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‘Shorts will be dead’ — Why Dan Tapiero expects a massive Bitcoin shortage



In recent months, there has been a considerable spike in institutional demand for Bitcoin (BTC) following several high profile investments. Over time, asset manager and 10T Holdings co-founder Dan Tapiero believes this could lead to a problematic shortage in BTC.

Alongside investments from Square, MicroStrategy and Stone Ridge, Bitcoin inflows to Grayscale Bitcoin Trust have surged.

Based on the rapid growth of institutional investments, Tapiero warns that short-sellers could see trouble in the future.

Institutional investors are rushing into Bitcoin

In the third quarter of 2020, the Grayscale Bitcoin Trust recorded an inflow of $1.05 billion. This marked the firm’s first billion-dollar quarter and also highlights record-high institutional demand. The firm’s quarterly report reads:

“Grayscale recorded its largest ever quarterly inflows, over $1 billion in 3Q20, making it the third consecutive record-breaking quarter. Year-to-date investment into the Grayscale family of products has surpassed $2.4 billion, more than double the $1.2 billion cumulative inflow into the products from 2013-2019.”

The timing of Grayscale’s record-breaking quarter is noteworthy because it comes several months after BTC price dropped below $3,600.

Cumulative quarterly inflows into Grayscale trusts, including Bitcoin. Source: Grayscale

On March 13, Bitcoin fell $3,600 after a $1 billion worth of futures contracts were liquidated. BTC has steadily recovered ever since, eventually rising above $12,500 in early September.

Institutional demand for Bitcoin surged rapidly after what is now referred to as one of Bitcoin’s steepest falls in recent history and this indicates institutions see staying power. 

Considering the continuous increase in Grayscale inflow from institutional investors, Tapiero said:

“SHORTAGES of Bitcoin possible. Barry’s Grayscale Trust is eating up BTC like there is no tomorrow. If 77% of all newly mined turns into 110%, it’s lights out. Non-miner supply will get held off market in squeeze. Shorts will be dead. Price can go to any number.”

Supply concerns align with the post-halving cycle

The speculation about a potential supply-side crisis around Bitcoin also coincides with the post-halving cycle. Bitcoin went through its third halving on May 11 and historically, halvings lead to extended bull runs in the next two years.

The halvings are proven to have a direct impact on BTC price, especially over the long term as the rate at which the remaining BTC supply is introduced to the market slows down.

Bitcoin has a fixed supply of 21 million and as with each halving the amount of BTC miners can produce decreases. Hence, fewer BTC are available in the market to purchase every four years.

In 2016, it took Bitcoin around 15 months to reach a peak after the second halving. If a similar pattern follows, a year from the most recent halving would be around the third quarter of 2021.

Coincidentally, the current post-halving cycle is being met with unprecedented institutional demand.

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Study finds CME drives Bitcoin price, but it excludes stablecoin volumes



On Oct. 14, Wilshire Phoenix investment firm released its Efficient Price Discovery report, which detailed how CME Bitcoin (BTC) futures impact Bitcoin price discovery.

The firm concluded that “CME Bitcoin futures contribute more to price discovery than its related spot markets.” And the researchers also suggested that:

“CME Bitcoin futures have grown to become significant, this is not only demonstrated through trading volume and open interest, but also by influence on spot price formation.”

Wilshire’s analysis correctly states that price discovery in traditional markets is a contested topic. The report also adds that studies on price formation often find that the futures markets lead most of the time, but this doesn’t mean their conclusions about CME Bitcoin futures are absolute.

According to the report, CME Group, the leading derivatives venue, trades $5.15 trillion per day across its multiple markets. According to Nasdaq data, this number compares to the $430 billion in daily volume seen in the U.S. stock market.

This data shows that the trend of derivatives volumes surpassing spot exchanges by tenfold is the norm rather than an exception.