Crypto markets ended the week on a high, as Bitcoin surged past the $3,700 level and Ethereum rallied into mid $120 region, with some market commentators pointing to the recent uptick in the hash rate. The social media was also abuzz with cryptocurrency charts showing Litecoin rallying 40% over the last 30 days, citing block-reward halving that is due to take place later this year. This would see the coin reward for miners cut from 25 to 12.5 coins. Even though crypto miners have had what can only be described as a financially challenging 2018, attributing the rally to a move which would further undermine their strained financial position is somewhat counter-intuitive. The FOMO effect, which resulted in similar price action in the past took place in a one sided crypto market, which did not facilitate shorting, but was dominated by miners, long-only visionaries and early adopters. As such, there is a risk of a price correction and reversion back to mean price levels.
The bulls were also quick to point out the recent commentary by JPMorgan analyst Panigirtzoglou who said that the crypto market’s recent struggles could set the stage for future institutional adoption. Specifically, he said: “The stability that we are seeing right now in the cryptocurrency market is setting the stage for more participation by institutional investors in the future. The cryptocurrency market was a new market. It went through a bubble phase and burst.”
The word “stability” particularly stands out from his statement, especially since anything that falls 70% in value as per the 3-month performance by Stellar, is unlikely to be branded as stable. In fact, the price action resembles that of the fallen banks in 2008 at the height of the mortgage crisis.
The surge in prices last week should be taken with caution, especially given the persistent Tether premium of over 2% and the sticky market capitalization. This is particularly worrying, as it appears the market is somewhat hesitant to adopt other stablecoins which, at least on paper, are more credible and transparent. In fact, more and more crypto exchanges are moving towards facilitating fiat trading. The hashrate may have risen, but there is little indication of elevated network activity across other metrics, txVolume remained depressed, stagnated user activity and falling medianTxValue.
As a reminder, CBOE Feb Bitcoin Futures are due to expire this week on 13/02/19.
Thank you for reading,The BeQuant Analytics team