MAX Digital Asset Weekly, Dec 28 2018

Digital Assets -9% this week — retreating somewhat after posting the best WoW gain of the year last week. Trading was up significantly with a 7 day average of US$21B across the space, +56% from the previous week. Breadth was skewed towards the negative with only 25% of the top 20 coins / tokens ending the week higher.

News flow this week was slightly more negative with reports of more jobs, tokens and projects falling victim to the ongoing bear market. Some of the top stories included: 1) reports that Bitmain is planning very aggressive headcount reductions, 2) GMO halting its short-lived foray into mining equipment manufacturing, and 3) major exchanges delisting a number of low volume coins / tokens.

Positives this week were more of a mixed bag. Top stories included: 1) Mizuho preparing to launch a JPY backed stable coin, 2) record high US$ value and node count on the Bitcoin Lightning Network, and 3) a number of well-known internet content creators accepting BTC payments in the wake of Patreon / Mastercard content restrictions.

Whilst we had predicted a pullback after last week’s rally, our base case scenario was that Bitcoin — as an anchor for the broader space — would hold $3,800. As of time of writing, we have broken that support and now sit at $3,600. Failure to hold the current level will likely result in a retest of previous lows and a possible drop to $2,500 or even $2,000. Should we hold current levels andbounce back above the $4,200 to $4,500 zone we may be able to more confidently say that we have seen the bottom. At the moment, though, the first scenario appears to be the more likely of the two.

With significant movement in BTC and other major asset classes over the past few weeks, correlations of BTC vs USD and S&P are now back near zero (chart 6 below). Should the recent trend continue we look likely to be heading into 2019 with positive correlations against the USD and negative correlations against the S&P which — without wanting to sound overly optimistic — sounds very much like a defensive asset class. The last time we saw correlations like that was April to Dec 2016, a period in which Bitcoin went from $400 to $1,200.