Deflationary spiral possible for Bitcoin?

Markets

May 16

Reuters reported that Gemini has won approval to offer privacy focused ZCash. While recently, CME group announced the creation of an Etherium index. Recently, I shared analysis that might suggest that Bitcoin could be weighed down by MT GOX liquidator needing to sell over 100k+ coins.

This is certainly another wrinkle. If we imagine deflation in the context of limited dollars chasing greater crypto supply then we can imagine that it could be another factor to drive Bitcoin down. One of the arguments that some critics cited as to why Bitcoin shouldn’t have value was that anyone could make a new crypto-currency. While a rational argument, the reality is that not every crypto is equal because without a broad support, developer base, network effects, and exchange support then even though the possible universe of cryptos is unlimited in theory: the reality is that viable cryptos are limited. A similar analogy can be made for gold when one thinks about the how much gold there is in our galaxy and then how much more gold there is in the universe. But most of that gold, at least for now, is not attainable: so it has does not impact the supply or demand.

On the other hand, for every crypto that gains broad support, we can imagine that that institutional investors will need to diversify among them which may depress prices. In other words, no one is suggesting to invest more crypto. If you have determined to allocate 2% in crypto space then that is the amount you have to invest.

My take is this heightens risk for Bitcoin near-term but is bullish for ZCash. In addition, I still think the resolving MT GOX liquidation could mark an important milestone and possible bottom for Bitcoin. This latest news must be placed in the context that Bitcoin is still valued at over ~140 billion dollars compared to ZCash’s ~1.3 billion dollars. Longer term, it suggest more development in the crypto space, and that crypto’s are not going away anytime soon, “Rat poison squared” or not.

https://www.reuters.com/article/us-new-york-cryptocurrency-gemini-winkle/winklevoss-bitcoin-exchange-wins-ny-approval-to-expand-offer-zcash-idUSKCN1IF1YX

https://coinmarketcap.com/

 

 

About the Author

Curtis is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact him at curtis@beyondbacktesting.com.

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