Weekly Market Report-June 29th 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:
CCCX, XMX, LAMB, ELA, VSYS
Coins that dropped out of the top 100 coins compared with last week:
RDD, ODE, TRUE, ZEN, NULS
Rolling Returns of Top 100 Tokens by Sector
Returns of the top 100 Tokens by sector from May 28, 2019, to June 27, 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 May 27, 2019, to June 27, 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 March 27, 2019, to June 27, 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 see the data/storage displaying a significantly lower correlation with the rest of the market compared to last week. This is primarily due to the Lambda (LAMB) joining the top 100 coins. The coin surged from $0.0628 to $0.1905 between May 27th and June 27th, recording a total gain of over 200%.
Focus Spotlight — Bitcoin Rally — June 2019
The crypto market started the month of June on a bearish path. Top coins dropped nearly 10% while the overall market cap lost more than $20 billion. In mid-June, the market saw a reversal, with major coins entering a steady climb.
On June 22, Bitcoin broke above its $10,000 level, and on June 26, prices soared above $12,000. With Bitcoin skyrocketing above its major resistance levels, analysts attributed this steep surge to the FOMO effect, where retail investors rush in after seeing a price rise, which creates even more buying pressure and further pushes up the price.
What is behind Bitcoin’s bullish momentum?
To determine whether the meteoric rise was caused by rapid changes in fundamentals, we first take a look at Bitcoin’s hashrate and average transaction value, as displayed in the two charts below. From a fundamental perspective, total transaction volume and hashrate represents the utility and demand for Bitcoin. Since the primary function of Bitcoin is payment, an increase in demand for on-chain payments leads to an increase in mining fee, which incentivizes more miners to enter the market, and eventually pushes up the network’s hashrate.
Starting December 2018, Bitcoin’s hashrate saw steady growth, followed by the market’s gradual recovery in early 2019. However, we do not observe any significant changes around mid-June. Therefore, the recent price surge is unlikely linked to sudden changes in fundamentals, but rather a shift in market sentiment.
Many traders suggested that the rally was likely caused by Bitcoin’s upcoming halving, where the block reward and supply growth of Bitcoin would decrease by half starting mid-2020. Others have attributed this positive turn to Facebook’s latest announcement of Libra Coin, as it brings positive influence to the crypto space.
On the other hand, some pointed out the increase in institutional investment, which helped strengthen Bitcoin’s upside momentum. Though we cannot estimate the exact number of Bitcoins purchased, as institutional investors tend to accumulate Bitcoins over OTC markets, we do see growing interest in the traditional market from increasing investments in cash-settled Bitcoin futures and crypto investment funds.
As CME tweeted on June 18th, open interest on CME Bitcoin Futures spiked on June 17th, reaching its new all-time-high of 5311 contracts. This is equivalent to a total long position on 26,555 BTC, approximately $247 million at that time. Furthermore, Grayscale Bitcoin Shares, an investment fund for investors contributing more than $50,000, is trading at a 39% percent premium at the time of writing, signaling bullish sentiment among institutional investors.
Where do altcoins stand?
While Bitcoin continues on its upward trajectory, altcoins seem to have lagged behind. Between June 22 and 27, Bitcoin’s market dominance climbed from 55% to 63%, reaching its highest level since December 2017. We also observe a similar pattern between April and early May, where Bitcoin dominance rose from 50% to around 60%. During this time, the price of Bitcoin surged two folds from $4105 to $8205.
As Bitcoin continues to climb, many crypto traders wait for the alt-season, a period in which altcoin outperforms Bitcoin significantly. This has occurred previously in late 2017 after BTC hit its all-time-high. While Bitcoin began to fall, traders sold their Bitcoins for altcoins, allowing these altcoins to gain market cap rapidly.
However, this time history may not repeat itself entirely. As we mentioned previously, this year’s bull market was partially led by increasing institutional interest. Compared to Bitcoin, altcoins may be less appealing to institutional investors.
For institutions, the immediate concern for crypto investments relates to security, regulations and ease of access. Bitcoin, with the largest number of nodes and highest hashrate, is considered the most secure network since the cost of performing a 51% attack is the highest among all blockchains. Furthermore, Bitcoin may be considered a safer investment given its high liquidity compared to other coins.
In terms of regulations, besides security coins and certain ICO coins, which must follow existing security laws, the SEC has long been focusing on Bitcoin. If we look at the history of crypto-backed exchange traded funds, almost all ETFs filed with the SEC are Bitcoin ETFs. As a result, Bitcoin is likely to be the first to receive endorsement from regulators. Meanwhile, altcoin may need to wait much longer to receive regulatory clarity.
Is institutional money going into Bitcoin?
Institutions looking to gain exposure to crypto often do not wish to deal with storage and security issues. As a result, instead of holding digital assets directly, many invest through crypto investment funds. Earlier this year, Grayscale, a leader in digital currency asset management, published its investment report for Q1 2019, showing over 70% of its investment coming from institutional investors. While the company offers “single-asset products” for multiple cryptocurrencies, only 1% of the capital went into altcoins.
In contrast, if we look at the cumulative inflows for 2018, 34% of the investment went into altcoins. Compared to the 1% in 2019, we see a significant shift in investors’ preference towards Bitcoin.
As of June 28th, Bitcoin is still 40% down from its all-time-high. In comparison, the remaining top ten coins are still 80% away. While Bitcoin appears to be a more promising investment for institutional investors, it is likely to continue strengthening its position in the crypto market.
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; BitInfoCharts for Bitcoin Hashrate and average transaction value visualizations; CME official twitter page for Bitcoin Futures information; Grayscale official site for Grayscale Investment Products Q1 results; and Messari OnChainFx for top ten coins’ ATH data.
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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