Why Bitcoin is going below zero

The crash rolls on, poking below $8k on Friday night:

Deutsche mulls something we warned of:

First, implied volatility. Implied volatility is an index calculated from the price of a derivative product (options) of an underlying marketable security. However, we now have a “tail wagging the dog” situation where the price of the derivative product is feeding back into the price of the underling marketable security.

Next, cryptocurrencies. Cryptocurrencies are closely watched by retail investors, affecting their risk preferences for stocks and other risk assets. Although institutional investors recognize that stocks and other asset valuations may have entered bubble territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices. The result is that institutional investors, who are supposed to value assets using their sophisticated financial literacy, analysis, and information-gathering strengths, are actually seeking feedback about the market from cryptocurrency prices (which are mainly formed by retail investors).

For those looking to BTC as a safe haven think again. It’s correlation with wider volatility is clear. If Deutsche is right it is, in fact, driving it. Not in any real sense but as an indicator of a shrinking liquidity impulse.

Which does not bode well for anything. Via economist Lars Christensen:

The biggest problem for the #Bitcoin bulls right now really is that the “network” is declining. The number of ‘unique addresses’ is now down to pre-boom levels, but the price is not. A model based unique addresses indicates a #BTC price below USD 1,200.

Actually, I think it is going to zero. Below zero if it triggers wider carnage.