State of the Market II: October 2018

From Coinmarketcap, as of Oct 28, 2018

What you should know:

  • Is Bitcoin finally mature after its 10th birthday? The market seems to think so. Bitcoin saw its lowest volatility in 18 months. 30-day BTC/USD volatility dropped to 1.46% on Oct 31st, its lowest level in 18 months. Why is this important? For one, it means that Bitcoin is one of the most stable coins in the market, and may attract institutional capital as a result. Low volatility means that an asset’s price does not fluctuate significantly in the near term. In this case, Bitcoin’s price did not change by more than 1.46% either way in the past 30 days. This bodes well for investors, not for traders.
  • Altcoins breach the 2,000 mark. The 2000th coin to be listed was Labh Coin (LABH), on October 3rd. New listings have actually increased 20% in the last 3 months (1,605 as of July 29, 2018 according to Coinmarketcap), despite the relative lack of market movements. It’s also significant because general sentiment around ICO’s has noticeably dampened, yet projects continue to use them as a means to raise money. See the chart below for the number of listings in the past year, by month (note that this number is an aggregate figure and includes the net change). Notice the acceleration in Q3, continuing into October.
  • Institutional investors are bullish in light of overall bearish sentiment. Although Bitcoin and almost all altcoins are down significantly on the year, the number of hedge funds entering the space has shot up and institutional interest in the space has increased dramatically. According to Crypto Fund Research, 90 crypto hedge funds had launched by Q3 2018, with the firm expecting this figure to reach 120 by year-end. Crypto funds made up a whopping 20% of total hedge fund launches. If there was a leading indicator of institutional interest, this is it. This news was coupled with a few high-profile individuals giving the green light on the sector. Check it out.
  • Infrastructure improvements have boosted accessibility. As further discussed below, some critical changes in technology and capability were announced by leading brokers and exchanges, including Fidelity and Bakkt, that will likely make institutional investment more feasible.

Positive Developments

  • Fidelity is launching an institutional-grade crypto trading platform. Fidelity’s launch of Fidelity Digital Asset Services, LLC is a big deal. They are aiming to provide cryptocurrency custody and trading services for enterprise clients, including hedge funds, family offices, and market intermediaries. While most third-party facilitators have focused on retail investors to date, Fidelity is one of the first brokers looking to facilitate institutional (“serious”) capital flows into the market. We believe this is a big step forward. Infrastructure is a critical component to investment and adoption.
  • Bakkt has announced the launch date for BTC futures. You may be familiar with Bakkt from its parent company — Intercontinental Exchange — which also owns and operates the New York Stock Exchange. Credibility is what matters, particularly for large money managers. The Bakkt platform has revealed that it will be launching Bitcoin (BTC) futures on its platform starting on December 12, 2018. This is yet another step forward in the growing maturation of the asset class.
  • David Swensen aka the “Warren Buffet of endowment investing” made some big moves. Earlier this month, the $29 billion behemoth — the Yale endowment fund –announced allocations in two cryptocurrency funds, Andreessen Horowitz’s crypto fund and Paradigm. The announcement is a major milestone for endowments in general, which are traditionally known for seeking lower volatility strategies. A brand name and leader in the space, Yale’s investment will likely be an impetus for other equally well funded endowments to look at the asset class. Harvard, Stanford, and MIT have already followed suit.

Negative Developments

  • Tether got untethered. Tether took a nose dive, settling at $0.85 at one point on Kraken. For a crypto asset widely considered the number one stablecoin, it’s a worthy concern as to why something pegged to the USD would trade so far below it. One of the reported causes was the high volume of USDT token movement into Bitfinex, bringing supply to 231 million from 114 million. This led Bitcoin to spike up to $7,200 on platforms like Bitfinex, Binance, and OKEx which accepted USDT, and $6,700 on platforms that didn’t.
  • Constantinople delay is a feature, not a bug, in crypto at large. Ethereum’s next hard fork, called Constantinople, will be postponed till 2019 due to reported bugs. This is just one more indication that blockchain development, and responding to the community, is almost always longer than expected. While we’re bullish these kinks will be eventually worked out, the timing is uncertain and so we can’t stress enough the importance of investors to have the ability to think long term.
  • ICO funding hits record lows. While 2018 has generally seen a marked decrease in ICO funding, there was an uptick each month in Q3 until September. October saw the lowest funding ($754 million) and the second lowest number of ICOs (62) out of all months of 2018. This is indicative of a decreased appetite to fund ICOs, and a broader negative sentiment on market prospects as a whole, at least for new projects. In general, this is not a good sign, as new projects (even if most are copycats and/or value-less) typically add to competition and innovation. Interestingly, traditional venture capital investments (in the form of equity) in blockchain startups has risen substantially relative to last year. Blockchain continues to be a hot sector for VCs.