🏗️ Deconstructing the Sell-Off 🗞️ News Roundup — Cryptos for the Rest of Us
Apologies for the delay in this week’s issue.
We’ve seen the market continue to slide with Bitcoin trading down to $6,000 before recovering to hover above $8,000. A slightly different approach this week taking a quick look at the sell-off itself.
Deconstructing the Selloff
What’s the Story?
As you may have noticed the cryptocurrency markets have been in a prolonged decline over the last month or so. Peak-to-trough prices for Bitcoin were at -70% at one point, although it’s since made a recovery.
Why Did This Happen?
There are many theories going around from regulatory concerns to Wall Street manipulation conspiracies. Most commonly cited reasons are;
1. It was simply overbought: Cryptos had an incredible run in 2017 and Bitcoin going from $1,000 to $6,000 is more “reasonable” than $1,000 to $20,000.
2. Asian demand disappearing: With the Korean buying frenzy paused, rumours of China cracking down further, and some negative comments from Indian ministers it seemed like a big part of the demand for cryptos had disappeared and with the buying support. A related theory is that the Asians have sold down ahead of Chinese New Year.
The truth is probably a combination of the more mundane factors cited above but I’d like to posit one more — that all markets are inherently correlated. The 2008 financial crisis showed us that all asset class correlations go to 1 when liquidity disappears. While not quite as severe we’ve seen the stock market come off all-time highs too.
We’ve seen many predictions that expect cryptocurrencies to become an alternate store of value when traditional risk assets sell-off. While the theory makes sense a scenario with runaway inflation, the knee-jerk reaction in bad crashes is for people to pull out of where they see the most risk. Given the insane volatility in cryptocurrencies, it seems more likely that risk would be sold down here first.
Is This The End?
The $400bn question everyone’s asking now: will the market continue to fall or have we bottomed out yet?
It’s hard to predict with any certainty but it doesn’t feel like there’s quite the blood on the street. Most everyone who bought after December is probably in the red but the majority of cryptocurrency holdings are older and very much in the black. Perhaps a true collapse would require some of this ‘older’ money to lose faith in the market. Additionally, it seems that there’s much more capital to be allocated to the market — the average person still has no exposure. This means the real bubble could be yet to come.
It’s been a big drop in price and we’re probably in ‘healthier’ territory now, price wise. That’s not to say it couldn’t go down further — watch the broader market sentiment as a barometer for how far we can go. The biggest risk right now? Inflation.
What Should I Do?
The simple, boring answer is just to make sure you’re not over-allocated to cryptos. We know that the average person doesn’t make money picking stocks and timing the market. The same holds true for cryptos. Making a smaller allocation, taking a passive approach and dollar cost averaging are all much better that compulsively watching the crypto markets day in day out.
Bitgrail, an Italian exchange had positioned itself as the premier venue for trading RaiBlocks, recently renamed to Nano. After months of users reporting issues withdrawals, the exchange reported that 17mn Nano had been stolen from the exchange resulting in its shut down. Nano, which delivers very low cost, almost instant crypto transfers was recently listed on Binance and is seen as an up-coming cryptocurrency. Nano currently trades around $9 placing the losses at a cool $150 million.
Robinhood, the $0, mobile-first discount brokerage recently added cryptocurrencies to its platform following a launch campaign that saw over 1mn people sign up for the service. This is seen as a gamechanger for U.S. investors and is major competition for market leader Coinbase.
MyEitherWallet (MEW), the pre-eminent wallet for storing Ethereum has been going through a messy divorce after the co-founders couldn’t agree on a vision for the product. One co-founder took control of the Twitter account and launched a rival service www.mycrypto.com. At a glance, it seems the new service is a fork of MEW and designed to be much more of a commercially profitable entity. They’re still battling it out with rumours of lawsuits. MEW itself is still operational and the co-founder has committed to keeping it open source.
We owe it this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one.
– CFTC Chairman Giancarlo.
Positive comments from the CFTC and SEC surprised many with their approach to cryptos that basically amounts to: “It’s here to stay and there’s no point fighting it. Let’s embrace the potential of the technology an make a healthy market “
LitePay is a new payment processor built to allow merchants to accept Litecoin. It boasts fees that are half of PayPal and at cryptocurrency speeds. It’s seen as heavy competition to BItPay, a Bitcoin payment processor that has seen slow adoption. LitePay is set for release this month and has kept the price of Litecoin supported during the latest sell-off.
💡By the Way…
I’m working on a service that analyses Asian crypto market sentiment.
If you’re interested in a public release, let me know by clapping and I’ll announce it here 👏