Značka: hedge

More billionaires turning to crypto on fiat inflation fears

Previously anti-crypto investors are increasingly turning to Bitcoin and its brethren as a hedge against fiat currency inflation concerns.One example is Hungarian-born billionaire Thomas Peterffy who, in a Jan. 1 Bloomberg report, said that it would be prudent to have 2-3% of one’s portfolio in crypto assets just in case fiat “goes to hell”. He is reportedly worth $25 billion.Peterffy’s firm, Interactive Brokers Group Inc., announced that it would be offering crypto trading to its clients in mid-2020 following increased demand for the asset class. The company currently offers Bitcoin, Ethereum, Litecoin, and Bitcoin Cash, but will be expanding that selection by another 5-10 coins this month.Peterffy, who holds an undisclosed amount of crypto himself, said that it is possible that digital assets could reap “extraordinary returns” even if some could also go to zero according to Bloomberg. “I think it can go to zero, and I think it can go to a million dollars,” he added before stating “I have no idea.”In early December, the billionaire predicted that Bitcoin could spike as high as $100,000 before markets begin to retreat.Related: Tom Peterffy Believes Bitcoin Could Wreck Might Go to $100K Before CrashingBridgewater Associates founder Ray Dalio is another renowned billionaire that revealed his portfolio contained some Bitcoin and Ethereum last year. This revelation came just a few months after he questioned crypto’s properties as a store of value.He has now changed that stance and views crypto asset investments as “alternative money” in a world where “cash is trash’’ with inflation eroding purchasing power.In late December, Dalio commented that he was impressed at how crypto as lasted, before stating “Cash, which most investors think is the safest investment is, I think, the worst investment.”Billionaire hedge fund manager Paul Tudor Jones also bought Bitcoin last year, labeling the move as a hedge against inflation.Pandemic-induced stimulus packages have caused economic turmoil across the globe, the fallout from which could linger for decades. In the United States, inflation is at a 4 decade high of 6.8%. This has resulted in a surge in the Consumer Price Index (CPI) as the costs of daily goods continue to increase.The billionaires are already seeing the danger signs with fiat currencies and central bank manipulation, and they are increasingly turning to crypto assets. The year 2022 could see more wealthy investors join their ranks if the trend continues.

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5 ways derivatives could change the cryptocurrency sector in 2022

We‘ve all heard stories of billion-dollar future contracts liquidations being the cause of 25% intraday price crashes in Bitcoin (BTC) and Ether (ETH) but the truth is, the industry has been plagued by 100x leverage instruments since BitMEX launched its perpetual futures contract in May 2016.The derivatives industry goes far beyond these retail-driven instruments, as institutional clients, mutual funds, market makers and professional traders can benefit from using the instrument‘s hedging capabilities. In April 2020, Renaissance Technologies, a $130 billion hedge fund, received the green light to invest in Bitcoin futures markets using instruments listed at the CME. These trading mammoths are nothing like retail crypto traders, instead they focus on arbitrage and non-directional risk exposure.The short-term correlation to traditional markets could riseAs an asset class, cryptocurrencies are becoming a proxy for global macroeconomic risks, regardless of whether crypto investors like it or not. That is not exclusive to Bitcoin because most commodities instruments suffered from this correlation in 2021. Even if Bitcoin price decouples on a monthly basis, this short-term risk-on and risk-off strategy heavily impacts Bitcoin‘s price.Bitcoin/USD on FTX (blue, right) vs. U.S. 10-year yield (orange, left). Source: TradingViewNotice how Bitcoin‘s price has been steadily correlated with the United States 10 year Treasury Bill. Whenever investors are demanding higher returns to hold these fixed income instruments, there are additional demands for crypto exposure.Derivatives are essential in this case because most mutual funds cannot invest directly in cryptocurrencies, so using a regulated futures contract, such as the CME Bitcoin futures, provides them with access to the market.Miners will use longer-term contracts as a hedgeCryptocurrency traders fail to realize that a short-term price fluctuation is not meaningful to their investment, from a miners‘ perspective. As miners become more professional, their need to constantly sell those coins is significantly reduced. This is precisely why derivatives instruments were created in the first place.For instance, a miner could sell a quarterly futures contract expiring in three months, effectively locking in the price for the period. Then, regardless of the price movements, the miner knows their returns beforehand from this moment on.A similar outcome can be achieved by trading Bitcoin options contracts. For example, a miner can sell a $40,000 March 2022 call option, which will be enough to compensate if the BTC price drops to $43,000, or 16% below the current $51,100. In exchange, the miner‘s profits above the $43,000 threshold are cut by 42%, so the options instrument acts as insurance.Bitcoin‘s use as collateral for traditional finance will expandFidelity Digital Assets and crypto borrowing and exchange platform Nexo recently announced a partnership that offers crypto lending services for institutional investors. The joint venture will allow Bitcoin-backed cash loans that can t be used in traditional finance markets.That movement will likely ease the pressure of companies like Tesla and Block (previously Square) to keep adding Bitcoin to their balance sheets. Using it as collateral for their day-to-day operations vastly increases their exposure limits for this asset class.At the same time, even companies that are not seeking directional exposure to Bitcoin and other cryptocurrencies might benefit from the industry‘s higher yields when compared to the traditional fixed income. Borrowing and lending are perfect use cases for institutional clients unwilling to have direct exposure to Bitcoin‘s volatility but, at the same time, seek higher returns on their assets.Investors will use options markets to produce “fixed income”Deribit derivatives exchange currently holds an 80% market share of the Bitcoin and Ether options markets. However, U.S. regulated options markets like the CME and FTX US Derivatives (previously LedgerX) will eventually gain traction. Institutional traders dig these instruments because they offer the possibility to create semi “fixed income” strategies like covered calls, iron condors, bull call spread and others. In addition, by combining call (buy) and put (sell) options, traders can set an options trade with predefined max losses without the risk of being liquidated.It‘s likely that central banks across the globe will worldwide keep interest rates near zero and below inflation levels. This means investors are forced to seek markets that offer higher returns, even if that means carrying some risk. This is precisely why institutional investors will be entering crypto derivatives markets in 2022 and changing the industry as we currently know.Reduced volatility is comingAs previously discussed, crypto derivatives are presently known for adding volatility whenever unexpected price swings happen. These forced liquidation orders reflect the futures instruments used for accessing excessive leverage, a situation typically caused by retail investors.Yet, institutional investors will gain a broader representation in Bitcoin and Ether derivatives markets and, therefore, increase the bid and ask size for these instruments. Consequently, retail traders‘ $1 billion liquidations will have a smaller impact on the price.In short, a growing number of professional players taking part in crypto derivatives will reduce the impact of extreme price fluctuations by absorbing that order flow. In time, this effect will be reflected in reduced volatility or, at least, avoid problems such as the March 2020 crash when BitMEX servers “went down” for 15 minutes.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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What BTC price slump? Bitcoin outperforms stocks and gold for 3rd year in a row

Bitcoin (BTC) may be down over 30% from its record high of $69,000, but it has emerged as one of the best-performing financial assets in 2021. BTC has bested the United States benchmark index the S&P 500 and gold.Arcane Research noted in its new report that Bitcoin’s year-to-date performance came out to be nearly 73%. In comparison, the S&P 500 index surged 28%, and gold dropped by 7% in the same period, which marks the third consecutive year that Bitcoin has outperformed the two.Bitcoin vs. S&P 500 vs. gold in 2021. Source: Arcane Research, TradingViewAt the core of Bitcoin’s extremely bullish performance was higher inflation. The U.S. consumer price index (CPI) logged its largest 12-month increase in four decades this November.“Most economists didn’t see the high inflation coming, as witnessed by the 1-year ahead consumer inflation expectations,” the Arcane report read, adding:“With its 73% gain in the highly inflationary 2021, Bitcoin has proven itself to be an excellent inflation hedge.”Inflation 2021: Actual CPI vs. Expected CPI. Source: BLS, New York FedBitcoin holdings grew among institutional investment vehiclesLoose monetary policies and a sustained fear of higher inflation also prompted mainstream financial houses to launch crypto-enabled investment vehicles for their rich clients in 2021.Arcane reported an inflow of 140,000 BTC (~$6.56 billion) across spot- and future-based Bitcoin exchange-traded funds (ETF) and physically backed exchange-traded products this year.Bitcoin exchange-traded fund holdings. Source: ByteTree, Arcane ResearchThat prompted more Bitcoin units to get absorbed into investment vehicles, underscoring a greater institutional demand for the cryptocurrency.In contrast, gold-backed ETFs witnessed an outflow of $8.8 billion in 2021, according to the World Gold Council’s report published this December.Global gold-backed ETF flows. Source: World Gold CouncilVolatility behind superior performance?Nonetheless, Bitcoin’s relatively superior performance in 2021 has included periods of high volatility. Many analysts believe that extreme price fluctuations keep Bitcoin from becoming an ideal inflation hedge. That includes Leonard Kostovetsky, a finance professor at Boston College, who recalled in his blog post that there have been 13 days in 2021 when BTC’s price has moved over 10% in one direction. He wrote:“It seems strange to think that a person who is worried about holding dollars because they lost 7% of their value over the last year would be comfortable holding Bitcoin which could (and often does) lose that much value in a single day.”Arcane, too, recognized Bitcoin for having been more volatile than the S&P 500 in 2021, noting that the cryptocurrency “behaved like a risk-on asset” by merely amplifying the most significant stock market movements.The researcher cited VIX, a measure of the expectation of volatility based on S&P 500 index options, to exemplify the relationship between Bitcoin and stock markets. It noted that BTC’s price fell hard whenever VIX readings spiked in recent times, underscoring that institutional traders viewed Bitcoin as a risk-on asset.Bitcoin vs. VIX. Source: Arcane Research, TradingViewAs a result, Bitcoin’s potential to fall harder in the wake of a stock market correction also became higher. Arcane also noted that a bearish 2022 for the S&P 500 may end up wiping a big portion of Bitcoin’s gains.“Therefore, be aware of stock market headwinds in the next year and their possible implications for bitcoin’s short-term price trajectory,” it added.Related: Arcane Research releases its crypto predictions for 2022But Aristides Capital managing member Chris Brown went far in predicting an all-and-all Bitcoin doom in 2022. He stated that cryptocurrencies could face massive selloffs ahead as the U.S. Federal Reserve ends its $120-billion-a-month asset-purchasing program followed by three rate hikes next year.BTC/USD weekly price chart vs. Federal Reserve balance sheet. Source: TradingView “If the Fed really does hike rates enough to make money considerably less loose, or if markets believe they will, you are going to see certain areas of speculation come to a screeching halt,” Brown said, adding:“The prime example of such asset speculation is cryptocurrency; here lies $2.64 trillion of ‘wealth’ that is backed by nothing and generates no cash flows.”The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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