MAY 2020 - NEWSLETTER

Macro Reflections Ahead in Bitcoin Halving

By Kas Vardhanabhuti

May 1, 2020

At the time of writing, 1 Bitcoin can buy 450 barrels of oil. Perhaps we will all look back in the history books one day and point to April 2020, the month when oil prices turned negative, as the moment when digital gold (Bitcoin) took over from black gold (oil) as the store of value of choice for the millennial generation. Oil was already suffering from weak demand, underpinned by COVID-19 lockdowns, and not enough supply cuts. With storage running out, few market participants were willing to receive physical delivery of oil. Furthermore, there were technical selling pressures of the front-month oil futures by oil ETF funds. These forces pushed the front-month WTI oil futures to trade at -$40 per barrel for a short-period of time. 

 

Risk assets across the world rose in April 2020, despite the uncertain macro backdrop. S&P500 is now up c.30% from March lows, and up c.13% in April. The big market moves were underpinned by unlimited central bank liquidity injection as well as hopes of a cure / vaccine for COVID-19 (e.g. Gilead’s Remdesivir). Bitcoin price increased c.40% in April. We continue to believe that digital assets offer attractive risk-reward, diversification benefits and can act as a hedge against unlimited printing in fiat currencies. Institutional participation in the digital assets space is also picking up. Financial Times reported that Renaissance Technologies, the most profitable hedge fund of all time, has started trading Bitcoin futures. Beyond the macro themes, we also see idiosyncratic opportunities in the digital assets space. We will discuss Ethereum 2.0 and DeFi as well as the Binance ecosystem in future updates. The key point is that we believe that crypto and blockchain will play an important role in the long-term future of finance. 

 

Looking at a shorter time horizon, all eyes are now on the third Bitcoin halving event on 12 May 2020. Bitcoin rallied 8,000% 12 months after the first halving event and rose 3,000% 16 months after the second halving event. Researchers suggest Bitcoin price could reach $288,000 after this halving2, approximately 3,000% increase from today’s level. This article (link below) is worth reading if you want to understand the bull case valuation for Bitcoin. Our fund would clearly benefit if Bitcoin was to rise substantially. But instead of relying on long-term forecasts, we will continue to focus on a machine learning-based approach to trading, relying on high-speed and low-cost execution, to drive long-term returns for our investors.