The purpose of this letter is: Bitcoin, the purest liquidity barometer? is to inform you about the current state of the crypto-asset market as well as recent news in this field. This letter is not investment advice, but merely a sharing of my personal point of view.
News
Bitcoin surpasses 80,000 dollars for the first time in history. What could stop Bitcoin? While Donald Trump was recently re-elected President of the United States, the price of BTC is breaking records daily, smashing its previous all-time high (ATH). Today (11/10/24), Bitcoin even surpassed the historic threshold of $80,000.
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MicroStrategy persists and buys over 2 billion dollars worth of Bitcoins (BTC). True to its economic strategy pursued for several years now, MicroStrategy continues to acquire a large number of Bitcoins (BTC), making the company led by Michael Saylor the enterprise with the largest BTC reserve in the world.
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BlackRock's Bitcoin ETF surpasses the gold one launched in 2005. Thanks to significant capital inflows this week, the amount of assets under management in BlackRock's Bitcoin ETF has surpassed that of its gold ETF. Let's take a look at the amounts at stake.
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Donald Trump's victory: What can we expect for the crypto ecosystem? It is now certain: Donald Trump will be inaugurated as the 47th President of the United States on January 20th. For the crypto ecosystem, this news is a sign of many changes to come. Let us examine together the various possibilities for the evolution of the cryptocurrency market in the coming years.
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J.P. Morgan will offer instant conversion of dollars to euros using blockchain. Thanks to its private blockchain and native token, the American bank J.P. Morgan will soon enable its institutional clients to carry out currency conversions between the euro and the dollar instantaneously.
Fundamental Analysis
Source : https://www.coingecko.com/fr
Letter No. 43: Bitcoin, the purest liquidity barometer? «Fat Apps» and «Fee switches»
At the time of writing, the price of Bitcoin is 93,500 $ (on 11/20/24).
Bitcoin, the purest liquidity barometer?
Over the years, Bitcoin has been one of the assets that has shown a strong correlation with global liquidity. When global liquidity increases, Bitcoin tends to thrive. Conversely, when liquidity contracts, Bitcoin tends to suffer.
There are many ways to measure global liquidity, but for this letter, we will use global M2, a broad measure of the money supply that includes physical currency, checking accounts, savings deposits, money market securities, and other forms of easily accessible cash.
The correlation is striking, the price of Bitcoin is heavily influenced by global liquidity and therefore by central bank policies. Here are the two curves below:
Similarly, comparing the year-over-year percentage changes of Bitcoin and global liquidity also highlights how closely the two appear to move in tandem, with the price of Bitcoin rising when liquidity increases and falling when liquidity decreases.
In general, risky assets are closely linked to liquidity conditions. When liquidity is abundant, investors tend to seek higher returns by moving toward assets perceived as riskier. Conversely, during periods of liquidity tightening, they prefer to turn toward investments deemed safer. This is why equities often perform well in contexts of increasing liquidity.
At this stage of its adoption cycle, Bitcoin is still primarily perceived as a risky asset by the majority of institutional investors. Thus, it potentially exhibits the most direct correlation with global liquidity, unlike safe-haven assets such as gold or bonds.
Bitcoin also has a strong overall correlation and the highest correlation with M2 liquidity on a 12-month rolling basis compared to other asset classes. It also stands out for its directional alignment with global liquidity. Although its high volatility can sometimes cause short-term deviations from liquidity indicators such as global M2, the analysis of directional consistency reveals a reliable relationship over the long term.
In fact, Bitcoin tracks global liquidity trends in 83 % of 12-month periods and 74 % of 6-month periods, indicating a strong directional correlation with other assets. This reinforces its predictability based on changes in liquidity conditions.
Ycharts
Bitcoin is a useful macroeconomic indicator for investors because of its strong correlation with global liquidity, which is more consistent than that of other assets such as equities, gold, or bonds.
The «Fat App» thesis»
Uniswap is launching Unichain, a dedicated Layer 2 blockchain, reinforcing the «Fat App» thesis where major applications verticalize their tech stack to capture more economic value. This shift allows Uniswap to transform its UNI token into a direct value-generating asset via staking for validators.
Unichain could drive a migration of DeFi liquidity away from the Ethereum mainnet while maintaining ties to it through UNI staking on Ethereum. This model highlights a new dynamic for applications capable of controlling their own block space, maximizing their economic leverage. The trend toward creating dedicated app-chains is gaining momentum in the cryptosphere, illustrating a reassessment of the economic structures between applications and underlying blockchains.
Uniswap could initiate a trend where major applications create their own Layer 2s to increase value capture for their token across the entire value chain. Other projects have integrated this possibility into their long-term roadmap, notably AAVE, but also SKY (formerly MakerDAO).
The activation of the Fee Switch
Digital tokens are redefining the mechanisms of value creation and accumulation, becoming an alternative to traditional equity. Several protocols are implementing innovative proposals to strengthen the value of their tokens, often via mechanisms such as staking, buybacks, or revenue redistribution. Here is an overview of recent major initiatives:
- Uniswap Proposes a revenue share with UNI holders via a governance-linked staking mechanism. The goal is to use trading fees to reward active participants. Proposal in the discussion phase.
- Compound Consider staking for COMP holders, with rewards funded by borrowing fees and enhanced governance through stake-weighted voting. Proposal currently under debate.
- Aave Propose an update to redistribute revenues from lending and borrowing activities to AAVE stakers and strengthen protocol security via a safety module. Proposal under review.
- Arbitrum It provides for ARB staking with potential rewards from sequencing and MEV-generated fees, as well as a liquid token (stARB) usable in DeFi. Proposal currently in the discussion phase.
- Gnosis Launched a $30 million buyback program to reduce the supply of GNO and increase its value. Proposal adopted, program underway.
These strategies aim to align the interests of token holders with those of the protocols, while strengthening engagement and the economic sustainability of DeFi ecosystems.
Only protocols that have reached a certain level of maturity and a break-even threshold can activate this new revenue-sharing model. It is much easier to calculate the value and value projections of application-backed tokens than those of Layer 1 (L1) blockchain tokens.
Our service
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We are saved with the AMF under the registration number for digital asset buy/sell activities against legal tender and digital asset exchange against other digital assets: E2023-084.
— Warning —
This is not investment advice, no one can predict the future.
You are solely responsible for your investment decisions.
We are not responsible for losses following a decision made on the basis of information in this letter.
