Around the Block 8/16

Crypto markets are mired in a more severe downward trend since our last Around The Block, as bitcoin has fallen below the psychological support of $10,000 USD. With bitcoin’s value functioning as the primary barometer of the crypto landscape, we have seen accelerated selloffs across the board. The top three coins in terms of market capitalization: bitcoin (BTC), ethereum (ETH), and ripple (XRP) have each seen losses hovering around 13% over the past week. Litecoin has seen over half of its value erased since the crypto bull run of June, continuing a trend of alarming volatility for the 5th largest cryptocurrency. Over the past 30 days, only bitcoin and bitcoin cash (BCH) have gained value, further reinforcing bitcoin as the most stable store of value of all digital assets.

Security and digital asset innovation underpins this week’s edition of Around The Block. China will soon be launching its digital currency. A cyber fraud tracking company has reported that digital asset theft in 2019 has already more than doubled over the entire-year 2018 number. Cryptocurrency panic has gripped the market and investors, according to the Crypto Fear & Greed Index.

We get into it all, the good and the bad, in this edition of Around the Block.

Major News of the Week

China’s Digital Currency Ready For Deployment

China’s central bank has announced that its central bank digital currency (CBDC) will be rolled out soon. There will be no blockchain present, as a pure blockchain infrastructure would not be sufficient to handle the throughput required of the new currency. The People’s Bank of China will instead distribute the currency to the commercial banks, which will then distribute to the consumers. CBDC will be fully backed by the Yuan.

Is Crypto Winter Coming Again?

The Crypto Fear & Greed Index released by Alternative.me has given the current bitcoin market an “extreme fear” metric not seen since the market price plunge of December 2018. The drop in price below $10,000 that occurred within the previous 7 days has coincided with the market rating changing from ‘greed’ to ‘extreme fear’.

IRS Targeting Crypto Investors

Over 10,000 crypto investors have been receiving letters from the U.S. Internal Revenue Service (IRS) alleging that gains from trading cryptocurrencies have been under-reported. This highlights the lack of regulation and guidance from federal bodies, including ambiguity as to how cryptocurrency activity should be treated for tax purposes. Nevertheless, looks set to issue new guidelines on declaring crypto activity in tax returns.

Crypto Theft on the Rise

Perceived instability in the security of digital assets is up to an all-time high, as scammers have stolen a reported equivalent of four billion USD from crypto exchanges and wallets in 2019. Tracked over just the first six months of the year, this reflects a 135% increase over the entirety of 2018. The report comes from CipherTrace, a Silicon Valley based cryptocurrency intelligence firm monitoring cryptocurrency fraud and theft. CipherTrace has declared 2019 the “Year of the Exit Scam”. Despite initiatives to bolster defense measures, crypto-thieves have utilized tactics such as URL hijacking, SIM swapping, and even compromised insiders at exchanges to routinely outpace these measures.

For more information on security practices to consider when trading, read the Blockforce Capital guide to choosing an exchange here.

Amended Ripple (XRP) Complaint Filed in Lawsuit

Investors filed an amended complaint on August 5th in the year-long legal battle to classify Ripple as a security. This new complain would be the first federal case to utilize existing SEC guidance in regulating crypto tokens. Ripple has until September 19th to answer and respond to the claim.

An Excerpt from our Monthly Market Commentary

In a typical week, the US stock market is open from 9:30 a.m. to 4 p.m. ET Monday through Friday. That’s 32.5 hours of trading per week versus the 24/7 nature of cryptocurrencies which totals 168 hours per week, more than five times the trading hours of traditional markets. If cryptocurrencies were correlated to the S&P 500, one would expect the price action and volatility to mirror the S&P 500, which would mean that on a daily basis, cryptocurrencies would be less volatile than equities because the day’s price movement would happen over 24 hours, versus 6.5 hours each day. However, cryptocurrencies are not correlated to equity markets and, on average, have eight times the volatility of the S&P 500.

When comparing the performance of traditional investment vehicles with digital asset investments, it’s essential to consider the factor of five — e.g., three months of price data and performance of digital assets equates to 15 (fifteen!) months of performance in traditional assets. Bitcoin has been around for over ten years and has had active pricing since mid-2010, giving us just under nine years of data. But after applying the factor of five, those nine years of bitcoin data represent the same amount of data in approximately 46.5 years of the S&P 500 trading market, or nearly half the time since the index was established.

Read the complete market commentary here.

The figure above compares bitcoin to S&P 500 cumulative returns from inception in relative terms.

Can’t wait ’til next week?

Feel free to reach out to us anytime. We are always here to help you learn about, and navigate, the exciting cryptocurrency landscape. If you haven’t already, check out our most recent Crypto Market Commentary.

Blockforce Capital does not recommend that the information presented herein serve as the basis of any investment decision. The information is given in summary form and does not purport to be complete. The sole purpose of this material is to inform, and in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or services, or to attract any funds or deposits.

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Blockforce Capital

Blockforce Capital

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Financial innovation at the intersection of capital markets, technology, and digital assets.