Global Markets Review: November 2019

OKEx
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Dec 4, 2019 · 9 min read

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Crypto Market Recap

The broader cryptocurrency market experienced a bloodbath in November as the OKEx’s BTCUSD Index posted the most significant monthly decline this year. The index gave up 18.27% of value last month, that came after the 11% rebound in October. The plunge also dragged BTC’s quarterly return to about negative 10%. The weak performance also pressured the BTC Market Dominance. The leading cryptocurrency accounted for 66.63% of the total crypto market by the end of November, representing a 1.24% monthly drop.

Weakness in BTC also extended into the altcoin space. The Total Crypto Ex-BTC Market Cap gave up 15.22% in November, finished at USD 60.763 bln. Significant altcoins like ETH and XRP have plunged about 15% to 20%. However, mid/small-cap names such as XTZ and ATOM have outperformed their peers, gained more than 40% in the month.

Profit-taking activities could be one of the reasons behind the November selloff, as China’s blockchain initiatives have boosted major crypto prices significantly in the prior month. The rapid expansion of derivative trading may also increase the price fluctuation in the spot markets.

Looking ahead, volume in the spot market is expected to be lower as the holiday seasons approach. Traders have to mind that a thin trading environment may increase market volatility. While macro themes like interest rate expectation and geopolitical tensions remain in focus, the likelihood of having a significant development in such events would be subdued. We believe the market will focus on locking up BTC’s 90% yearly gains and setting up for next year’s trade.

Figure 1: Metrics of Major Cryptocurrencies in November (Source: Messari.io; Coin360)

Altcoin: Large-Cap Losses, Mid-Cap Gains

Altcoin space has seen some diverged performances in November, with major names such as XRP and ETH have down 23% and 16% respectively, but on the other hand, mid-cap names like XTZ surged over 50% and ATOM jump about 40%. ALGO, NANO, and DCR were also among top the gainers in November.

Figure 2: Altcoins Performance in November (Source: Coin360)

While there was no apparent reason behind some of these rallies, the weakness in BTC and major altcoin names could encourage inflows into those names. In the case of XTZ, the increased accessibility could also explain part of the price surge, as the crypto is now listed on more exchanges, including OKEx.

From a broader perspective, the whole altcoin space has been continuing its downtrend in terms of market cap. Figure 3 shows the Total Crypto Ex-BTC Market Cap has made its third attempt in four months to break the channel. However, as BTC prices retreated, altcoins also headed south, resulting in the Total Ex-BTC Market Cap moving back into the channel.

Traders may still find opportunities in individual altcoin, but broadly speaking, the Total Ex-BTC Market Cap is expected to consolidate further before producing any significant moves.

Figure 3: Total Crypto Market Cap Ex-BTC (Source: Tradingview)

Crypto News Highlight in November

  • Crypto derivative products have been getting more popular in the market. Bakkt, the physically-settled bitcoin futures trading platform, announced that its futures contract trading had reached a record high of 4443 contracts on November 28. The new record came two months after the launch of the platform. The company will diversify its product by adding cash-settled bitcoin futures and a newly introduced option contract trading. The new lineup is expected to debut in early December. A consumer-focused app is also reportedly in the final testing stage.

Bitcoin in Quarterly Red; Gold Correlation Increased

Bitcoin remains one of the best-performing assets this year despite the 18% price drop in November. It’s noticeable that bitcoin’s 1-month correlation with SPX has dropped significantly, while its correlation with gold has ticked up. We believe that the changes in correlations are a sign of the increased risk-off sentiment in the BTC markets.

However, as the BTC-SPX 1-month correlation reached a relatively low level (around -40%), the market should not rule out the possibility of a rebound in correlation. If seen, alongside the rebound in US equities, bitcoin may able to reverse its losses in December. Still, that largely depends on market sentiment.

Volatility-wise, we’ve seen bitcoin’s 1-month realized volatility has initially stabilized after the November selloff. However, the increasingly crowded crypto derivatives market is getting more crowded, and could soon increase BTC’s volatility, as multiple exchanges are expected to launch options products in the foreseeable future. Read more about market volatility here.

Figure 4: OKEx’s BTC Index Monthly Performance (Source: OKEx)
Figure 5: Bitcoin-Gold/SPX Realized Correlation (Source: Skew)
Figure 6: Macro Assets Realized Volatility Comparison (Source: Skew)

XTZ, DOGE, DCR Less Correlated with BTC; EOS, LTC Increased

With the mounting pressure of bitcoin prices, altcoins that have shown lower correlation with BTC generally outperformed their peers, and that largely remained the case in November. We want to highlight XTZ’s performance, which gained more than 40% in November, its correlation coefficient with BTC has dropped from 0.6 early in the month, to below 0.4 at the end of the month. A similar situation also is seen on DCR.

On the other hand, EOS has shown increased correlations with BTC in November; its correlation coefficient with BTC has increased from lower 0.6 levels to just over 0.7. ETH and LTC remained some of the most BTC-related altcoins in the month.

Figure 7: Bitcoin’s Correlation with Major Altcoins (Source: Coinmetrics.io)

Bitcoin December Outlook

Investors have been taking a wait-and-see approach in early December as markets didn’t see a clear direction of the prices of bitcoin. However, we believe that the market should not eliminate the chance of having a short-term rebound.

One of the reasons that would able to support an imminent rebound could be the low Long/Short Ratio. Figure 8 shows the OKEx’s BTC Long Short Ratio, and it has been hovering in the 1 area after the November selloff. A lower ratio usually creates a positive bias on the prices.

Figure 8: OKEx’s BTC Long/Short Ratio (Source: OKEx)

Technical-wise, it also seems supporting a rebound argument. We’ve seen a 3-hour gap down on CME’s Bitcoin Futures in early December. Bitcoin tends to fill all its gaps, and we’ve seen similar cases happened in late October and twice in November. Traders were expected the newly produced gap would also be filled, although timing would be hard to determine. However, if seen, that would push bitcoin prices upward to near the 7785 area.

Figure 9: CME Bitcoin Futures 3-Hour Chart (Source: Tradingview)

Yet, bears seem still to have the upper hand over the medium-term view. The Sentix Strategic Bias, which gauges investors’ six-month expectations of bitcoin prices, and reflects the strategic aspect of market participants as well as their underlying convictions and perceptions of value, has still in the negative area. Patrick Hussy, Managing Director at Sentix, believes that medium-term investors have been reluctant to get into the market at this point.

Figure 10: Sentix Bitcoin Strategic Bias (Source: Sentix)

Altcoin Strategy: DCRUSDT: Time for a turn?

December could be another crucial month for Decred watchers, as markets seem to put the recent DCRUSDT uptrend to the test again. The November fall has hit the green trend line support; at the same time, the rebound has hit the red trend line resistance. Both the 9-day RSI and the ultimate oscillator has been stalling at current levels. While it’s too early to call a bullish/bearish reversal, we would like to see the momentum indicators to produce some higher lows to call the pair could continue its uptrend. However, as the overall mood in the BTC market remains sour, it increases the likelihood of inflows into mid/small-cap altcoins, just like what we saw in November. This development would be interesting to keep a close eye on.

Figure 11: DCRUSDT Daily Chart (Source: OKEx; Tradingview)

Future Macro Events to Watch

  • December 5: Finance ministers of European Union members are expected to approve a statement on stablecoin. The Economic and Financial Affairs Council is likely to agree that stablecoins could bring potential benefits, such as cheaper and more efficient cross-border payments. However, it also raises essential regulatory and supervisory concerns.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.


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OKEx Blog

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World’s Largest Spot & Futures Cryptocurrency Exchange

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