Remember the saying "don't fight the trend"...fighting the highly speculative and leveraged crypto market can be a particularly frustrating experience and, as it stands, the trend is pointing to further gains. The Bitfinex & Tether developments have been a net negative but the IEO announcement by the exchange is a good reminder of the amount of capital still on the sidelines which can be deployed at such short notice. Do not underestimate the power of crypto FOMO, it is Alan Greenspan's version of irrational exuberance but on steroids!
Being a contrarian can be profitable when market valuations are at extreme levels and in periods of heightened volatility. However, going against the grain can also be a very expensive endeavor. While the underlying thesis might be correct on paper, the market can stay “irrational” for a longer period than what your pocket can afford to keep up with. Another factor to consider is the correlated nature of the market, which not only makes “stock/crypto” picking notoriously difficult but also creates a vicious feedback loop as new money ends up chasing the same assets, as well as related tracking products.
On a more somber note, yet another exchange has been hacked, this time Binance. The attack is a good reminder of the dangers and risks that users are exposed to, that even the largest cryptocurrency exchange is not invincible to such threats. Per Binance, hackers employed a variety of tactics including phishing and viruses to obtain a large number of 2FA codes and API keys in addition to other information. According to the exchange, the attack affected a particular transaction, wherein hackers were able to withdraw 7,000 bitcoins (BTC) worth $40,705,000 at press time. In a letter posted to Binance’s website, CEO Changpeng Zhao stated that the bitcoins were withdrawn from hot wallets which contain only 2% of the exchange’s total bitcoin holdings. Zhao stated that Binance’s other wallets were unaffected. As to be expected, the market reacted negatively to the news but the move lower was gradually pared during overnight trading hours and now Bitcoin is trading within touching distance of the $6,000 level.
In other news, the amount of ETH locked up in the MakeDAO credit ecosystem continues to decline and now stands at 1.8868% (vs. 2.11% at its highs earlier in the year). This comes amid yet another stability fee hike to 19.5% which took place on May 3rd, raising the rate from 16.5%. At the same time, the DIPOR (Decentralized Inter-Protocol Offered Rate) is trading at 19.21%. Similarly to traditional markets, in time such metrics are going to become even more important in gauging investor sentiment towards various assets and products.
Finally, Bitmain’s internal bitcoin mining operations are generating 88% less computing power than a month ago. Per data analyzing the hashrate of all Bitmain-owned hardware, updated once every 30 days, the SHA256 hashing algorithm — which is used in the bitcoin (BTC) mining network — has dropped from 1,692.35 quadrillion hashes per second (PH/s) in March to 237.29 PH/s as of the beginning of May. This marks a noticeable downturn in the company’s bitcoin mining power.
Thank you for reading,
The BeQuant’s Analytics team