Weekly Market Report - 18th May 2019
This weekly report aims to provide an overview of the crypto markets focusing on secondary market trading. Though nothing here is investment advice, we hope this provides some useful and targeted information.
Weekly Market Report - 18th May 2019
Earlier this month the cryptocurrency community was welcomed by the 6th largest hack in history. Normally this would cause a major sell-off as a result of negative sentiment. However, this time the market continued to climb without facing any pullbacks. Has this always been the same in the past? Check out this week’s report to find out!
Market Overview
We are focusing our market overview on the top 100 tokens from CoinMarketCap and the sector classification is roughly in line with what MyToken uses with some minor modifications. We will be continuously updating the sectors and their constituents as we develop a deeper understanding of the crypto ecosystem.
This week’s new participants in the top 100 coins:
RDD, HC, XZC, LRC, SOLVE, CLAM, LOOM
Coins that dropped out of the top 100 coins compared with last week:
PPT, MXM, ORBS, R, RLC, JCT, NET
Rolling Returns of Top 100 Tokens by Sector
Returns of the top 100 Tokens by sector from April 16th, 2019, to May 17th, 2019
Returns vs Volatility
This is a look at the mean and total daily returns vs volatility for the 15 sectors as well as the overall crypto and equity market. Some sectors only contain one or two coins/tokens while others have more than a dozen.
Mean Daily Return vs Volatility from April 16th, 2019, to May 17th, 2019
We abbreviated the names of several sectors to make it easier to view:
M = Market
DC = Digital Cash
CP/MP = Computing Power/Mining Pool
A/M = Advertising/Media
G/E = Gaming/Entertainment
C = Classics
D/GT = Dividend/Governance Token
E/T = Exchange Token
OC/I = Off Chain/Interoperability
Correlation Between Daily Returns of Each Sector
Correlation between daily returns of each sector from Feb 16th, 2019, to May 17th, 2019 Correlation ranges between -1 and 1. A correlation close to 1 or -1 means a very positive or negative relationship between the two subjects, respectively. A correlation close to 0 means no linear relationship between the two subjects.
The above figure shows the correlation between the daily returns of each sector. This week we observe a much higher correlation between the computer power/mining pool sector and the overall market. This is mainly due to MaxiMine Coin dropping out the top 100 tokens. The price of the token has been descending continuously for the past month and its market cap has dropped below $50 million.
Focus Spotlight — Crypto Exchange Hacks and Market Reaction
Crypto exchanges have always been prone to hacks. Most centralized exchanges store a mass amount of coins in their wallet. Whenever there is a security breach, they face tremendous losses adding up to millions of dollars. Not only does it damage the exchange’s reputation, but also shake market confidence, which often results in market selloffs.
Just recently we saw another large scale hack with Binance losing nearly $41 million worth of Bitcoin. Given that Binance is arguably the largest exchange in the market, investors would assume that this incident would lead to a major shock to the market. Surprisingly, after the announcement on May 8th, the Bitcoin market continued its climb without facing significant pullbacks.
To what extent the market is adversely affected by these hacking incidents may be dependent on various factors — the market sentiment at the moment, the total loss incurred, the type of token stolen, as well as how the exchange deals with the losses, specifically whether or not users had to bear the losses. In the following, we gather some of the largest hacking incidents over the past few years and compare Bitcoin’s price performance 30 days before and after these incidents.
The graph above shows the average price performance of BTC around each hacking incident in their respective years. As illustrated, BTC exhibited a strong performance in 2017 despite the hacks along with numerous scam projects and ICOs around that time. This was likely due to the fact that the largest hacks in 2017 occurred towards the end of the year, which was during the largest bull run in crypto history. As a result, investor sentiment was likely irrational and was not affected by negative news. As for other years, the impact of hacks seems to have diminished over time. In 2019, BTC prices were hardly affected by these incidents.
In the following analysis, the two hacking incidents in late 2017 (Tether and Youbit) are temporarily taken out as BTC showed extreme price movements around that period.
If we compare the type of tokens involved in these incidents, we see that incidents involving altcoins actually caused BTC price to rise instead of fall. One possible reason for such divergence is that the theft of altcoins highlights the security of Bitcoin. Another possible reason is that following these incidents, investors may have been trying to hedge their positions with BTC due to the price drop in the respective altcoins.
When comparing the severity of the incident, in which we define “severe” as losses that exceed $5 million, incidents with moderate losses do not seem to affect the market, as prices trade sideways afterward. As for the exchange’s response to the incident, specifically whether or not users were fully compensated for their losses, for the first few days after the hack, initially there is no significant difference. However, after one or two weeks, it becomes increasingly evident that market sentiment is more likely to recover when exchanges take responsibility for the hack. For instance, Bitfinex announced to reimburse users with “Hacked Credit” tokens six days after the hack in 2016, and later repaid investors with US dollars. The market recovered soon after the announcement was made. In the recent hack on Binance, the exchange immediately informed investors that the exchange would fully cover the losses with its own emergency funds. As a result, market sentiment was hardly affected by the hack.
Despite improvements in security measures, hackers still find ways to steal funds from crypto exchanges. As of today, most exchanges still have not provided guidelines on how users’ can be compensated during extreme events. Therefore, it is essential that investors take precaution when trading on crypto exchanges. For those interested in how users can ensure the security of their crypto accounts, feel free to check out last week’s report!
Thank you for reading this week’s report! Please leave a comment below to share your thoughts and ideas on crypto trading!
Data Source
We included data from sources such as CoinMarketCap for analyzing price movements, volatility, mean daily return, and correlations between each sector; MyToken for sector breakdown; Investing.com for Bitcoin price history data; and Coindesk, Cointelegram, CCN, Bitcoin.com, Ethereumworldnews.com, Blockonomi, Wired.com, BitcoinMagazine, BBC, Cryptoslate, and Bloomberg for news on hacking incidents.
Stay Tuned Here
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