Thread by @cburniske

1/ At the start of 2019 #bitcoin’s price action looked like it could mirror 2015, but has since switched to feel more like 2016.

As a foreshadowing, below is a graph showing the correlation between $BTC’s price and China's yuan ($CNY) in 2016.

Article: washingtonpost.com/news/wonk/wp/2…

2/ It was remarkable to watch $BTC & $CNY dance in 2016.

Sometimes a #bitcoin rally preceded a CNY devaluation, as shown in green ovals below (presumably Chinese insiders stockpiling BTC before PBOC's action)

Other times bitcoin would show sustained strength post yuan weakness

3/ Turning to what this can teach us about 2019, the first thing to recognize is #bitcoin's rally from ~$3K to now ~$9K has not been *majority* driven by crypto's fundamentals (not endogenous).

4/ I say the recent rally hasn't been driven by endogenous fundamentals, despite having written the below piece in December 2018. medium.com/@cburniske/bit…

We were oversold then, we rebounded, but we rebounded more than the fundamentals would justify imo.

5/ Instead, it's value exogenous to crypto that has flowed primarily into #bitcoin for global macro reasons, providing first $BTC a lift, and which has predictably overflowed into the rest of crypto

One could argue this is a "fundamental of #bitcoin" & I'll return to that later

6/ @CathieDWood pointed out to me that in Dec 2018 $BTC was maybe more affected by the global macro scare than people realized.

In such a scare, people sell their most experimental assets, such as #bitcoin and other #cryptoassets (exacerbated by endogenous doubt).

@CathieDWood 7/ But following the December 2018 global macro scare, central banks (including the US Fed) got dovish, injecting liquidy and assurance back into the markets.

And so risk-appetite has increased, including for $BTC.

@CathieDWood 8/ Furthermore, the US's trade war with China, China's tightening of capital controls to limit funds fleeing the country, and a weakening yuan all added fuel to $BTC’s fire.

@CathieDWood 9/ Interestingly then, we have #bitcoin satiating appetite for risk in the West and much of the world, while simultaneously serving as a risk-off hedge in China.

@CathieDWood 10/ I believe we can expect this dual and geographically dependent risk-on and risk-off application of $BTC going forward, especially as #crypto's liquidity pools increasingly overlap with the existing capital markets.

@CathieDWood 11/ When @WhiteAdamL and I put out the “#Bitcoin: Ringing the Bell for a New Asset Class” whitepaper in 2016, we commented upon $BTC being near zero correlated with other assets at the time: research.ark-invest.com/hubfs/1_Downlo…

@CathieDWood @WhiteAdamL 12/ This was one of the most shocking takeaways from that time:

"Remarkably, the maximum correlation, positive or negative, that #bitcoin exhibited with each of the other assets is the minimum correlation that any of the other paired assets displayed with each other."

@CathieDWood @WhiteAdamL 13/ But since then, #bitcoin and the rest of #crypto's market infrastructure has matured orders of magnitude, leading to significant overlap with the capital markets, and enabling the dual risk-on (positive correlation) and risk-off (negative correlation) use I mentioned.

@CathieDWood @WhiteAdamL 14/ Where $BTC goes from here in its correlations will likely be muddled in the short-to-medium term, clearer longer term.

My intuition is over the next 5-10 years $BTC will continue to swing between being risk-on & risk-off, as with 2018 and 2019.

@CathieDWood @WhiteAdamL 15/ Then, when #bitcoin nears the end of its growth stage and has matured into being a multi-trillion dollar macro asset that sits alongside gold, it will be predominantly used as a risk-off hedge against the whims of nation-states.