The cryptocurrency market continues to show a great amount of resilience in holding onto the $8,000 level. The lack of regression thus far can be seen as a testament to adoption taking hold across the world and the maturation of the market. The month-to-date performance is truly staggering, with Bitcoin and Ethereum posting gains of around 50%, while the likes of EOS and XRP are up just over 20% (see data from Messari below). With any other asset class, the bears would have been screaming that a bubble is forming, valuations are running too high relative to fundamentals and a correction is imminent. This may all be true but the crypto market is like no other market out there and, given the high use of leverage, hype and FOMO effects, that means that one-sided trends have a tendency to remain in place for longer.
Still, something to keep an eye on is the cryptocurrency transaction volume data, since this is a metric that lies at the very heart of what the blockchain network is all about. The relationship between the two is clearly highlighted in the chart below. As per the data, the price of the underlying asset, in this case, Bitcoin (BTC), was much more in line with the growing volume of transactions over the course of 2017. After peaking around the $20,000 level, price and transaction volume data diverged significantly throughout much of 2018 and while this deviation narrowed during the closing stages of the year, the trend has reversed since. In crude terms, this points to the speculative aspect of Bitcoin, which has been notoriously difficult to calculate with any meaningful degree of precision. Still, it remains to be seen whether a positive catalyst may indeed materialise which will result in another surge in transaction value (USD terms), but, as alluded to earlier, the FOMO effects may keep the cryptocurrency prices bid irrespective of the underlying fundamentals.
Looking elsewhere, Bitcoin SV (BSV) surged aggressively earlier in the week on the back of the announcement that Craig Wright had registered copyright claims on the Bitcoin Whitepaper and original code, and also promised to revert the copyright to the Bitcoin Association. As such, month-to-date performance is close to 80% and the decoupling trend between BCH and BSV underwent a huge compression. This is expected to continue further, especially given the planned upgrades to BSV.
Specifically, the newest iteration of the BSV client which has been rolled out by the Bitcoin SV Node team on May 20th - the Scaling Test Network (STN) - brought about the first impact of this upgrade. Going forward, it will increase its maximum acceptable block size to 10GB, with default produced blocks set to 128MB. Then on July 24, with the Quasar Protocol Upgrade, the mainnet and testnet will have their block size settings increase. The current maximum acceptable block size of 128MB will increase to 2GB, and the default produced block sizes will increase to 128MB. As such, at least in the short-term, the pick-up in sentiment is expected to support the price going forward, especially relative to the competing BCH network.
Finally, CME Bitcoin futures are due to expire on 31 May and given the growing participation, as evidenced by the daily traded volume activity, this means that particular attention should be paid to the number of contracts that are rolled to the next expiry date. As it stands, just under 50% of the total CME Bitcoin futures open interest is set to expire (see CME contract table below) and the market will react favourably should market participants decide to roll the majority of the expiring contracts into the next contract, since this points towards “commitment” from institutional-type accounts.
This report has been prepared and issued by Bequant Analytics for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Crypto asset trading involves a high degree of risk. The crypto asset market is new and unproven and may not grow. Currently, there is relatively small use of crypto assets in the retail and commercial marketplace in comparison to relatively large use by speculators, which contributes to a price volatility that could adversely affect an investment in crypto assets. In order to participate in the trading of crypto assets, you should be capable of evaluating the merits and risks of the investment and be able to bear the economic risk of losing your entire investment. Nothing in this email should be considered an offer by Bequant Analytics to sell or solicitation by Bequant Analytics of any offer to buy Bitcoin or other crypto assets or derivatives. This report is provided for information purposes only and should not be construed as an offer or solicitation for investment.
Thank you for reading,
The BeQuant’s Analytics team