Bitcoin Weekly: a Bitcoin ETF could raise $300M…in its first week

Here’s what you need to know this week about bitcoin and digital currency.

China slows trading activity: Bitcoin has fallen almost 20% from its peak on January 5th, now trading around $900. The prevailing narrative: the People’s Bank of China (PBOC for short), China’s financial services regulatory body, initiated on-site meetings and inspections of the leading Chinese bitcoin exchanges BTCC, Huobi, and OKCoin. [8btc]

The PBOC is asking exchanges to reduce their leverage, limit margin trading, and soften offline marketing, which will mean a decline in bitcoin trading volumes (both fake and real). PBOC meetings are ongoing so expect more news in the coming weeks. []

An ETF would be a huge boon to bitcoin’s price: Needham published a new investor note suggesting that if a US-based bitcoin ETF were approved, it would attract $300M in new assets in its first week alone. The leading candidate is the Winklevoss COIN ETF, currently under review by the SEC. The other candidate is SolidX. Here’s my comparison of the two. Needham also estimates, however, that the likelihood of approval is below 25%. The SEC has until March 11th to explicitly approve or disapprove the ETF. Needham also says there’s a chance the SEC stays silent and lets the deadline lapse, in which case the ETF is approved by default! [Coindesk]

bitcoin’s price shows no relationship with macreconomic indicators: The Bitcoin Boom, a research paper by Brian Vockathaler, reviews the outstanding literature on what drives the bitcoin price and adds new research of his own. His conclusion?

  • Google trends interest in bitcoin does seem to drive bitcoin price – but only during a bubble
  • Other drivers of bitcoin’s price include transaction volumes and the number of unique accounts (not wallets or addresses, which can be easily duplicated)
  • What doesn’t drive bitcoin’s price: most macroeconomic indicators (such as stock market exchanges, currency prices, interest rates)

[Original paper]

Quote of the week: And I think there actually is a case for bitcoin as a store of value alone; there’s a clear portfolio theory argument that there exists an equilibrium where if cryptocurrencies end up growing with world GDP long term, and they are even slightly dis-correlated with other asset classic, then there’s an incentive for everyone to hold at least some of them. This point is underestimated – Vitalik Buterin, creator of Ethereum [Reddit]

Happy investing!