Bitcoin has rallied over 10%, with the futures curve moving into deeper contango, as market participants reacted to the developments in the FX market, where the Chinese Renminbi weakened beyond 7 per US dollar for the first time since the 2008 global financial crisis, breaching a level that China’s central bank (PBOC) has previously defended as prospects of a trade deal between the US and China continue to fade away. At the same time, stocks slumped on both sides of the pond and the likes of JPY and gold benefited from risk-off sentiment. In addition to that, there are reports that China is asking state-owned companies to suspend imports of U.S. agricultural products. This comes after President Trump last week proposed adding 10% tariffs on another $300 billion in Chinese imports starting Sept. 1, abruptly ramping up the trade war shortly after the two sides had resumed talks. In addition to that, Donald Trump has warned that the United States will be “taxing the hell out of China” until a new trade deal is struck. In times of distress, cash is king and while the focus may be on Bitcoin and other large cap assets in the crypto space, the growing importance of stablecoins could again be highlighted in the market. Maintaining the peg can be just as challenging in times of high velocity inflows as it is during aggressive outflows, also, premiums on the likes of KRW and CNH are to be expected. However, everything comes down to market efficiency.
Elsewhere, on a day in which Litecoin's block reward was cut in half, LTC trading up over 10%, in a last minute squeeze by miners, together with a broad based market rally helped the so-called "digital silver" to trade back above $100. As a guide, for this Litecoin’s “halving,” the mining reward for every block has been reduced from the previous 25 LTC to 12.5 LTC. Given block production time on the Litecoin network is around one block every 2.5 minutes, roughly 576 blocks are produced every 24 hours with a new supply of 7,200 LTC entering into the cryptocurrency market – half the previous daily level of around 14,400 LTC. Of course, with the LTC halving event out of the way, it is only a matter of time before Bitcoin's halving event, set for May 2020, begins to garner more attention across crypto media.
Another event worth keeping well-informed of is Ethereum Classic’s hard fork. The Atlantis hard fork is scheduled for September 17, or at block 8,772,000 on the blockchain. Atlantis, paired with a later upgrade called Agharta, is intended to boost chain interoperability between the Ethereum Classic (ETC) and Ethereum (ETH) networks. Starting with a bundle of Ethereum Improvement Proposals activated on the Ethereum blockchain back in 2017, Atlantis is the first step towards ensuring that the migration of decentralized applications (dapps) from either chain is smooth and seamless. Year-to-date, ETC is only up 9.99%, which makes it a good prospect for relative value (RV) plays, even vs Ethereum, given the focus of the planned upgrades on on-chain interoperability. This is especially true given Ethereum’s plans to transition away from Proof of Work (PoW) to Proof of Stake (PoS). Year-to-date, ETC is up 25%, while ETH is up 75% and LTC is up 230%, and yet, in terms of active addresses, there are 191,943 addresses and this already surpasses that of LTC which stands at 76,451. The number of transactions over 24 hours is also higher and yet the valuation of ETC is being heavily undermined by its high mining difficulty (something that needs to be addressed). Still, in spite of this, Ethereum Classic looks appealing on a relative value (RV) basis and the hard fork is expected to act as a catalyst for near term performance.
In other news, according to blockchain data provider TokenAnalyst, the total outflow on the BitMex exchange amounted to around $530 million. Interestingly, BitMEX had never experienced an outflow of more than $100 million in a single month. According to Ceteris Paribus, during the entirety of 2018, the total outflows accounted for $1.3 billion and there was not a single month when outflows were greater than inflows. The development comes following reports in mid-July that indicated that the CFTC suspects that BitMEX allowed US residents to use its platform to trade. Under current law, the US is one of the countries prohibited from using BitMEX, which is registered in the Seychelles, and similar crypto-based financial services, but users may have sought to circumvent the geoblock using services like VPNs.
Thank you for reading,
The BeQuant’s Analytics team