The latest cryptocurrency volatility report by crypto prime dealer SFOX shows that Bitcoin was an excellent buy in 2019.
The world’s largest cryptocurrency yielded higher year-on-year returns than both the S&P 500 and gold with a whopping 93.8% rise in value.
Despite its critics, Bitcoin was an excellent buy in 2019
As we move deeper into 2020, there will be many factors that influence Bitcoin’s performance. Despite a disappointing end to 2019 after its peak of $12,700 on June 26, Bitcoin was an excellent buy in 2019.
As the SFOX report states:
“At the beginning of 2019, traders could buy 1 BTC for $3710.15.”
Despite its many critics (including previous Bitcoin bull John McAfee), Bitcoin then ended the year at just above $7,000. This marks a far higher YOY return than any other asset class.
You asked if I hate Bitcoin now.
Of course not.
But Bitcoin is not the future of crypto. You have all always known that.
You just wanted to ride a wave.
Crypto is the key to unlocking our prisons.
You've been using that key to scratch your asses.
— John McAfee (@officialmcafee) January 7, 2020
On top of that, the data aggregated on price, volume, correlations, and volatility from eight major exchanges by SFOX shows that cryptocurrency volatility decreased over the last six months of 2019.
“Relative to the ICO craze and headline-making hard forks of a couple of years ago, 2019 ended relatively quietly for crypto. The historical volatilities of all leading crypto-assets — their standard deviations from their 30-day average price — ended the year in very low percentiles relative to their volatility ranges over the last year.”
The report also found that BTC was still proving to be largely uncorrelated with both the S&P 500 and gold, with average 30-day correlation values of -0.037 and 0.149 respectively in the last six months of the year. This made BTC a “compelling tool for portfolio management in 2019”.
The cryptocurrency markets as we move into 2020
Of course, it pays to remember that this is crypto, an industry that changes at lightning speed. If it was possible to conclude that Bitcoin was largely uncorrelated with gold and the S&P at the end of December, fresh global geopolitical tensions between the US and the Middle East appear to be proving otherwise.
As gold hits a seven-year high amid unrest in the region, BTC is also experiencing a price surge, currently trading at around $8,200.
It appears that Bitcoin may be correlated to gold and commodities at times of global uncertainty after all.
The SFOX report set its volatility index to “neutral” as of January 2 for the month ahead. However, the latest price action in the crypto markets may see that prediction turn towards bullish as we near the end of the first month of the year.
Of course, the momentum may be short-lived. 2020 will be a defining year for all major cryptocurrencies. Despite the increase of products for institutional investors in 2019, the tepid response to Bakkt shows that institutional demand is not as high as we thought.
Given the current market cap of the crypto sector, SFOX cites crypto fund manager Tim Enneking’s observation that: “There are tens, if not hundreds, of funds on the planet that – ignoring the fact that they’d drive the price up – could buy the entire crypto sector.”
This suggests that cryptocurrency may still not be big enough as an asset class for major institutions to get involved.
Other threats to Bitcoin as the year unfolds
Other possible threats to Bitcoin this year include the push from big tech into the finance field. SFOX notes that at the end of December, YouTube suddenly pulled hundreds of crypto-related videos from its platform. This led the data aggregator to comment:
“Some are wondering whether this may not be an accident on Google’s part, but rather an attempt to deaden the impact of crypto on finance.”
There is also the continued uncertainty surrounding regulation and the direction the United States will go, as well as the rise of corporate-backed and government-backed CBDCs.
Potential bullish signs for Bitcoin
Despite some pullback from China and uncertainty in the US, Germany’s new regulations allowing banks to act as custodians for digital assets came into effect on January 1. This not only provides regulatory clarity critical for mass adoption, but it also legitimises crypto as an asset class. The report states:
“Crypto market participants should keep an eye both on how crypto companies conduct themselves with regard to Germany’s new regulations, and also on which states and countries follow Germany’s example.”
The next Bitcoin halving is also coming up in May 2020. Occurring after every 210,000 blocks have been mined (about every four years), the block reward paid out to miners is cut in half.
This is significant based on past halvings, as they have always resulted in ascension in Bitcoin’s price by increasing its stock-to-flow ratio.
#Bitcoin halving .. 5 months to go 🚀
For miners: production cost of 1 btc will double
For investors: stock-to-flow (unforgeable scarcity, inability to inflate stock) will double pic.twitter.com/JWNbJyil4a
— PlanB (@100trillionUSD) December 1, 2019
SFOX concludes: “Expectations based on previous halving events could potentially play a role in where markets go in early 2020.”
The looming threat of a global recession and escalating tensions in the Middle East also seem to be good for Bitcoin. Although as Morgan Creek Digital co-founder and partner Anthony Pompliano reminds us, war and human suffering are hardly causes to celebrate a BTC price spike.
REMINDER: War is the most violent, destructive, and combative thing that humans can engage in.
While hot takes & memes can garner likes on social media, we should all be advocating for de-escalation of every conflict.
War is the last resort. Just ask any soldier who has been.
— Pomp 🌪 (@APompliano) January 8, 2020
Despite the uncertainty of the cryptocurrency markets as we look ahead in 2020, Bitcoin was an excellent buy in 2019. How it will perform this year is still an open book.