Weekly Market Report-July 20th, 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.
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:
SAN
Coins that dropped out of the top 100 coins compared with last week:
BZNT
Rolling Returns of Top 100 Tokens by Sector
Returns of the top 100 Tokens by sector from June 18, 2019, to July 18, 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 June 18, 2019, to July 18, 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 April 18, 2019, to July 18, 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.
Focus Spotlight — Bitcoin Trend Reversal
The crypto saw an explosive growth in the month of June. Bitcoin broke above $10,000 and reached $13,000 on June 26th. However, since then, the market appears to have lost its momentum, with BTC dipping below $9,500 on July 16th.
In last week’s report, we took a close look at the crypto market’s historical data, analyzing Bitcoin’s retracements in the recent rally as well as the last bull run in 2017. So far this year, we have seen multiple retracements over 5%. The most severe one occurred between May 27th and June 9th, where prices dipped from $8805 to $7688, recording a total loss of 12% within the 13-day period.
Taking a look at the most recent sell-off, Bitcoin prices have plunged by more than 27%. For many traders, this could be an ideal time for entry. However, traders can only buy the dip when they are certain that the market will continue its uptrend. Since the start of July, we have seen Bitcoin establishing lower highs and lower lows. If what we are seeing here is a reversal, traders with a long position may suffer huge losses for an extended period of time.
Given the uncertainty surrounding US crypto regulations as well as the divided opinions on Facebook Libra, it is difficult to determine the market’s direction from a fundamental standpoint. However, one may examine the market’s expectations through crypto futures. Suppose that traders are bullish on Bitcoin, prices for Bitcoin futures are most likely to exceed spot prices. Furthermore, to determine the price expectations for different time intervals, we could examine the price difference between futures contracts with different delivery dates.
In the following, we selected Bitcoin futures contracts from OKEx and Bitmex and plot their quoted price against BTC spot price.
Despite the market drop at the end of June, market sentiment remained strong throughout early July. On July 1st, weekly and bi-weekly futures were traded at a 0.5–1% premium while quarterly and yearly contracts had a premium of around 3%. By July 8th, yearly contract reached a premium of 5.5%, signaling a strong bullish long-term outlook.
However, as the market started to decline, prices for weekly, quarterly and weekly contracts began to converge. On July 16th, all three contracts were traded at a discount. Following the sell-off, premiums on yearly contracts gradually rose back to 1.7% while premiums on quarterly and weekly contracts remained below 1%.
The graph above shows the BTCUSD long/short ratio on Bitfinex. Between late June and early July, leveraged long position on Bitfinex began to accumulate. Though BTC prices are facing strong resistance, long/short ratio is still hovering around 3.7 at the time of writing.
An important aspect that has great influence on the crypto market is institutional involvement. As shown above, the two market rallies in Q2 were accompanied by strong surges in CME Bitcoin futures volume. However, in the recent sell-off, we do not observe a significant rise in trading volume or any signs of institutions backing away from crypto.
Although future vs spot premiums for both long-term and short-term contracts have temporarily dropped below zero, given that BTC long/short ratio is still high on Bitfinex and that we do not observe any big movements from institutions, it is unlikely that the market will see a sharp reversal in the near future.
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; Tradingview for BTC long/short ratio and CME Bitcoin trade history.
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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