First Mover: Bitcoin Needs No Vaccine as Druckenmiller Lays Down ‘Better Bet’

Bitcoin was higher, though barely, appearing to settle into a new range over the past several days between roughly $14,800 and $15,600. 

“Should bitcoin prices consolidate this week,” wrote Matt Blom, head of sales and trading for the digital-asset firm Diginex, “it would set us up for the next leg up towards $17,000.”

In traditional markets, European and Asian shares inched up while U.S. stock futures pointed to a lower open. Gold rose 0.7% to $1,876 an ounce. 

Market moves

Bitcoin’s price slide Monday amid a vaccine-powered surge in U.S. stocks sent cryptocurrency analysts scrambling to explain the investment logic, while highlighting the on-again, off-again synchronicity between digital-asset and traditional markets. 

The progress reported by Pfizer toward developing a vaccine could portend a faster-than-expected recovery in the global economy. A rebound in consumer demand would bring about faster growth in corporate earnings and thus improve prospects for stocks.

An economic acceleration also theoretically could speed up inflation and by extension boost bitcoin, seen by a growing number of investors as an inflation hedge similar to gold. The investing legend Stanley Druckenmiller told CNBC on Monday that he owned “many, many more times gold than I own bitcoin, but frankly if the gold bet works, the bitcoin bet will probably work better.”

But nothing is simple in the art of pinpointing fickle and topsy-turvy market narratives, especially during a year when the hand of governments and central banks has been particularly heavy, in the form of trillions of dollars of fiscal and monetary stimulus they’ve pumped into the financial system.  

According to Bloomberg, economists immediately began to speculate that any improvement brought by a vaccine might simply relieve pressure on the U.S. lawmakers to rush out a new coronavirus stimulus bill, or on the Federal Reserve to accelerate its $120 billion-a-month in asset purchases. All things being equal, less stimulus might mean less inflation. 

“Assuming the Pfizer vaccine is as effective as currently indicated, it will take several months to manufacture and inoculate large segments of the population,” wrote Thomas Perfumo, strategy director at Kraken Intelligence, an analysis unit of the similarly named cryptocurrency exchange. “The key question is whether additional fiscal stimulus is on the horizon and how asset values, including bitcoin, continue to digest the swell in unprecedented fiscal and monetary response.”

Of course the 11-year-old bitcoin has defied market prognosticators for most of its history, and some cryptocurrency traders say the daily price movements represent little more than a statistical random walk, or maybe correlation without causation. Bitcoin has blown away every other major asset class in 2020, with a 113% year-to-date gain versus 10% for stocks and 24% for gold. 

Bitcoin’s price correlation over the past 90 days with both stocks and gold stands at a positive but weak level of 0.35, where 1 represents perfect synchronicity, -1 a perfectly inverse relationship, and 0 no connection at all.

It might also be weak to draw too many inferences beyond just that the bitcoin bet appears to be winning. 

Bitcoin watch

Bitcoin (BTC) has chalked up a stellar price rally in the past two months, reaching 33-month highs close to $16,000.

The uptrend began in early September after buyers bought a dip below $10,000, and gathered pace in the second half of October. Last week, prices reached a high of $15,971, a level last seen in January 2018. That’s a 63% price gain in eight weeks, according to CoinDesk’s Bitcoin Price Index.

Over 2018 and 2019, bitcoin often languished below $10,000, struggling to recover from a crash that followed the late 2017 surge to record highs near $20,000.

So what’s behind the rapid gains in recent weeks? Here are three of the primary factors driving the bull market:

– Omkar Godbole

Token watch

Ether (ETH): Options open interest climbs to record $570M, according to Skew, a provider of crypto-derivatives data:

What’s hot

Beijing municipal government conference notes plans to pilot central-bank digital currency in China’s capital (CoinDesk) 

U.S. government’s tendency to move at slower pace than private sector when it comes to innovation isn’t a bad thing, says SEC Commission Hester “Crypto Mom” Peirce (CoinDesk)

Binance.US joins Gemini, Kraken and ErisX on Silvergate Bank’s SEN Network, which allows companies to move U.S. dollars instantly between cryptocurrency exchanges (CoinDesk)  

Analogs

The latest on the economy and traditional finance

The U.S. continues to stare at a mountain of potential debt defaults and decline in asset prices due to coronavirus, Fed says in semiannual report (Reuters)

New Zealand central bank proves “kiwi whale” as ownership of country’s government bonds shoots to 37% from 6% in seven months (Bloomberg) 

U.S. banks tighten loan standards to households even as demand increases for mortgages and auto loans (Federal Reserve):

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