Bitcoin’s Gold Rush

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Every week, IntoTheBlock brings you an on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry. 

This week, we dive into insights pointing to Bitcoin’s growing appeal as digital gold among institutional investors. As well, we cover key indicators behind Aave’s growth and plans for future upgrades. Finally, we highlight Litecoin’s resurgence as it begins to prepare privacy features for implementation.

Bitcoin’s Correlation With Gold at All-Time Highs

Bitcoin’s narrative as digital gold keeps strengthening. As covered in Bloomberg, the prices of Bitcoin and gold have moved in tandem throughout most of August. Keep in mind that commodities are not traded 24/7 like cryptocurrencies, but during global trading hours, the relationship between Bitcoin and gold prices has been remarkably strong. 

This is likely to be a result of the current macro environment. With real interest rates at zero or near-zero levels in most major economies, demand for scarce assets like Bitcoin and gold has spiked globally. Along with this, historical levels of debt held by the federal reserve has created doubts among many institutional investors about how much longer the dollar’s status as the reserve currency may last. This has encouraged investors to hedge their portfolios with Bitcoin and gold. In fact, the 30-day correlation between the two assets reached record levels recently:

The 0.96 correlation reached between Bitcoin and gold on August 10 marks the highest level of statistical relationship between both assets’ prices in history. While this value has since dropped slightly to 0.75, the high correlation is indicative of Bitcoin establishing itself as a macroeconomic hedge and potential store of value on par with gold. 

While many within the crypto space might have shared this view for years, this belief has been increasingly spreading amongst traditional institutional investors as well. Earlier this year, renown hedge fund manager Paul Tudor Jones disclosed his investment in Bitcoin. More recently, publicly traded software company MicroStrategy invested $250 million in Bitcoin, describing it as superior to cash. 

On-chain data supports this premise of Bitcoin’s growing appeal among institutional investors. This trend is evident when looking at the average size of transactions taking place on the Bitcoin blockchain. On August 17, the average Bitcoin transaction was over $100,000 as Bitcoin’s price surpassed the $12,000 mark for the first time in over a year.

The average transaction size seen on August 17 was the highest so far in 2020 and the second highest in the last twelve months. As Bitcoin’s status solidifies along with gold, its potential for adoption as a store of value strengthens. With Bitcoin prices remaining far more volatile, though, it is still considered a riskier investment for most traditional institutions, especially if there is a liquidity shock and markets-wide panic as seen earlier this year.

Aave Announces V2 as it Surpasses $1 Billion TVL

A different type of gold rush has been taking place within crypto this year. DeFi tokens have seen stellar returns amid increased usage and growing liquidity supplied by users. Lending protocol Aave has realized a particularly exceptional price performance with its native token LEND up by over 30x year-to-date. 

While there has been an increasing amount of speculation among DeFi tokens, blockchain activity also signals growing value coming from user transactions within DeFi protocols. One common supply-side metric tracking the liquidity provided to these protocols is the total value locked (TVL) in smart contracts powering these systems. Aave recently managed to achieve the milestone of being the second project to surpass $1 billion in TVL, according to popular data aggregator DeFi Pulse. 

Despite growing criticism about the actual value locked being significantly smaller than reported in DeFi Pulse, on-chain activity for these protocols and their tokens demonstrate thriving activity. For instance, the number of transactions for the LEND token recently reached an all-time high.

Moreover, Aave is planning to introduce a new token model dubbed “aavenomics” with upcoming releases, incentivizing more liquidity while enhancing the protocol’s security measures. As well, the upgrade will include yield farming within a Balancer pool and staking rewards paid out to token holders keeping their tokens within Aave’s safety module. 

More recently, Aave’s second version was announced in an official blog post. Among the many features described, they teased a collaboration with real estate tokenization platform RealT through which they aim to bring mortgages to the Ethereum blockchain. The upgrade will also introduce a series of gas optimizations aiming to lower the cost of using the Aave protocol as Ethereum gas fees continue to climb. Overall, while there may be inflated expectations and speculative activity surrounding Aave, these upgrades remark its large ambitions to provide finance without frontiers. While there are no guarantees for Aave and DeFi, there is no denying that these innovations have the potential to redefine finance as we know it.

Litecoin Sees Bullish Activity as Privacy Implementation Approaches

As covered in CryptoSlate, Litecoin’s price has grown by over 20% in the last week as it confirmed its privacy testnet will take place in September. In this upgrade, Litecoin will be implementing Mimblewimble — a highly scalable privacy protocol that would give Litecoin users the option to remain anonymous. 

As opposed to Bitcoin, where transactions on the blockchain show the addresses sending and receiving BTC in order to verify the chain, this Litecoin upgrade just needs to know all the unspent transaction outputs (UTXOs) and a part called the transaction’s “kernel” to validate the network. While Bitcoin users have become increasingly easier to trace in part due to KYC enforcement linked to holders’ addresses, this upgrade would grant Litecoin users the option to remain fully anonymous (instead of pseudonymous as is the case at the moment). 

In part, this upgrade may have sparked increasing activity within the Litecoin blockchain. Along with the recent price increase, the number of Litecoin transactions has been growing.

As can be seen in the graph above, the number of Litecoin transactions reached the highest average level since January 2018. By diving deeper into the value of these transactions, we can observe that it is likely that whales have been making more Litecoin transactions, possibly investing into it.

IntoTheBlock’s large transactions indicator filters out the number of transactions with a value of over $100,000 and provides a proxy of institutional interest in a cryptocurrency. As shown in the graph below, the number of transactions over $100,000 for Litecoin hit a new yearly high on August 17.

While Litecoin has so far lagged other major cryptocurrencies this year — with many currently at or near yearly highs — network activity is appearing to grow. It is possible that many holders are optimistic about the privacy features introduced through MimbleWimble, but also possible that speculation has grown as crypto traders feel more comfortable about a bull market. Ultimately, we may not be able to tell as users leveraging these features once they are released will not be able to be traced.

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