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Digital Derivatives WeeklyMarch 26, 2020

Digital Derivatives - Bitcoin Recovers, But Will It Last?

Jitender Tokas
Chief Business Officer
March 26, 2020

Digital derivatives is a weekly newsletter bringing you the latest research, information and analytics from the cryptocurrency derivatives space brought to you by Delta Exchange.

For last week’s edition, click here.

Market Moves

Bitcoin (BTC) – $6,629.76 (-1.07%)
Ethereum (ETH) – $135.87 (-2.20%)
Ripple (XRP) – $0.162 (-0.06%)
Bitcoin Cash (BCH) – $233.53 (-0.12%)
Litecoin (LTC) – $39.25 (-1.95%)
EOS (EOS) – $2.30 (-1.28%)

Derivatives Insights

Approaching Bitcoin Cash Halving Could Preview Bitcoin Developments

BCH - USDT on Delta Exchange

The Bitcoin Cash (BCH) Halving is set to take place roughly 16 days from now, on April 8th, which will see the BCH issuance rate decrease from 12.5 to 6.25 coins mined per block. This is a rough fall from 1800 to 900 coins mined per day, with the annual token inflation rate falling from 3.65% to 1.825%. The BCH halving takes place every 220,000 blocks and this is the first halving since Bitcoin Cash forked from Bitcoin in August 2017.

A halving typically brings with it plenty of volatility. If the price of BCH fails to grow sufficiently in the run-up to the halving one possibility is that BCH miners switch to the BTC network due to the lowered profitability of mining on the BCH network. Miners with inefficient mining set-ups will likely be forced out of the market and switch to mining BTC (at least until its upcoming halving) due to its higher profitability. This can severely compromise the security of the BCH network, opening it up to potential 51% attacks and network takeovers. In the last month the price of BCH has dropped over 45% in price which does not bode well for its stability throughout the upcoming halving.

Bitcoin Halving

On the other hand, a drop in the issuance rate theoretically increases the scarcity of the underlying asset, which should contribute positively to the price, assuming sustainable token demand, and Bitcoin (BTC) has undergone significant price hikes surrounding its previous two halvings. Time will tell if this is the case for BCH.

Tether Gold (XAUT) Facing Supply Issues As Switzerland Enters Lockdown

The world is facing a Gold supply shortage as global demand surges whilst growing border control protections and flight shortages remain detrimental to the gold supply chain, damaging the liquidity of the valuable asset.

Following a 7% correction over the course of last week, Gold has recovered strongly and its movements are now driven by strong bullish sentiment. Demand for gold is surging as investors seek a hedge against global market turmoil. The Gold futures – spot premium is now at its highest level since 1980, with the premium settling at $15/oz by Wednesday morning. This premium was $67.57 at its peak on Wednesday.

In the midst of all this, Bitcoin has seen its correlation with Gold reach a 10-month high, hitting a correlation coefficient of roughly 0.45. With Bitcoin and Gold both categorized as ‘fear-driven’ investments, one could guess that the correlations between the two will continue to rise over the coming weeks as global economic uncertainty continues to grow.

Correlation Between S&P500 & Bitcoin Reaches All-Time High

The correlation between S&P500 and Bitcoin returns hit an all-time high this week, according to information provided by The Block.

The correlation between the two has reversed numerous times since 2010, with a clear relationship difficult to identify. In recent weeks both seem to have taken a beating in unison, with both crashing in the face of economic turmoil. In the last week, however, Bitcoin seems to have recovered mildly (up roughly 20%) whilst S&P500 remains an underperformer (down 7.5%).

A notable event to keep an eye on is the Senate passing of the $2 Trillion COVID stimulus package designed to support the US economy. Whether this manages to calm investors and instill faith in the S&P500, remains to be seen. If not, it could suggest further upside for Gold and BTC.

Bitcoin Mining Difficulty Drops 15% – 2nd Biggest Drop In History

Bitcoin mining difficulty – a measure of the difficulty in solving the computational challenges associated with mining Bitcoin – was dropped by 15.95% yesterday in a move designed to improve the attractiveness of mining Bitcoin.

This comes after a drop in price which resulted in numerous Bitcoin miners leaving the network in pursuit of better opportunities. The Bitcoin mining difficulty reached an all-time high on March 9th – 3 days before the price crash of March 12 – leaving numerous Bitcoin miners unable to generate daily profits.

Without adjusting the mining difficulty, Bitcoin could have seen a mass outflow of miners, subsequently compromising the stability and security of the Bitcoin network. With just 48 days till the upcoming Bitcoin halving, this mining difficulty reduction was a move intended to stabilize the network and ensure a comprehensive miner set up in anticipation of the halving.

Delta Exchange Developments

Launch of BTC June Futures Contracts

Today we are excited to announce the launch of June Bitcoin Futures allowing for trading of up to 100x leverage on Bitcoin. View the markets here.

Delta Exchange - BTC June Futures

Futures contracts represent agreements between parties to buy or sell BTC at a specific price and date in the future, allowing for hedging or speculation of the underlying asset. As such, prices trading at a discount to spot prices (referred to as backwardation) is a clear indication of bearish expectations.

For a Futures Trading Guide, click here.

Pankaj Balani, CEO & Co-founder, On ChainPodcast

Earlier this week, our CEO and Co-founder went on the ChainPodcast with Tom Shaughnessy to discuss Delta and the Bitcoin derivatives exchange space.

Listen to the conversation for great insights into running a global exchange, what the unique challenges are, and what makes the derivative exchange space special.

Have a listen here and let us know your thoughts!

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