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Digital Derivatives WeeklyApril 17, 2020

Digital Derivatives - Gold and Bitcoin

Jitender Tokas
Chief Business Officer
April 17, 2020
What's in this post?

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

    For last week’s edition,click here.


    Market Moves

    • Bitcoin (BTC) – $7,005.44 (+1.95%)
    • Ethereum (ETH) – $170.33 (+7.03%)
    • Ripple (XRP) – $0.188 (+0.34%)
    • Bitcoin Cash (BCH) – $231.54 (+3.49%)
    • Litecoin (LTC) – $42.56 (+3.09%)
    • EOS (EOS) – $2.65 (+7.14%)


    Derivatives Insights

    Gold Keeps Outperforming – BTC Correlation Grows

    In what has otherwise been a rough year for assets across the board, Gold now seems to have found its groove. Gold is up 15% year to date, reaching an 8-year high at $1731 per ounce at time of writing (April 16th). To put this into perspective:

    • S&P500 is -15% YTD;
    • Crude Oil (WTI) is -67% YTD;
    • Silver is -14% YTD;
    • Bitcoin is -1% YTD;

    It is worth pointing out that Bitcoin has had a relatively solid year taking into account other asset performances. Regardless, Gold is outperforming, and Bitcoin appears to be joining.

    Coinmetrics.io – BTC/GOLD Correlation

    In a study recently published by Van Eck, we see that Bitcoins correlation to gold has been surprisingly low. Between March 2012 and March 2020, the correlation between the two assets has been 0.03; interestingly, this value spiked to 0.47 in the last two weeks of March as BTC jumped from $4.4k to $6.8k. Looking at March as a whole, this correlation rose to 0.49.

    This increase in correlation hints at BTC further cementing its role as a protective SoV asset and with an upcoming halving it will be interesting to see whether this relationship holds. Gold is quickly nearing its all time high – just 4% off of $1820 – and with global economic uncertainty rising, Gold will become an increasingly popular asset to hold over the course of the next few months.

    Gold futures are currently trading at a 1.6% premium, suggesting further room to rise in the short term. On Delta, XAUT (our Tether Gold perpetual contracts allowing for gold 20x trading) is trading at $1723, performing well since their launch on March 17th.

    Ethereum Transaction Value Explodes

    For the first time since the launch of the network, Ethereum has now reached parity with Bitcoin with regards to the USD value of network transactions, lending significant strength to the development of Ethereum. A big contributor to the growth of the Ethereum network has come from the explosion in stablecoin usage. Once exclusively an OMNI-based token, USDT on Ethereum has now grown to overtake its OMNI counterpart, with $4.9 Billion USDT issued on Ethereum, versus just $1.5 Billion on OMNI.

    Over the last month, exchange balances of USDT have similarly exploded. Since March 15th, the USDT balance of Binance has grown from 401.627m to 1.02b USDT (+154.36%), whilst the USDT balance of Bitfinex has grown from 41.7M to 80.34M USDT (+92.66%) and Huobi from 40.6m to 46.05m USDT (+13.42).

    Tether and BTC market caps

    The issuance of stablecoins, specifically Tether, has long been associated with a rise in BTC prices, with some speculating that one contributes directly to the other. This rise in exchange stablecoin balances comes as traders exit their cryptocurrency positions, swapping e.g. BTC for USDT. Additionally, this could be a result of patient traders gradually bringing funds into the digital asset ecosystem and preparing for capital deployment.

    Stablecoins have had their greatest quarter to date at the start of 2020. Tether has cemented itself as the fourth highest-ranked cryptocurrency by market cap, and the highest by daily trading volume. In addition to this, the supply of USDT has grown by +50%, whilst the supply of competitors, e.g. USDC, has grown by up to 100% over the previous 3 months. Stablecoin issuances have also exploded, up by almost $8 Billion in the past quarter.

    Stablecoins – by allowing users to benefit from the advantages of blockchain technology whilst eliminating price volatility – have cemented themselves as a necessity for traders in the digital asset space, and I suspect their growth will continue over the coming months as market volatility and uncertainty soars.

    BCH Post Halving – Sign Of Things To Come?

    Bitcoin Cash completed its network halving on April 9th, cutting its token issuance rate from 12.5 to 6.25 BCH per block. Since the halving, the price of BCH has fallen roughly 15% – from $265 to $225 – showing a continued downward trend since the halving.

    Bitcoin Cash – Price

    From a technical perspective, the hash rate of the BCH blockchain has dropped sharply since the halving, down as much as 65% to a value not seen since March 2019. This has likely occurred as miners have shut off their operations as BCH mining has become increasingly unprofitable.

    Bitcoin Cash - Hash Rate
    Bitcoin Cash – Hash Rate

    The 3rd Bitcoin halving is quickly approaching and is set to take place in roughly one month, upon which the issuance rate of new Bitcoin will drop from 12.5 to 6.25 per block. Halvings have typically been regarded as bullish events, with traders theorising that halvings are inherently price-positive through decreasing the token supply rate. Assuming a near constant demand, this will inevitably drive up price. If the past two BTC halvings are anything to go by this seems to be true.

    From a technical standpoint we are likely to experience a short-term drop in the hash-rate of the Bitcoin network as a fraction of miners switch their focus back towards networks like Bitcoin Cash and Bitcoin SV. Bitcoin mining activity is likely to fall, both relatively and absolutely, as mining becomes unprofitable for certain miners. However, the strength and magnitude of the BTC network is likely to absorb any drastic fluctuations in the mining activity.


    Delta Developments

    Zero Trading Fees On LINK USDT & BTC Contracts

    LINK-BTC

    As of April 15th we have dropped all fees on our BTC and USDT-settled LINK contracts. Trade LINK with up to 100x leveragenow with 0% fees, for a limited time. View the markets here:

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