MaiCoin Digital Asset Weekly, Oct 25 2019

Commentary

Digital Assets ended the week -6% on slightly better volume. Trading increased to a daily average of US$57B across the space, +12% from the previous week. Declines were broad based with only 22% of the top 200 coins and tokens ending the week higher. Declines were worst in smaller, high beta coins and tokens with IEOs -14% and Utility Tokens -9%.

Dump this week is in line with expectations of a mean reversion in volatility. Skinny volumes and low volatility over the previous few weeks were exasperated by Zuckerberg’s grilling by US lawmakers — triggering $200M of long liquidations on BitMEX and sending the entire space sharply lower.

News this week was corporate focus with company specific news dominating headlines: 1. Congress gave Zuckerberg another grilling over Libra, 2. Fidelity launched a ‘full role out’ of its digital custody and trading platform, 3. Bitfury mined the 18th million BTC, 4. Coinbase announced $2B in trade commissions since 2012, 5. Bitmain launched a mining facility in Texas, 6) Bakkt traded record BTC volumes and 7. Bitfinex filed suits to recover $880M in frozen funds.

This week’s correction saw BTC drop to the 68% Fibonacci retracement level of $7,400 — our line in the sand from last week. From a technical perspective, BTC needs to recover quickly if it is going to shake off the Libra downdraft and reposition itself for normally positive 4Q seasonality. Failure to do so — and quickly — would be bearish for the near term trend. The next line of major support is at $6,400 the convergence of the 78% Fibonacci retracement and the Sep-Nov consolidation range. From a fundamental perspective, BTC is now trading at a ~$700 discount to the Stock/Flow fair value of $8,200, implying a stock/flow multiple of 0.9 — the lowest since May of this year. Given where we’re at in the halving schedule — 201 days until the halving — the low end for the stock/flow ratio is probably somewhere ~0.8 which also implies downside support at the $6,400 level.

Thoughts

Support at Stock/Flow Modeled Price (?)

Despite the current $700 discount, BTC price has been tracking pretty much inline with its predicted Stock/Flow valuation. Stock/Flow is essentially a measure of scarcity — traditional used in precious metal valuation — that generates a projected value based on existing stores of an asset vs new production of an asset.

Bitcoin’s current Stock/Flow ratio over a 365 day period is 25.4. Gold is estimated to have a Stock/Flow value of ~ 62. Note that BTC’s Stock/Flow ratio will double when the block reward halves in May 2020. Increasing its scarcity to 82% that of gold.

Interactive chart here

Price was ugly this week, but there were some very big developments…

Some pretty big corporate developments this week, including:

  • Fidelity — one of the world’s largest asset managers — officially rolling out its custody and trading platform to users. This will make BTC much more accessible to mainstream institutional investors.
  • Bakkt — a subsidiary of ICE (parent company of theNYSE—posting record high volumes on their physically settled BTC futures contract. Bakkt also announced that they will be launching BTC options at the end of the year. This will likely be particularly attractive to Bitcoin miners as it will offer them a liquid way to hedge their BTC price exposure.
  • Twitter and Facebook — 2 of the largest social media platforms in the western world — debating wether it is better to design a corporate cryptocurrency or to support an open based solution like Bitcoin.
  • Galaxy Digital and Morgan Creek both launching new funds and, in the case of the later, securing significant interest from mainstream Pension Fund investors.
  • HTC — previously one of the largest handset makers in the world — launching a phone with a built in BTC node.
  • Peter Theil —co founder of Paypal and one of the earliest investors in Facebook — Investing in a $50M raise for Layer 1’s Texas based mining farm.

News

Charts

Chart 1, Price vs Volume
– Most assets in the bottom left corner…price down on lower volume

Chart 2, Price Performance
– A sea of red

Chart 3, This day in history…
– BTC & BNB prices still the highest they’ve ever been for this point in October

Chart 4, % Change Major Thematics
– Smaller coins and tokens the hardest hit this week

Chart 5, 50 Day Volume Z Score
– Volumes mostly hovering or just north of their 50 day moving averages

Chart 6, Average Daily Turnover — By Month
– USDT volumes up this month as investors taking profit
– BTC on pace for its 5th straight month of volume declines

Chart 7, BTC vs Alt Coins

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