Crypto Outlook: Quantity Counts

Crypto Market Update

My weekly update on the crypto market intends to look at the market from a macro perspective. With a majority of the crypto market cap concentrated on Bitcoin and a handful of other tokens, my focus is on the major coins. I check a standard set of information sources each week and include links to articles of interest.

Crypto Indexes

The Bletchley Indexes “offer the most thoughtful and consistent approach to index construction” according to CoinMetrics. 

Original “top X” indexes were launched in June 2017, followed by a market-wide index in December 2017 and sector specific indexes in February 2018. In total, there are 13 Bletchley indexes, with charts over various timetables available for each on their site.

Below is an alternate view of the performance based on the downloadable data made available by Bletchley. This view is intended to give a side-by-side snapshot of a handful of indexes.

bletchley crypto indexes 05-07-2018

Obserservations

  • The Bletchley 10 is up over 75% vs USD over last month. As has been the case historically, the even index performed even better, up nearly 100% vs the dollar.
  • The total indexes have seen similar results over the last month, both versus the dollar, as well as mirroring the improved performance of the even-index.
  • Currency Index has improved over the last week after lagging behind application and platform indexes over last month.
  • All three sectors have outperformed BTC over last 30 days, though only currency shows positive gains over last week.

Global Crypto Charts

For a quick look at the global markets from another perspective, Coinlib.io provides simple charts with a lot of info, including Bitcoin marketshare, a visualization of the top 20 currencies by volume and market cap, and more.

Total Market Cap of Cryptocurrencies

crypto total market cap 05.07.18

Market Share of Top Cryptocurrencies

Bitcoin’s market share has declined to ~38%, close to all-time lows. This continues a long-term declining trend, with new currencies such as EOS and BCH taking some of that market share.

Marketshare of top 20 cryptocurrencies

The top 20 currencies (by market cap) currently make up roughly 86% of the total crypto market share.

TradingView Technical Indicators

Based on data and info from TradingView (Click  for 30% off a pro subscription)

crypto tradingview technical signals 05.07.18

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

  • ETH has surged compared to BTC and USD over the last month. Technical indicators suggest the tide may be swinging to favor BTC in the short term.
  • USDT has outperformed USD by over 6% in the last year.

CRYPTO PERFORMANCE

crypto performance 05.07.18

  • BTC has been mostly flat the past week, while ETH has surged.
  • ETH has doubled over the last month (versus USD)

Google Trends

bitcoin google trends

Google Trends have mostly flattened out after falling significantly in February.

I’m hesitant to keep tracking this, as my assumption is that there will be less searches as the public gains knowledge and no longer needs to search for the term. However, significant price action could still lead to search volume surges.

WooBull Charts

Bitcoin NVT Ratio - 05.07.2018

NVT RatioThis long-term cycle tracking ratio has continued it’s downward trend yet remains well above the long term “normal range,” suggesting a downward turn could be imminent.

 

Bitcoin NVT Signal Chart 05.07.2018

NVT Signal – This short-term signal continued its upward trend again, reaching a recent high of 142. In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Overall, there is potential for the upward trend to continue in short-term, though NVT Ratio suggests a downturn is looming.

CoinMetrics Charts

CoinMetrics has provides great charting tools for a number of top cryptocurrencies. Kalvichkin’s NVT is a regular check for checking short term trading signals. 

Kalvichkin's NVT - BTC ETH 05.07.2018

Kalvichkin’s NVT – Similar to NVT Signal, this suggests an upward trend is likely to continue for both BTC and ETH in the short term.

Articles of Note

Is Ether a security?

I tend to overlook most regulatory concerns, assuming they’ll sort themselves out and should only be speed bumps in the long run. If the SEC determines ETH is a security, it could have repercussions for some whales. The fact that VCs have lobbied the SEC for a ‘safe harbor’ both shows how important this is, and makes me think there won’t be any major negative impact with some sort of compromise reached.

Crypto Moats

The open nature of crypto currencies allows for code to be copied or forked easily, making it much harder to establish moats (to use a Warren Buffet phrase) to protect from competitors.

Robert Miller, Director of Business Development @medical_chain, wrote on the topic and suggested some potential moats, including:

  • Superior brand
  • Superior developers
  • Partially/fully closed source code
    “Cryptocurrencies might withhold some or all of their code in the future to keep competitors from taking their code. Spencer Noon touches on this in his post The Persistent Forker but developers could put their code in a “black box” that was able to prove the code did not change over time.”
  •  Life span
    “Nassim Taleb introduces the idea of the Lindy Effect in his book Antifragile. The Lindy Effect states the future life expectancy of non-perishable assets is proportional to their current age. In other words, the longer something has been around the longer we can expect it to stay around.”
  • Network effects
  • Good governance
Fred Wilson counters Warren Buffet on Crypto Investing

Speaking of Warren Buffet, he recently made some remarks about Bitcoin and crypto, saying:

When you buy cryptocurrency, Buffett continues, “You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”

On AVC, Venture capitalist Fred Wilson countered by stating that he’s not looking at crypto correctly, assuming they are collectibles, rather than fuel:

But what these crypto tokens are is entirely something else. They are the fuel that powers a new form of technology infrastructure that is being built on top of the foundational internet protocols. Ethereum and EOS are smart contract platforms that allow developers to create decentralized applications (Dapps in the vernacular of crypto). Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.

It’s a good counter from someone who invests more like Buffet than many might assume, given they both look to buy and hold for a long investment period.

The end of ICOs

While enormous amounts are still being raised in ICOs, with over $8 billion raised in 2018 already, it’s increasingly coming in private sales. In the Token Economy newsletter, Stefano Bernardi writes about the downside:

And I’m bored.
I’m bored because I now see startups having to spend 6 figure sums on lawyers instead of building their products.
I’m bored because I see people making a killing from being accredited investors and thus being able to access opportunities that others can’t.
And I’m bored because all of this regulatory attention and focus is necessary, given that the scammers army has found its new honeypot.
We really can’t have nice things.

And makes his prediction for the future of ICOs:

Very hard to say, but our guess is that “normal” VC rounds will become more of a norm, there will be fewer public ICOs from legit projects, and the tokens will trade on exchanges directly with the company, or its treasury unit, or some specifically chosen early investors acting as market makers.

 Why Decentralization Matters

Many of the early believers in Bitcoin and cryptocurrencies were attracted by the hope for decentralized systems. Spencer Bogart writes that the path to decentralization may be through centralization first. He cites problems with going do a decentralized model too early, as well as problems with becoming too centralized:

Either these platforms will offer strong assurances (“permissionless-ness”), in which case they will attract “sovereign-grade” attackers (and “platform-grade” censorship resistance will be insufficient) OR they will embrace censorship and permission-ing, in which case they will end up as less efficient varieties of today’s centralized platforms. Regardless, neither path appears sustainable.

The path forward: Highly decentralized base layer with increased centralization (and efficiency) on higher layers

He acknowledges a trend toward further centralization and it optimistic:

Instead, I’m most optimistic that highly decentralized networks will provide the robust foundation on top of which we can realize the efficiencies of centralization in higher layers — should it be desired. It’s a path that will likely take longer and be more difficult to build, but it might be the only viable route medium- to long-term.

Final Thoughts

A story from The Process Matters by Nick Maggiulli:

On the first day of ceramics class the teacher announced that the students would be split into two groups. One group would be graded on the quantity of the work they produced while the other group would be graded on the quality of the work they produced. The “quantity” group had to create as many clay pots as possible over the next few months while the “quality” group had to produce a single clay pot as best they could.

Months later as the students turned in their pots to be graded, the teacher came to a surprising realization — all of the highest quality pots were produced by students in the “quantity” group.

Regardless of regulatory action, crypto is here and it’s not going away. There’s a number of projects live, more in development, and even more that are just being conceived. Some projects will work, many won’t. The number of successes will increase as more projects are created. It’s early.

 

 

ETH & QTUM to rise in 2018?

Earlier this year, Store of Value published a few predictions on the cryptocurrencies to rise in 2018. They start off with a bold one:

Ethereum will overtake Bitcoin by the end of 2018 and QTUM will be a top 5 cryptocurrency. There are some incredible things brewing for both and I don’t believe the market has fully realized nor appreciated what’s going on. Ethereum has the largest user and developer base in the West. QTUM has gained a strong foothold in the East.

These predictions aren’t made off the cuff; each is backed by an reasonable argument. For example, QTUM can benefit from both BTH and ETH “winning”:

Ethereum ecosystem wins = QTUM ecosystem wins
Because QTUM uses the EVM, any projects building on Ethereum can be easily ported to QTUM. A corollary to this is that any successful dApp or protocol on Ethereum can easily become a successful dApp or protocol on QTUM. QTUM doesn’t need to compete with Ethereum for its developer ecosystem, it shares Etheruem’s developer ecosystem. There are many amazing up-and-coming projects for Ethereum such as 0x and Augur and I can envision a world where QTUM has its own 0x’s and Augurs.

Bitcoin ecosystem wins = QTUM ecosystem wins
Because QTUM uses a Bitcoin-based UTXO blockchain as its settlement layer, QTUM can take advantage of any upgrades to Bitcoin. Here’s a few examples: QTUM is already using SegWit and is primed to deploy its own version of Lightning. Once deployed, QTUM is essentially Ethereum with Lightning. How cool is that? It’d be even better for QTUM if Lightning turns out to be a massive success.

Read the full post at Why 2018 Will Be The Year Of Ethereum And QTUM at Store of Value.

 

$280 million in ether gone forever?

From Code mistake freezes up to $280 million in digital currency at Engadget:

Observers estimate that there could be more than 1 million in ether locked away, which would amount to roughly $280 million.

The digital wallet company Parity is warning users that a large volume of Ethereum funds have effectively been frozen after code contributor devops199 claims to have accidentally deleted the library needed to use multi-signature wallets (those that require more than one signature to move funds) created after July 20th.

This doesn’t mean that the currency is permanently off-limits, but unfreezing it and compensating users could involve a bailout. And whatever happens, the incident highlights a simple problem: digital wallets and cryptocurrency in general are only as reliable as the code that guides them.

ETH Challenges & Bullish on Bitcoin Despite Drawbacks

Albert Wegner shared his view on the state of Bitcoin, Ethereum, and of course, ICOs, which he acknowledges are likely slowing down, at least for now:

So where are we today? At least temporarily there seems to be a slow down in ICOs. This could turn out to just be a lull before more activity resumes but it could also be a welcome return to more sanity (if the latter, there is likely going to be an over correction).

As most ICO tokens are built on top of Ethereum, he sees challenges ahead and believes progress needs to be made to scale Ethereum:

In either case Ethereum faces a strong headwind not only from this change in sentiment but also from relatively costly and slow on chain computation. The bull case for Ethereum is that sometime in 2018 we will see a couple of Ethereum based projects launch successfully and get broad adoption *AND* progress is made on Ethereum scaling (either directly or through projects such as Raiden or Plasma). The bear case is that at least one, or possibly both of these don’t happen.

And on Bitcoin, he is cautiously bullish and ok with Bitcoin’s “drawbacks”:

Oddly I think that Bitcoin continues to be misunderstood by many people in the cryptocurrency space who want it to be more than it has to be for it to succeed. It is one of those cases where the more you know, the more you are likely to overthink it. Yes, Bitcoin has all sorts of drawbacks as a blockchain, but it is the one cryptocurrency with a widely understood use case: censorship resistant store of wealth