MAX Digital Asset Weekly, Feb 1 2019

MAX Digital Asset Weekly, Feb 1 2019

Digital Assets on pace to end the week -6% — the second weekly decline in a row. Declines this week were broad based, but heavily skewed towards Small Caps -10% and Utility Tokens -14% pointing to a sharp decrease in risk appetite. BTC is on pace to end the week -4%, extending outperformance vs the rest of the space to a 42 day high. Trading this week was more active, +11% from the previous week — led by a 20% WoW gain in LTC and a 34% WoW gain in XRP.

For the month, Digital Assets ended modestly lower for the 7th consecutive monthly decline. Volume looked to be a bit of a silver lining, though, with BTC volumes ending January flat vs the previous 2 months at a daily average of US$5.4B and ETH ending at an 11 month high daily average of US$2.7B.

Newslfow was mixed with positives led by 1) Fidelity preparing for a March launch of their crypto custody services, 2) BInance accepting credit card payment deposits, 4) Coinbase launching a new referral program and 5) COBE relaunching its BTC ETF application. Negatives were led by 1) reports of a cash crunch at NEM, 2) Canadian crypto exchange QuadrigaCX reportedly losing access to cold wallets and 3) reports that 2 prolific hacking groups have managed to acquire US$1B over several years of hacks.

Technical highlights this week were led by 1) 10 month high MoM growth in Lightning Network channels and nodes, 2) Casa open sourcing its Lightning Network node software, 3) talk of LTC implementing Confidential Transactions and 4) the launch of an ETH ‘wrapped’ BTC token.

Looking into next week, the probability of a significant price move looks increasingly likely as volatility across the space falls to the lowest level since the -50% Nov 2018 correction. Anticipation of a significant price break looks to have begun pulling leveraged traders off the sidelines with both Longs and Shorts up about 10% this week. The pattern over the previous year has been for declines in volatility to end with a sharp, sudden break lower — and we think this remains the consensus view. Without discounting the possibility of another break lower, we continue to think that the most likely midterm scenario is for another 2 or 3 quarters of largely sideways trading — inline with the pattern established over BTC’s previous 3 cycles.