Weekly Market Report - 2nd March 2019
This weekly report aims to provide an overview of the crypto markets focusing on secondary trading. Though nothing here is investment advice, we hope this provides some useful and targeted information.
Weekly Market Report - 2nd March 2019
Over the past few weeks we see Litecoin leading the market with strong gains surpassing that of Bitcoin and other major tokens. In this week’s report, we discuss the changing fundamentals of Litecoin since December 2018 and how this led to its recent rally.
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. To be sure, we will continuously be 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:
ABBC, DGTX, QASH, KCS, LOOM, QBIT, ENJ
Coins that dropped out from the top 100 coins compared with last week:
TOMO, BNT, MONA, RDD, ETP, AION, STORJ, DAI
Rolling Returns of Top 100 Tokens by Sector
Returns of the top 100 Tokens by sector from February 1, 2019, to March 1, 2019
Returns vs Volatility
This is a look at mean and total daily returns vs volatility for the 17 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 February 1, 2019, to March 1, 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 December 1, 2018, to March 1, 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. Correlations are very high between all sectors in crypto with the exception of stable coins and education (since the education sector only contains 1 token). Stablecoins having a 0.22 correlation with BTC and 0.2 with the crypto market is interesting to note since they are not supposed to move at all and should have near zero volatility.
Focus Spotlight
Last week the market started another rally, with Bitcoin making the headlines for temporarily breaking the $4000 barrier. While the majority of top coins began to recover in December 2018, Litecoin seems to have led the wave, increasing by 124% since its December low, and is now the fifth largest coin in terms of market cap. In contrast, Bitcoin gained around 25% from its December low.
Litecoin Price Performance from December 1, 2018 to March 1, 2019
Bitcoin Price Performance from December 1, 2018 to March 1, 2019
Over the past few weeks, we see Litecoin attracting huge market attention for its partnership with Beam. On Feb 8th, Litecoin price jumped by more than 30%, which soon led to a market-wide rally. However, if we look at prices over the past three months, Litecoin seems to have been experiencing strong gains since last December, which may be attributed to its growing fundamentals.
Before going into the details, here is some background about Litecoin- Litecoin network was hard forked from the Bitcoin network in late 2011. While Bitcoin is often seen as “gold” in the crypto market, Litecoin is compared to as “silver”. Litecoin has a higher transaction speed witLighh an average block time of 2.5 minutes, one-fourth to that of Bitcoin. While Bitcoin has a max supply of 21 million coins, Litecoin has a max supply of 84 million coins. In terms of algorithm and mining, although both employ proof of work consensus, Bitcoin uses the SHA-256 algorithm, whereas Litecoin uses a relatively new algorithm called Scrypt. In simple terms, Scrypt uses less complex algorithms and is therefore less susceptible to custom made hardware like ASIC. As a result, it is more accessible for regular crypto users to participate in mining. Given these key differences, Litecoin is better suited for transaction purposes than the original Bitcoin.
Over the past two months, Litecoin has made progressive developments through its partnerships with a number of businesses to achieve mass adoption as well as new plans to improve its network.
In mid-December, 2018, Coingate, a crypto exchange and payment gateway, announced that Lightning Network for Litecoin was ready for deployment. Lightning Network is a layer two solution that enables instant transactions with near-zero transaction fees. By leveraging this technology, Litecoin could gain wider adoption and have greater commercial use. Followed by the announcement, prices surged from $23 to $36 over the next few days. In January 2019, Coingate announced that they have successfully added support for LTC Lightning Network payment, opening up to more than 4500 merchants.
While Litecoin works its way towards mass adoption, the development team is also planning to add privacy features to the network. In late January, Charlie Lee, the founder of Litecoin, hinted that Confidential Transactions will be introduced to the network. Confidential Transactions allow the sent amount and receiver’s address in each transaction to be hidden. Once implemented, this will ensure privacy on the network while making Litecoin fungible, meaning that coins will no longer risk potential blacklisting or debasement due to deprecating transactions history. On February 8th, the Litecoin Foundation announced its new partnership with Beam, the first crypto project to be built on the Mimblewimble protocol. Similar to Confidential Transactions, Mimblewimble transactions only allow participants in the transaction to see the receiver and the sent amount. In addition, Mimblewimble utilizes a new mechanism to aggregate payments from multiple senders to form a single transaction. Not only will this improve the level of privacy, but also reduce the space needed to store transaction records, allowing blocks to be more lightweight. As mentioned in the beginning, after the announcement, LTC prices began to rally on Feb 8th.
If we compare Litecoin to other popular coins forked from the Bitcoin network, overall, Litecoin seems to have the strongest fundamentals as it introduces privacy and fungibility features to its network, and is ready for commercial use given its support from the Lightning Network.
In addition to improving the protocol, Litecoin’s development team has recently made several partnerships with businesses across multiple industries to promote its cryptocurrency. For instance, the team formed a sponsorship deal with UFC in late December to raise awareness in the sports industry, gaining exposure to UFC’s 6 million subscribers. In late February, another partnership was announced with kickboxing league Glory, making LTC the official crypto for its online merchandise platform. Around the same time, the team also formed a partnership with K-Pop concert production company C&U to promote LTC, in which reserved VIP tickets had to be purchased exclusively with LTC.
As Litecoin continues to gain wider adoption, we see Litecoin prices underpinned by its growing fundamentals. Meanwhile, its upcoming block reduction is also bringing positive sentiment to the ecosystem as the inflation rate for Litecoin is expected to drop by half from its current estimate of 9% per annum. The next block reduction is expected to occur around August this year and will likely impact its prices leading up to the event. For those interested, please take a look at last week’s report, where we covered analysis on block reward reduction and their effects on price performances. Thank you for reading and we hope you enjoyed this week’s report!
Data Source
We included data from sources such as CoinMarketCap for analyzing price movements, volatility, mean daily return, correlations between each sector; Bitinfochart.com for on-chain data; and MyToken for sector breakdown.
Stay Tuned Here
KRONOS is a leading quantitative research firm based in Taipei, Shanghai and Beijing. We’re bringing new asset management strategies to the crypto world by leveraging our combined decades of experience trading in global traditional markets.
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