Image Credit: Chainalysis


Global Business Week: Darknet market crypto activity higher than ever in 2019

The previous week rocked the boat of U.S equities as the technology sector tried to bring down the indices, just as it has been the driving force for the impressive rebound from the March lows. Nasdaq closed down 0.6%, ending its worst week since March. Facebook (FB), Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL) all fell 5% or more this week.

It has become a battle between institutional & retails investors — where the former has been pulling out the money for months, while the latter has taken the American equities to all-time highs. All this volatility and tug of war, along with the pandemic and upcoming U.S elections is sure to produce some gut-wrenching trade sessions ahead.

The dollar sign is showing early signs of bear run exhaustion as it closed the last week at par with the most recent high. Resistance at 94.00 is still a significant barrier, which needs to be penetrated to reverse the short term sell-off. Bitcoin, on the other hand, stayed in the familiar range of $10,000 — $10,600. Bearish consolidation is still in play unless the upper or the lower boundary of this range is breached.

Today’s featured chart (top) highlights how the total darknet market sales grew 70% in 2019 to over $790 million worth of cryptocurrency, after a small decline in 2018 making it the first time sales have surpassed $600 million. Not only that, but for the first time since 2015, darknet markets increased their share of overall incoming cryptocurrency transactions, doubling from 0.04% in 2018 to 0.08% in 2019.

Before moving on to some of the other important weekly statistics, here the detailed weekly market numbers (Figure 1).

Figure 1

Alternative data shows stalling Economic recovery

While the stock markets continue to chart new highs, the world economy’s rebound from the depths of the coronavirus crisis is fading in light of the second wave of virus infections and upcoming major risk event in the shape of the U.S presidential elections — setting up an uncertain finish to the year. On top of that Governments’ support for the financial sector is winding down. Strains between the U.S. and China could get worse in the run-up to November’s presidential election, and undermine business confidence. All these factors give credence to the alternative data, which points to a stalling recovery in the advanced economies (Figure 2).

Figure 2

Making the case of a U.S stock market bubble

Defying all odds about the underlying economy in the U.S, the stock market rounded off a great summer with its best August in decades. The tech-heavy NASDAQ Composite Index even reached a new all-time high on September 2, closing above 12,000 points for the first time, up more than 75 percent from its low point in March.

And while the months-long rally was greeted with celebrations by some people, others were eyeing it with suspicion, worried about what looks like a growing disconnect between the stock market and reality. Wilshire 5000 is the market-capitalization-weighted index of the market value of all US-stocks actively traded in the United States. Its ratio to nominal GDP was at its highest level of 1.52 at the end of the second quarter — even higher than the value of 1.37 reached at the peak of the dot-com bubble (Figure 3).

Figure 3

Crypto gains traction in Africa

Africa has the smallest cryptocurrency economy of any region as analyzed in the Chainalysis report, with just $8.0 billion worth having been received and $8.1 billion sent on-chain in the last year. However, that relatively small amount of activity is creating life-changing value for users in the region facing economic instability, offering low-fee remittances and an alternative way to save. The pandemic has added even more value to the digital transactional medium as seen in the chart below (Figure 4).

Figure 4

An overview of the GDP growth declines in the EU

The eurozone unemployment rate was at 7.9% in July, and economic output fell by 12% in the second quarter with Spain, Greece and Portugal the worst affected in the currency bloc. The ECB predicted in June that GDP will drop 8.7% in 2020, and rebound 5.2% and 3.3% in 2021 and 2022, respectively. Apart from the risk of a second wave of infections, the region is also confronting the possibility of a no-deal Brexit.

With the U.K already finalizing a deal with Japan which is being touted as “going far beyond the existing EU deal,” increasing the trade with the Asian country by £15.2 billion and boost GDP by around 0.07% over 15 years, the hopes of a patch-up with EU is dimming. For now, look at the chart below that illustrates how different countries in the EU region were hit with the pandemic (Figure 5).

Figure 5

A tale of two Investors in the U.S

As mentioned before, it’s been a tale of two investors in the U.S for the past several months. A lot of new money has come into the stock market by way of first-time investors and traders. That has contributed to some bubble-like behavior for popular stocks. Long-term investors, however, have been steadily pulling money out of the market (Figure 6). ICI fund flows show equity investors in long-term mutual and exchange-traded funds withdrew money for the 12th consecutive week, topping the longest streak of outflows since 2013.

Figure 6

Global ETFs and ETPs reach a milestone

$7 Trillion is the milestone touched by assets invested in exchange-traded funds (ETF) and exchange-traded products (ETP) listed globally at the end of last month, according to research and consultancy firm ETFGI. Assets invested rose 5.1% from $6.66 trillion in July as most stock markets enjoyed big gains. August saw net inflows of $55.18 billion, bringing year-to-date net inflows to $428.25 billion, which is almost 60% higher than the $272.62 billion gathered during the same period last year.

Here’s a breakdown of YTD net inflows by type and the increase from 2019:

  • Equity ETFs/ETPs: $137.74 billion, up 57.1% from $87.63 billion
  • Fixed income ETFs/ETPs: $160.61 billion, up 8.5% from $147.99 billion
  • Active ETFs/ETPs: $43.24 billion, up 75.6% from $24.62 billion
Figure 7 — Top 10 Global ETFs

Market Humor — Clownish Volatility

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