not succeed, the company may be required to continue to comply with the investigation. If the case by the NYAG is allowed to proceed, actual arguments won’t likely start until next year.
It is also worth remembering the ten day rule that the traditional equity market is well accustomed to. Analysis by JP Morgan Asset Management shows that looking back over a 20-year period from Jan. 1, 1999, to Dec. 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half. The return went from positive to negative by missing the 20 best days of the market over the same 20 year span. At the same time, Putnam Investments found similar results by studying the data from 2003 to 2018. If you were fully invested in the S&P 500, your annualized total return was 7.7% during that time. But if you missed the 10 best days in the market, it dropped to a mere 2.65%. In crypto, the implications for missing out on these days are even more significant to year-end returns. For the year to date, if you take away its ten best days, BTC is down 25%. Bitcoin perma-bull Tom Lee points out that during the last bull run of 2017, price rose an incredible 1,136% in those ten days. But even during the bear market of 2018, the best ten days saw an overall gain of 66%. Since 2013, excluding those ten best days, Bitcoin has seen annual losses averaging 25%.
In terms of news flow, the United States Securities and Exchange Commission (SEC) has once again begun accepting public comments regarding the updated Bitcoin (BTC) exchange-traded fund (ETF) proposal by Wilshire Phoenix Fund. According to the official filing, investment management firm Wilshire Phoenix and exchange NYSE Arca have filed an amendment to their Bitcoin ETF application to reflect new circumstances. Per the proposal, Coinbase Custody will act as a custodian of the trust’s Bitcoins. But unlike the first application, the updated version states that Coinbase will be confirming the availability of assets used to secure the trust within five business days from the moment of its monthly rebalancing.
Elsewhere, Bank of England (BoE) Governor Mark Carney has defended Facebook’s choice of creating a new currency. The governor highlighted the shortcomings of the current traditional financial system. Because of payment inefficiencies present in traditional finance, Carey thinks that firms such as Facebook should be involved in projects like Libra. Carney is no stranger to controversy and back in August, in a speech at the annual Jackson Hole gathering of central bankers in the US, he called for the IMF to take charge of a new system of currencies, ensuring emerging economies from destructive capital outflows in dollars and removing their need to hoard US currency.
Thank you for reading,
The BeQuant’s Analytics team