Commodity Strategist: Bitcoin's dirty little secrets

Contents
Greyscale Bitcoin Trust
Size, flows, liquidity, and comparison with global peers
Deviations from NAV, creation/redemption, implications of a crypto ETF launch
Tracking the largest Bitcoin addresses
The richest wallets have grown and a few appear new at first glance…
… but following transactions shows even higher concentration
Digital Money – deep dives into CBDC
1. What drives Bitcoin prices?
Bitcoin supply is designed to become increasingly constrained
Miner rewards halve every 4 years and there is a 21mn BTC cap
Institutional demand has become more active in the past year…
…in contrast to the retail flows that drove the 2017-18 run up
Major institutional announcements and reward halving….
…have positively impacted Bitcoin prices, on average
We find Bitcoin prices have been correlated to Google searches…
…but our work also shows Google searches lagged Bitcoin prices
Grayscale (GBTC) is now the largest public holder of Bitcoin
In contrast to searches, we do find GBTC flows lead Bitcoin returns?
Daily Bitcoin transactions have remained steady as prices rose
Futures volumes have been growing at a relatively rapid pace
Dollar crosses increasingly dominate Bitcoin transactions…
…with Coinbase market share increasing over other exchanges
2. How does Bitcoin compare to traditional portfolio assets?
About 95% of Bitcoin is controlled by just 2.4% of the accounts…
…and large holders have kept accumulating through the rally
There is simply no other major asset that shares Bitcoin’s features
Even after a decade of trading, Bitcoin remains very volatile…
…and Bitcoin volatility still exceeds that of many EM FX...
… and rising $ volumes are increasing vol and supporting prices
The market value of Bitcoin has been rising relative to gold
Bitcoin no longer appears uncorrelated to other major risk assets…
...although it is still highly correlated to other crypto assets…
…so Bitcoin portfolio diversification benefits have come down…
… and inflation hedging benefits are not particularly apparent
Vol adjusted returns have been high compared to other assets
Crucially, money inflows have a huge impact on Bitcoin prices
3. How does Bitcoin score on ESG?
The E in Bitcoin: major environmental risks
Bitcoin prices are directly correlated to its energy consumption…
…as the hash power required to solve blocks increases with price
Hardware becomes more efficient over time, but profits vanish
Today Bitcoin consumes as much energy as a country like Greece…
…and, at $50,000, it uses about 0.4% of global energy consumption
Yet, rising prices could push Bitcoin energy burn up dramatically
Ultimately, three quarters of hash power is concentrated in China…
…largely because miners are looking for cheap electricity sources
Half of China Bitcoin mining happens in coal-heavy Xinjiang province
A $1bn Bitcoin purchase may have a CO2 footprint of 5.4mn tons
Other cryptos like Ethereum also suffer from huge energy intensity
The S in Bitcoin: anonymity can be good and bad
Mixed reviews on G
Unregulated exchanges
Institutional adoption of Bitcoin
ESG analytics mostly fail to capture Bitcoin risks
4. Are CBDCs Kryptonite for crypto?
Giving retail access to central bank assets
What’s the ECB doing?
Why CBDC?
Big tech, China
Eurocentric approach
What about crypto?
Not just the ECB
Fed – “right not first”
How will it work?
Environmental impact
Longer term
5. Is DeFi potentially more disruptive than Bitcoin?
A radical challenge to mainstream finance
Smart contracts
From ICOs to DeFi
Asset tokenisations
Why Dai matters
Lending
Creating new coins
Lending existing coins
Exchanges
Is there more?
Derivatives
Asset management
Potential issues
It’s not very big
Scalability
It’s not really creating credit
The code is the law?
Most people aren’t experts
Even experts make mistakes
Mainstream finance takes the tech risk itself
Will trust re-enter the system?
Mining concentration worries us
But proof of stake
Exchanges – speed an issue
Overall – a lot of innovation, a long way to go
Disclosures
Important Disclosures