MAX Digital Asset Weekly, Jan 11 2019

Digital Assets -11% this week, giving back most of last week’s gains. Volume this week improved +8% from the previous week for a daily average of US$16.3B. Breadth was skewed heavily to the negative with less than 1/5 of the top 200 coins / tokens ending the week in the positive.

Declines amongst major coins / tokens were ETH led ending 3 consecutive weeks of gains and ahead of next week’s Constantinople Hard Fork (Jan 16). Declines in ETH and a 51% attack on ETC weighed heavily on the smart contract space -10%, the worst performing major thematic grouping this week. Weakness in BCH derivatives ABC and BSV continued with volume thinning further and price declines exasperated by ongoing financial struggles at Bitmain and the potentially low cost of 51% attacks.

Headlines this week continued to demonstrate how the ongoing bear market is thinning out the crypto herd. The focus this week was on management shakeups and headcount reductions with 1. Bitmain Co CEOs Jihan Wu and MIcree Zhang reportedly stepping down, 2. Shapeshift cutting 30% of total headcount and 3. The CEO of one of 2017’s top funded ICOs — TenX — resigning from the project.

Positives this week were led by 1. Korean exchange Bithumb hitting a very quick US$100M crowdfund raise, 2. Ledger unveiling a new hardware wallet (followed by a tease for a new Trezor), 3. A new US ETF application and 4. Another week of new technology and services being deployed to the BTC Lightning Network.

Going into next week, BTC is threatening a breach of the current $3,600 support level — but looks likely to outperform the rest of the space in the short term. BTC led the rest of the space by 5% this week as mean reversion vs smaller coins / tokens began to play out. Mean reversion looks to have just begun, with BTC still lagging the rest of the space by -0.7 standard deviations over the previous 50 days.

With BTC testing $3,600 support, longs showing signs of deleveraging, and shorts showing signs of reaccelerating — and baring a technical improvement over the weekend — it looks like the risk of a break below $3,000 has increased significantly. An important caveat, though, is that a drop < US$3,000 has become an increasingly consensus opinion. The idea that we have not yet seen enough of a capitulation is, in a way, a kind of capitulation. Traders, frustrated with broken lines of support and failed inflection points, have become increasingly wary of seeming overly optimistic. We would argue that after a > 80% correction in BTC, a string of miner bankruptcies / exits, head count cuts across the space, failed IPOs and management reshuffles at some of the most prominent businesses in the space — a lot of people are already feeling a lot of pain.