Commentary
Digital Assets -10% this week unwinding all of the late October President Xi rally. Declines were very broad based with only 9% of the top 200 coins and tokens ending the week higher. Volume was flat vs the previous week at a daily average of US$65B.
The theme of the week was infrastructure development with 1)Binance acquiring Indian crypto exchange WazirX and adding INR support, 2)Fidelity Digital receiving an NY custody license, 3) Greyscale’s GBTC fund filing for SEC oversight and 4) Softbank merging Yahoo and Line — both of which own crypto exchanges — into a $30B tech giant.
Price dump this week looks to be largely technical after a lack of follow through on the ‘President Xi’ October price rally. Though I think the technical weakness was possibly exasperated by reports of China regulatory raids at Bithumb and Binance offices (later denied by both companies).
It’s interesting to note the discrepancy between Crypto Twitter sentiment (extremely bearish) and the BitMEX premium/funding indicator (still modestly positive — Chart 1). As one trader pointed out, this is the difference between talking and doing.
There are no recent examples of price bottoming while trading sentiment on BitMEX remains positive. I think we need to see a reversal — even a very short term reversal — in trader sentiment before we can make a short term price bottom. Delta’s ‘Market Setup’ chart shows that we are edging in that direction — with the futures premium turning negative and open interest increasing. Given that we hit a TD Sequential red 9 yesterday and have strong volume and Fibonacci support around the current level, I think the bulk of this leg lower is probably already done. All we are missing is the reset in trader sentiment that will allow price to (hopefully) start moving higher again.
Thoughts
- Is hashrate crashing? Are miners capitulating?
Blame it on the rain. Specifically, the typical April — October rainy season in China’s southwestern provinces. During the rainy season hydropower stations in Sichuan province tend to produce a surplus of electricity. This results in a sharp decrease in pricing; which enables miners to run less efficient hardware — like Bitmain’s ubiquitous S9 miner. This drives a surge in network hashrate.
Once the rains stop, and electricity prices increase, older technology becomes unprofitable and is unplugged. This causes hashrate to fall. Given the upcoming halving these machines will likely be binned this time around.
The chart below plots BTC hashrate (7 day average) vs Sichuan’s typical rainy season. I think this has interesting implications for BTC’s seasonal price performance which is normally characterized by a weak 3Q (as hashrate peaks and opportunistic Sichuan miners sell) and a strong 4Q (as weaker, short term miners unplug).
- HSBC, Hong Kong and Wikileaks — BTC is the payment platform of last resort
HSBC will close down a corporate account that is being used to raise funds to support protest-related activities in H ong Kong. Specifically, to raise funds for Spark Alliance — an HK nonprofit providing legal and medical service coverage for HK protestors. The bank cited a mismatch between the accounts activities and the business purposes stated for the account. .
This is reminiscent of one of the early events in Bitcoin lore — How Bitcoin saved Wikileaks. Wikileaks early interest in BTC as a payment channel was addressed by Satoshi Nakamoto directly in 2010:
“The project needs to grow gradually so the software can be strengthened along the way. I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.”
By 2011, Wikileaks began accepting BTC donations after having accounts frozen and blocked by Paypal, Visa, Mastercard and banking partners.
The HSBC account closure like Wikileaks highlights one of BTC’s key value propositions — a payment platform of last resort. One that is censorship resistant and largely immune to political pressure.
News
- BTC mining hardware maker IPOs in US (NASDAQ: CAN)
– Caanan is one of the main China based mining hardware makers
– Trading ended flat down $0.01 from the open. Firm raised $90M - 84% of Grayscale’s Q3 interest came from traditional market Hedge Funds
“84% of inflows were from non-crypto hedge funds that want digital asset exposure.” - Binance Acquires WazirX — will support INR trading
– WaxirX is India’s largest Digital Asset trading platform
– Follows news last week of Binance adding Paxos fiat gateway - NY grants Fidelity Digital a custody license
– Allows Fidelity to custody bitcoin for institutional investors
– Galaxy Digital Holdings (founded by former Fortress CIO Mike Novogratz) also announced this week that Fidelity would custody BTC for their 2 new funds - Bithumb, Binance deny reports of Shanghai regulatory raid / closure
– Original report of raids was circulated by The Block - Greyscale BTC Trust (GBTC) files for SEC oversight
– By becoming an SEC reporting company a broader range of investors could participate in the fund
– Also allows for faster liquidations (reduced to 6 months from 2 years) - Yahoo Finance adds crypto prices to website
– Includes pricing for a total of 118 digital currencies - Royal Bank of Canada denies rumors of crypto trading platform
– Has no near-term plans to launch a digital currency exchange for its customers. Sounded too forward thinking to be true - Shapeshift launches ‘0 commission’ crypto trading
– For users that stake 100 of their new FOX token
– Presumably spread includes a Network fee, a Trading fee at the sourced market, and probably a Shapeshift Brokerage fee
– Not that dissimilar to what eToro does - Privacy coin Grin transactions revealed by researchers
– Lots of back and forth on this from well known developers
– Charlie Lee, the founder of LTC, and Grin developers described the limitations of Mimble Wimble as well known
– Grin developers also highlighted 6 inaccuracies within the report - Maker launches new Dai, old Dai to be phased out in months
– The new Dai token will be known as ‘Multi Collateral Dai’ MCD
– Initial collaterals will be BAT Tokens and ETH
– Single collateral Dai will be remained SAI - Venezuela to pay Christmas bonuses in Petro Token
– Petro seems to have a never ending stream of announcements
– But have seen little — if any — actual implementation or usage
– News later in the week said that Petro would be backed by 30M barrels of oil, short of original plans to back it with 5B barrels - Almost 200 developers working on new BTC privacy upgrades
– Reviewing Bitcoin Improvement Proposals around Taproot and Schnorr
– Both are efforts to offer enhanced privacy and scalability
“ Pioneered by Xapo bitcoin core contributor Anthony Towns, the idea is to get as many developers as possible to review the changes, to battle-test the BIPs and make sure the ideas are actually safe.” - SoftBank to merge Yahoo Japan and LINE
– Cretes a $30B tech giant with huge crypto synergies
– Yahoo Japan holds a 70% stake in licensed crypto exchange TaoTao
– LINE has its own cryptoasset, Link, and blockchain, Link Chain
– Line also owns a cryptocurrency exchange called BITMAX - UK government and the Fed comment on cryptoassets
– UK: Cryptoassets will typically be considered property
– US: A global stablecoin network could pose risks to financial stability - Kraken launches perpetual referral program
– 20% of affiliate comm, but capped at $1,000 per client
– If you sign up 500 clients you can earn up to $500,000
– Kraken also announced a mobile version of its futures platform
Charts
Chart 1. Price vs BitMEX trader sentiment
– Fibonacci Retracement level and previous volume should provide support
– TD Sequential 9 suggests that this leg lower may be nearing its end
– Bottom panel shows trader sentiment (BitMEX premium and funding) is still too positive and likely needs to flip negative before we can move higher
Chart 2. Weekly % Change
– Sea of red over the previous 7 days
Chart 3. Historical price points
– Roughly this time in 2017 BTC started to rocket
Chart 4. Average Daily Turnover, By Month
– USDT and BTC remain very actively traded
Chart 5. Mayer Multiple, RSI, 20D ROC
– Some of the lowest values of ‘19: Mayer Multiple 0.8, RSI 29, 20D ROC -18%
Chart 6. Crypto Fear and Greed
– Incorporates data from:
Volatility, momentum/volume, social media, surveys and Google trends
– Drop to 24 would imply extreme fear and a likely bottom
