Crypto Basic Podcast: Teaching You The Basics of Bitcoin and the World of Cryptocurrency. CryptoBasic - Episode 234 - Safe Haven Performance in the Age of Bitcoin

Episode 234 - Safe Haven Performance in the Age of Bitcoin

04/25/20 • 37 min

Crypto Basic Podcast: Teaching You The Basics of Bitcoin and the World of Cryptocurrency. CryptoBasic

Welcome to the Crypto Basic Podcast! This time around we're going over one of the hottest topics of today, given the obvious circumstances: what's the safest way to handle assets during the coronavirus economic crash? What assets provide the most security, and could Bitcoin, as the flagship of the cryptoverse, be one of them? All of the above and more on today's episode. Tune in now!

Report in the Economic Bulletin from the Kansa City Fed
"In recent years, some have questioned whether Bitcoin could also serve as a safe haven. We compare the behavior of government bonds, gold, and Bitcoin from January 1995 through February 2020"
They point out that historically during times of financial stress people tend to shift towards safer assets
Safe Haven defined - an asset which is uncorrelated or negatively correlated with riskier assets during times of stress
US Gov securities considered "quintessential safe haven against stock market." but they point out some studies have found Gold behaves this way as well
"In theory, Bitcoin’s fixed supply and algorithm-based issuance allow it to be independent from traditional markets, which could make it a desirable asset in times of economic stress."
They examine 10-year Treasury note & Gold by looking at correlations of daily returns compared to SP 500
1995 to 2020, and they chose this spread to have an equal pre and post bitcoin period
Comparison
Bunch more charts, essentially showing that
10 year Treasury negative and statistically significant correlation across all stress periods
gold has only behaved like a safe haven in certain periods of financial stress
Bitcoins correlations with the S&P 500 are not statistically significant in any period and positive in all but one
Extra tidbit on current downturn, Bitcoin again has a positive, statistically significant correlation, suggesting it performed like a risk asset in March rather than a safe haven.
"Overall, our results suggest that the 10-year Treasury has generally exhibited safe-haven behavior, gold has occasionally exhibited safe-haven behavior, and Bitcoin has never exhibited safe-haven behavior since its introduction"

Note: We are not financial advisors.

Report in the Economic Bulletin from the Kansa City Fed
"In recent years, some have questioned whether Bitcoin could also serve as a safe haven. We compare the behavior of government bonds, gold, and Bitcoin from January 1995 through February 2020"
They point out that historically during times of financial stress people tend to shift towards safer assets
Safe Haven defined - an asset which is uncorrelated or negatively correlated with riskier assets during times of stress
US Gov securities considered "quintessential safe haven against stock market." but they point out some studies have found Gold behaves this way as well
"In theory, Bitcoin’s fixed supply and algorithm-based issuance allow it to be independent from traditional markets, which could make it a desirable asset in times of economic stress."
They examine 10-year Treasury note & Gold by looking at correlations of daily returns compared to SP 500
1995 to 2020, and they chose this spread to have an equal pre and post bitcoin period
Comparison
Bunch more charts, essentially showing that
10 year Treasury negative and statistically significant correlation across all stress periods
gold has only behaved like a safe haven in certain periods of financial stress
Bitcoins correlations with the S&P 500 are not statistically significant in any period and positive in all but one
Extra tidbit on current downturn, Bitcoin again has a positive, statistically significant correlation, suggesting it performed like a risk asset in March rather than a safe haven.
"Overall, our results suggest that the 10-year Treasury has generally exhibited safe-haven behavior, gold has occasionally exhibited safe-haven behavior, and Bitcoin has never exhibited safe-haven behavior since its introduction"

Note: We are not financial advisors.

Previous Episode

Episode 233 - Are Tether, Libra, and other Stablecoins a threat to Fiat?

Stablecoins are a part of the crytpocurreny space for better or for worse. What happens in a future where more people are using digital assets? What does the stablecoin environment do to the US Dollar? Are stablecoins like Tether and Libra a systemic threat to fiat currency?

These questions are investigated by the Crypto Basic Podcast team - what place do stablecoins have in a future, and what can Tether do to get more users? Does the podcast agree with the G20’s assessment of Stablecoins in general? Where can you go to learn more about the study that was released? Well the podcast has answers for you.

Pertinant Links -

Are Stablecoins a systemic threat?
Published Study by FSB
G20 Website
Financial Security Board
The FSB is inviting comments on this consultative document and the questions set out below. Responses should be sent to [email protected] by 15 July 2020. Responses will be published on the FSB’s website unless respondents expressly request otherwise.

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Next Episode

Episode 235 - Oil goes negative! How, why and what it tells us.

Welcome to the Crypto Basic Podcast! This time around we're going over a truly unexpected turn of events which baffled even the most economically savvy of us (Karim. That's just Karim.) Oil went negative! A never before seen event, we try to make sense of it and pose the important questions: 1. What the hell? 2. What's the reason? 3. What will the repercussions be? All of this and more on today's show, so tune in now!

Interesting topic to learn about and extrapolate from
We have just witnessed an oil price crash like never before taking prices of West Texas Intermediate into deeply negative territory.
WTI Crude Oil Spot Price is the price for immediate delivery of West Texas Intermediate grade oil
reached minus US$40.32 a barrel
How can a price turn negative?
industry has not been able to slow production fast enough to counter the drop in demand.
global demand for oil has reduced by 29 million barrels a day (100 to 71)
Storage can stabilize prices, but its nearing capacity
WT mainly stored at Cushing Facility in OK, now almost full
62m Barrel capacity - Can fill half tanks in the US
Worlwide, current rates of supply/demand have estimates of inventories increasing by 1.6B barrels in first half of 2020, but only 1.6B barrel capacity still available
Context - Amount of production that could be stored if exports dry up
US - 30 days, SA - 18, Russia - 8
Nigeria, largest producer in Africa....1.5 days
Traders with contracts to take delivery of oil in May fear they won't be able to store it. They are willing to pay not to have to take it and have nowhere to put it.
June contracts and later are still positive, so supply demand imbalance may be corrected
Fun Trivia - Guess what the name of the other price benchmark for oil
It stayed around $25, they can be put on ships and taken to storage anywhere
Responses
Halliburton (oilfield engineering) said that the pandemic has created so much turmoil in the industry that it "cannot reasonably estimate" how long the hit will last.
OPEC-Plus - Responded by cutting output by 9.7m barrels per day, which ends the duel between Russia and SA
But note still significantly less than the drop in demand
Oil importing countries taking advantage and filled up what they could in storage
Investors using Giant oil tankers for storage
Record 160m barrels stored this way, each can hold up to 2m barrels.
Of course this is bidding up charter rates, more than doubling to $350,000 a day
Last time we saw something close was 2009, about 100m barrels
Shiff Quote on Gold
The oil price is now negative $3 per barrel. What is happening now in the #Oil market will soon happen in reverse in the #gold market. In oil the shorts are trying to deliver, but the longs don't want it. In gold the longs will try to take delivery, but the shorts won't have it!
Sources
Understanding what just happened with oil prices
Oil crash explained: How are negative oil prices even possible?
The world's on the brink of running out of places to put oil
Supertankers drafted in to store glut of crude oil
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