Digital Asset Markets — Q3 Update
The wait continues ….
To put it short — Q3 left a lot to be desired. Both trading volumes and digital asset prices continued their 2018 downward trend. Overall, trading volumes are now only half as high as in Q1. Nonetheless, they are still almost twice as high as in Q3/2017.
Crunching numbers of 159 digital asset exchanges* worldwide led to the following key findings:
- Altcoin prices decreased significantly while Bitcoin saw a small gain of +4%,
- Global trading volumes dropped by 20% from Q2 to Q3; trading in the US is down by over 40%,
- ETH saw the sharpest price decline (-49%) and EOS almost halved its trading volume,
- USA’s global market share dropped below 10% and is now level with the UK; Asia now makes up 77% of the global digital asset market,
- Volatilities reached new all-time lows but remain high compared to classical markets,
- Tether USD (USDT) trading volume now twice as high as that of USD.
US Trading Volume Down 43%
On a global level, digital asset trading volume dropped by almost 20% (measured across USD, EUR, KRW, JPY, GBP, RUB, BTC, ETH and USDT markets) from Q2 to Q3 2018. Nonetheless, (formerly) Chinese based exchanges (+8%) and Japanese exchanges (+12%) saw an increase in trading volume. In contrast, digital asset trading dropped by 58% in South Korea and by 33% in Hong Kong. The US (-43%) was able to hold on to its third place internationally but the gap to Hong Kong and China widened. The US market is now only marginally bigger than that of the UK which saw a 5% decline in trading activity.
Compared to last year (Q3/2017), trading in the US has decreased by 55% whereas global trading volume has almost doubled (+90%). The decline of USA’s importance in global digital asset trading is worrying given that the US has a long history of leading tech revolutions and is also home to the biggest classical markets.
Prices and Volumes Keep Falling
Between July 1 and October 1, prices of eight out of the top ten digital assets decreased significantly (ETH -49%, EOS -29%, BCH -28%, LTC -25%, ETC -30%, IOTA -48%, NEO -40%, ZEC -25%) and only Bitcoin (+4%) and XRP (+25%) were able to gain in value.
When looking at trading volumes, a similar picture emerges. The biggest loser was EOS with a loss of 44% in trading volume. The listing of ETC on Coinbase seems to have resulted in increased activity and a boost in trading volumes by almost 20%. Zcash (+89%) saw a spike in trading interest following the release of the first major upgrades (Overwinter and Sapling) since its original release in October 2016.
Volatilities Reach All-Time Lows
Q3/2018 saw the lowest volatilities for almost all of the Top 10 digital assets. The daily volatility for Bitcoin dropped below 3% for the first time since Q1/2017. As expected, the older and more established digital assets show a lower volatility than the younger protocols.
It is striking how sharply the volatility of EOS and BCH dropped every quarter since their original launch in Q3/2017. Whereas both new protocols started off with more than 15% daily volatility in their first quarter, this number dropped below 12% in the next and then continued to decline to the current levels around 6%. To put these numbers in perspective, the S&P 500's daily volatility usually hovers around 0.6% with a peak of around 1.25% in Q1/2018. Thus, even though the volatility of digital assets is constantly decreasing, they are still a far cry from classical markets.
Coin Volumes Are Slowly Recovering
If one considers the volume of coins traded (rather than their value in USD), we can see a general upward trend in Q3. It is perhaps little surprise that ETH, XRP, and BCH saw some of the largest gains in coins traded due to their price decline. The chart is available here.
The story becomes more interesting if one only looks at the traded volume in Korea. Just as in the Q1 and Q2/2018, Korea is radically different from the rest of the world. Whereas globally the number of coins traded seems completely uncorrelated to the price development, in Korea, a stronger correlation can be observed. Particularly the prices of EOS and XRP seem to be heavily influenced by their un/popularity in Korea. As in the previous quarters, in any other market Bitcoin is by far the most traded digital asset. In Korea however, the appetite to gamble with new coins is unparalleled and depending on the time of the year, EOS, XRP or BCH can easily overtake Bitcoin in terms of popularity.
Korea Sets the Tone Again
“If you want to know what’s going on in crypto — keep looking at South Korea.”
Just as in Q1 and Q2/2018, trading activity in Korean Won (₩) varies greatly from month to month and a decrease in popularity in Korea seems to trigger a world-wide sell-off (or vice versa). This variability is particularly striking when compared to USD and USDT markets that seem completely unaffected by price changes and trading volume is in almost perfect alignment with the market capitalization of the coin.
One of the few exceptions from that rule is the ZCash/Ether (ZEC/ETH) market. Trading volume almost quadrupled every month since April 2018. Whereas in April only 1000 ETH (Ξ) were exchanged for ZEC per day, this value jumped to almost 300,000 ETH (Ξ) in September 2018. A plausible interpretation is that only tech-savvy investors use ETH to buy other digital assets and those tech-savvy investors are also more likely to know about the recent ZCash protocol upgrades.
Tether USD on the Rise
In Q2, we first saw USDT (Tether USD) trading overtake that of USD. This trend intensified in Q3/2018 and in August and September 2018, USDT was almost twice as popular as USD.
Conclusions
Based on the collected quantitive price and volume data, Q3/2018 failed to impress. Even though trading volumes are still about twice as high as one year ago, the continued declined from Q1/2018 is worrisome.
However, on a fundamental level, the future looks brighter. Q3/2018 saw several improvements of the digital asset ecosystem such as the offering of new custody solutions by Kingdom Trust, Coinbase, BitGo and Gemini, the (partial) reversal of bans of crypto-related advertising on Facebook and Google, and the entering of university endowments (Yale, Harvard, MIT and Stanford) in the digital asset space.
In hindsight, it is clear that one year ago, neither the legal nor the technological infrastructure was ready for the storm and the hype was almost impossible to sustain. As bad as the inevitable fall may have been for many investors, it was a necessary step to gain enough attention from government, industry, media and academia to bring this technological revolution on track to becoming a story of success.
*Data Acquisition and Data Analysis
All data has been obtained from cryptocompare, saved as an sqlite database, queried with pandas and visualized with infogram. All charts are interactive and can be customized by (un-)selecting items. When hovering over data points additional information is displayed. Selecting different tabs shows additional data sets. We excluded exchanges that reported unrealistic values.
