Weekly Market Report - 11th January 2019

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Weekly Market Report - 11th January 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.

Market Overview

We are focusing our market overview on the top 100 from CoinMarketCap for now 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 its constituents as we develop deeper understanding of the crypto ecosystem.

Largest Price Gainer (Previous 30 days): WAVES

WAVES/USD & WAVES/BTC from November 20, 2018 to January 10, 2019

Daily Returns vs Volatility

This is a look at mean and total daily returns vs volatility for the 17 sectors. Some sectors only have one or two names while others have more than dozen so some numbers may be quite extreme:

We have abbreviated the names of several sectors to make it easier to view: 
OC/I = Off chain/ Interoperability 
M = Market 
DC = Digital 
Cash D/S = Data/Storage 
CP/MP = Computing Power/Mining Pool 
G/E = Gaming/Entertainment 
A/M = Advertising/Media 
C = Classics

Rolling Returns of the Top 100 Tokens by Sector

(Dec 2018 — Jan 2019)

Correlation Between Daily Returns of Each Sector

Correlation between daily returns of each sector from October 10, 2018 to January 10, 2019. The correlation ranges between -1 and 1. Correlation close to 1 or -1 means a very positive or negative relationship between the two subjects, respectively. 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 (one off since there is only 1 token here). Stablecoins having a 0.36 correlation to BTC and the market is interesting to note since they aren’t supposed to move at all and have near zero volatility. 
Education and Computing Power/Mining Pool sectors seemed to exhibit the lowest correlations in crypto — however, the sample size is too small to make any solid conclusions. For those interested to dig in, take a look at ODEM, GNT and MXM.

Bitmex Futures Contract Trading Volume

(Aug 2018 — Dec 2018)

OKEx Futures Contract Trading Volume

(Oct 2018 — Dec 2018)

Event the Market is Focusing On

Traders are focusing on Ethereum’s upcoming Constantinople hard fork scheduled for 1/16/2019. This is the first significant upgrade since 2017 and comes during a 12-month long bear market with ETH bottoming around $83 on 12/16/2018 — previously the high was $1484 on 1/11/2018. 
ETH has rebounded from $83 to $126 already due to the upcoming fork and oversold conditions. Where will it go from here? 
Here’s a look at how the market responded to each of the five previous ETH hard forks.

Of course, not all forks are created equal. Two of the forks we looked at, Homestead and Byzantium, were planned, and are mentioned in the Ethereum white paper — the best comparisons for this fork. The other three were responses to unexpected problems that emerged with the network.
For each of these five forks, we collected data for 61 days, including the 30 days leading up to the fork and the 30 days following it. We visualized price performance before and after each fork. Basically, prices ran up a few days prior and dropped right after the fork or a couple days before. Either way, no real changes in overall trend can be observed due to hard forks.

Price Fluctuation of ETH Before/After Each Fork

As shown above, price fluctuations during the 61-day-period for the two planned forks (Homestead and Byzantium) were lower compared to the remaining three (DAO, EIP150 and Spurious Dragon). The forthcoming Constantinople hard fork is also a planned system upgrade, so we might expect price fluctuation similar to what we saw during the Homestead and Byzantium forks. However, since market participants are well aware now of this phenomenon, we expected price action to happen earlier this time around — both the rally and sell off.

However, given that prices are denominated in USD, majority of the price movement can be attributed to the overall crypto market movement (especially for Byzantium). In the following graph, prices are denominated in BTC to better illustrate the effects of each fork by reducing the effect from the overall market. In addition, we changed the all price data to net value to create a more intuitive presentation, in which prices all begin at 100%.

Price Fluctuation of ETH/BTC Before and After Each Fork
Average Price Fluctuation of ETH/BTC Before and After Each Fork

Based on the 60-day price data, as shown above, ETH price began to surge 14 days prior to the fork and peaked one day before the event, with a total increase of roughly 25%. Two days after the fork, prices began to tumble.

Others in the market probably have also realized the limited upside due to the upcoming fork and have already started to short the futures contracts on ETH leading to a large discount between futures and spot a few days ago.

Shortly thereafter arb traders came in and shorted ETH spot on Bitfinex and bought up the futures contracts for a reversion trade leading to high lending rates on the exchange.

Data Source

We included data from different sources including CoinMarketCap for analyzing largest price gainer, volatility, mean daily return, total return and correlation between each sector; MyToken for our customized sector breakdown; OKEx data source for Futures contracts trading volume analysis; Bitmex data for XBT and ETH Perpetual contract trading volume analysis; Gate.io Research Institute for the past ETH forks details; Bitfinex funding book data.