Over the past 7 days, the FS CryptoFX Agg Index decreased by 6.5%, compared with a 0.6% increase for the S&P 500 (Slide 6). Amid rising coronavirus fears and the oil price war between OPEC and Russia, Bitcoin’s price tanked 5.3% over the past week. Primarily due to the global asset class sell-off, the correlations between Bitcoin and other asset classes have increased.

Benchmark Crypto Indices Weekly Performance Review — March 9

Despite the price decline, Bitcoin showed resilience and outperformed all other sectors (Slide 12). The laggardship of FS CryptoFX Platform and Privacy indices persisted as both indices declined 8.7% and 12.7%, respectively.

Benchmark Crypto Indices Weekly Performance Review — March 9

South Korea taking steps to improve regulatory clarity
Last Wednesday, South Korea introduced new legislation to improve KYC and AML monitoring for cryptocurrency transactions. The laws would require exchanges, wallet providers and custodians to partner with approved banks to verify customer information and ultimately link virtual wallets to traditional bank accounts. If instituted, these regulations would officially bring cryptocurrency operators under traditional laws and eliminate a number of the regulatory grey areas; an overall positive for long term adoption.   
While this legislation could provide clarity for players within South Korea, it could also serve as a good model for other governments that have yet to implement formal regulations. The proposed changes are based on guidance from the Financial Action Task Force (an intergovernmental organization focused on combating money laundering) which was finalized in June of 2019. Given South Korea’s status as one of the leading crypto trading venues in the world, the adoption of this guidance could be a “call to action” for other countries who have yet to issue formal legislation. 

The drafting of these regulations in and of itself represents a major milestone as just over two years ago South Korea was considering an outright ban of all cryptocurrency trading. The legislation is awaiting approval from the country’s president and most provisions are expected to take effect 6-12 months after it’s signed.

Bitcoin amid COVID-19 Pandemic
With COVID-19 creating havoc in fixed income and equity markets, the “crypto as a macro hedge” thesis is being put to the test. Overall, the thesis is playing out well for Bitcoin. Despite a 5.3% decline this week, Bitcoin is up 12.7% YTD compared to a 14.9% YTD decline for the S&P 500. This puts BTC within the camp of other risk-off assets which is being led by 20+ year treasuries which are up 29% YTD and gold which is up 10%.

Additionally, our valuation models indicate that Bitcoin has further upside throughout the remainder of the year. Based on our regression model, which takes into account active addresses and volume per account, BTC’s fair value is ~$15K. Historically, this model has done a good job of explaining Bitcoin’s fair value and signaled that BTC was overvalued in July 2019 and undervalued in October 2019.  Likewise, based on a 1.7x price to mining break-even ratio (P/BE), our P/BE model suggests that BTC’s fair value is ~$13K .

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