MAX Digital Asset Weekly, Nov 30 2018

Digital Assets managed to show some signs of life this week, recovering from a mid-week low of -22% to end the week only modestly lower. Breadth improved slightly with just over 1/3 of the top 200 coins / tokens ending higher. Volume was down slightly from active trading last week, putting November on pace to be the most actively traded month since May.

News flow was more of a mixed bag this week, but was largely dominated by institutional and regulatory headlines, including: 1) SEC pushing back somewhat on hopes for a BTC ETF, 2) The chairman of the NYSE saying digital assets are here to stay, 3) NASDAQ reaffirming BTC futures aspirations (despite the price pull back), 4) Coinbase launching a new OTC platform on the back of increased institutional demand, and 5) Dismal 3Q financials from Novogratz’s Galaxy Fund.

The mining sector remained in focus with reports of more headaches for troubled mining giant Bitmain and more reports of miner capitulations.

Probably the biggest story of the week, though, was the launch of digital asset exchange Huobi’s new derivative platform — backed by a massive 20,000 BTC insurance fund. This is clearly an effort to make a run at BitMEX, the current leader in digital asset derivatives and likely foreshadows a round of expansion in derivative products across the space. It is important to note that in traditional financial markets, the global derivatives market (~US$500T) is about 5x larger than the global spot equities market (~US$100T) — whilst in digital asserts the derivatives market is just a fraction of the spot market.

Looking into next week, think there’s a possibility for an extension of this week’s bounce. Despite an almost 50% pullback across the digital asset space over the previous 2 weeks, short sellers look to be pressing their positions with shorts in BTC increasing to the top end of the YTD range. This week’s price bounce was punctuated by BTC’s biggest single day gain in 7 months, if there’s much follow through over the next couple of days, could easily see a scenario in which short covering takes us back up to the US$6000 level.