Commentary
Digital Assets ended the week lower as consolidation stretched into the 3rd consecutive week. Price ended -3.6% WoW with volume falling ~ -7% to a daily average of US$51B.
End of week selling was broad based with only 26% of the top 200 coins and tokens ending the week higher. Small Mid Caps were the hardest hit with IEOs and Utility Tokens both down a median -8%. BTC ended at the bottom end of its recent 3 week consolidation range on reports that an unknown wallet had transferred 10,000 BTC to Binance (likely in preparation to sell).
Headlines continued to be dominated by macro, regulatory and Libra news with 1) Reports that both Canada and the US are researching digital cash, 2) Telegram looking to push back SEC action, 3) US Fed actions looking increasingly like QE, 4) Policy makers in Europe and the US continuing to criticize Libra and 5) India pushing back its crypto ban decision for another month.
With volatility and volumes across the space continuing to contract, it looks as if the market is once again setting itself up for a significant price move. Sentiment feels very weak at the moment with social indicators (google search etc) showing little signs of retail interest. BTC downside looks limited in the short term, though, with RSI already at 34 and a Mayer Multiple of 0.9. Next line of support for BTC is $7,400 which is the convergence of June lows and the 61% Fibonacci retracementlevel.
Seasonality offers a glimmer of hope — as mentioned last week, 4Q seasonality has historically been strongly positive with median gains of +15% over the previous 5 Octobers, +12% in November and +14% in December.
Thoughts
Negative rates and sovereign crypto
This week we had news that both the US Fed and the Bank of Canada are discussing the benefits of digital cash. One of the potential motivations for this is the ability to implement negative interest rates. J Powell, Federal Reserve Chairman, noted this week that negative interest rates could play a key role in providing stimulus to sluggish economies — and, if deployed during a financial crisis, could be integral in helping to boost the economy.
The implementation of negative rates, though, depends on the removal of cash. As Masayoshi Amamiya, deputy governor of the Bank of Japan, has stated:
“To overcome the nominal zero lower bound, central banks would need to eliminate cash. Eliminating cash would make settlement infrastructure inconvenient for the public, so no central bank would do this.”
Sovereign digital cash would likely not be an optimal solution for users. It would enable the ability of the state to track and censor spending in the same way China does with WeChat Pay. Citizens would completely lose sovereignty over their money — making bank runs impossible and negative interest rates a matter of time.
News
- 18th million Bitcoin will be mined today. Only 3 million left
– Leaves just 3 million left to release before mining stops in 2140 - Peter Thiel joins Texas BTC miner’s $50M raise
– San Francisco-based Layer1 will run 12 acres of mining facilities in Texas - Graysclae reports $254M 3Q inflows into crypto funds
– Brings inflows up to $382.3M YtD
– 12 month inflows now total $412.3M
– Assets under management down from $2.7B to $2.1B - Bank of Canada exploring digital CAD to replace cash
– “would help it combat the direct threat of cryptocurrencies and collect more information on how people spend their money”
– Doesn’t sound very appealing from a user perspective - US Fed looking into issuing Digital Dollar
– Possible method to offset threats to USD’s position as reserve currency - US Fed: Negative interest rates could provide stimulus
– “Negative interest rates…appear to be a powerful monetary policy tool”
– Fed is expect to cut rates by 25 basis points for the third time in Oct - Survey: 75% of German consumers would reject Libra
– 42% say they don’t trust Facebook
– 31% because they only trust state-controlled currencies
– Follows more criticism from France’s Finance minister:
“I cannot countenance one of a sovereign state’s most powerful tools, monetary policy, falling under the remit of entities not subject to democratic control.” - US Congressman: FB should add BTC, not build Libra
– Warren Davidson said FB should add BTC to Calibra rather than Libra
– Launch of a proprietary coin has intensified focus on existing operations - Early Facebook investor: Buy BTC to beat negative bond yields
– Cameron Winklevoss noted the total value of -ve yielding bonds = $17T
– This could potentially be a big driver for both BTC and gold as investors readjust asset allocations out of fixed income products - Telegram asks court to deny SEC action, GRAM is not a security
– Telegram’s says they’ve been engaged with regulators for past 18 months
– But have received little feedback and clarity
– Oct 31 was initially set as deadline by which Telegram would have to return funds to investors if they had not launched the TON blockchain - QE 4 begins as Fed buys $7.5B in first T bill purchase
– Fed purchased $7.5Bin Treasury Bills out of $32.6B in T-Bills submitted
– Meaning the operation was 4.3x oversubscribed - India pushes back crypto ban ruling to November
– Would prohibit banks from servicing cryptocurrency-related business - Bermuda to accept tax payments in USDC
– First time globally a government has agreed to accept a stable coin
Charts
Chart 1. Price vs Volume.
– Lower volume almost across the board
Chart 2. % Change — Major Thematics
– Smaller Coins and Tokens were the hardest hit this week
Chart 3. This time last year…
– BTC, EOS and BNB still trading at historic highs for this point in Oct
Chart 4. Price Table
– XRP and BNB the top 10 day gainers
Chart 5. Volume 50 Day Z Score
– Volumes in BTC, ETH, EOS, BCH and ETC very light
Chart 6. Average Daily Turnover — By Month
– Most major coins tracking multi month volume lows
– TRX, EOS and ETH a bit more active MtD
Chart 7. BTC vs Alts
