Weekly Crypto Outlook 05-01-2018

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

I follow the Bletchley Indexes, which CoinMetrics believes “offer the most thoughtful and consistent approach to index construction.”

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 Cryptocurrency Index Performance 05-01-2018

Obserservations

  • Over the last month, the Application Index (consisting of the likes of Tron, OmiseGo, Binance, Icon, and two dozen others) has outpaced the market as a whole.
  • Platform Index has roughly kept the same pace as the market as a whole, while outpacing the top 10 index.
  • Currency sector weakest over last month
  • In general, “even” indexes (with an even allocation to all assets) have outperformed weighted indexes over most time periods, with the exception of nearly even performance for the total market over since index inception.

Global Crypto Charts

For a quick look at the global markets from another perspective, I find 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.

Market Share of Top Cryptocurrencies

Market Share of Top 5 Cryptocurrencies - 05-01-18

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.

Top 20 Cryptocurrencies by Market Share

The top 20 currencies (by market cap) currently make up roughly 85% of the total crypto market share.

TradingView Technical Indicators

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

Cryptocurrency Technical Indicators 05-02-2018

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.

Google Trends

Google Trends Bitcoin + Crypto 05-01-2018

After a significant rise in Google searches for “bitcoin” in late 2017, there’s been a downward trend, which continues this week. 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 05-01-2018

NVT RatioThis long-term cycle tracking ratio has dipped in the past ewek, though still remains very high. This is worrisome as it suggests a significant drop may be on the horizon.

 

Bitcoin NVT Signal chart 04.16.2018

NVT Signal – This short-term signal continued its upward trend from the previous week. It has moved significantly over the last few weeks week and now sits near 130. 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

Bitcoin Kalvichkin NVT Signal May 01 2018

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

Articles of Note

How reliable are ratios?

CoinMetrics collects a large amount of data on a number of coins. In the past, they’ve written about the challenges of collecting data for a number of different currencies, as well as problems with reliability of the data. Unsurprisingly, they understand the power and pitfalls that come with analyzing such data, particularly at a relatively nascent stage.

This week, they wrote on the potential problems of using ratios for valuations:

While users are more empowered than ever, uncertainty remains about a) whether ratio analysis is appropriate, b) how to interpret major ratios, and c) the shortcomings of such analyses.

NVT (network value to transaction volume) has become a popular way of measuring value, and I’ve included it as part of my own regular checks based on the writings of Chris Burniske, Willy Woo, and others. However, this may be a flawed method:

..ultimately, Bitcoin price isn’t a function of its transaction count! That’s only one small variable in the entire system – other important variables include average transaction value, fees, hashrate, accumulated trust, miner concentration, developer innovation and so on. 

Thus, the relationship between transaction count and the economic activity occurring on the network is an extremely tenuous one – we will cover this in a future post.

Read the full post for more info and check out their previous posts on the trouble with data collection.

 Making investment & ownership open to all

Nick Tomaino, founder & general partner of crypto investment fund 1Confirmation, writes on how crypto can make investment and ownership truly open to everyone and how regulation from the likes of the SEC is a threat:

This could have a negative effect of giving wealthy individuals and institutions ownership of the the blockchain ecosystem, leaving the masses out of wealth creation in the industry.

In the event all tokens are determined to be securities, he suggests a possible workaround:

Another possibility is that many more founders could go the Satoshi route of being completely anonymous upon launch to allow their tokens to maintain broad accessibility and also avoid any regulatory risk. If regulators come down aggressively and say that all tokens are securities, there is a strong chance that this happens.

 Blockchain to transform digital art?

While Cryptokitties may have been mocked in some circles, there are incredible new possibilities for digital artwork stemming from ERC-721 tokens. Each token is non-fungible, giving it a uniqueness from other coins. The public ledger aspect proves both authenticity and scarcity.

Here’s an 18 minute discussion on digital art with the founders of cryptokitties, hosted by Chris Burniske, via AVC.

The talk includes discussion of the human aspect of art and how it effects value (presumably higher) compared to AI-created artwork.

Blockchain as decision maker
Prolific blogger and economist Tyler Cowen opines on how blockchain could change the world in terms of governance:
To drive the point home, a blockchain is actually a form of governance and that is what makes it such a potentially radical idea. We’ve had families, and businesses, and governments, all as methods for making decisions.  Now we have blockchains. That could be huge, but is it going to take off?
Cowen outlines a scenario for this to happen and concludes:
That all said, I have more important news yet: I am not sure this cannot happen. In fact, I give it at least a 5 percent chance of taking place in some form, even if not exactly as I have outlined.
The big ICOs are alright

2017 saw some enormous ICOs based on little more than white papers. Jeremy Epstein checks in some of the biggest ICOs, nearly 1 year later.

He looks at the Brave browser, which incorporates the Basic Attention Token, Bancor, Gnosis, Golem, all of which he finds are doing well.

While the SEC and others have been clearing out the scam projects and regulators are cooling the market a bit (which is ultimately good), we are seeing more and more of the first wave of ICOs start to deliver.

This is the lull following the frenzy of November/December of 2017 when the infrastructure and apps are getting built.

Final Thought

“I am not saying here that there is no information in big data. There is plenty of information. The problem — the central issue — is that the needle comes in an increasingly larger haystack.”

Nasim Taleb wrote that in 2013, and it feels more true today. Where will be in another five years?

 

Cowen & Levine on Where Tech Will Take Finance

Two of my favorite writers discussed where fintech is headed.

From Matt Levine:

The point of most innovations in consumer finance has been precisely to reduce its presence in our lives: Instead of talking to a bank teller to get money, you use an ATM. Instead of physically walking into a broker’s office to talk about which stocks to buy, you buy index funds through a web page. Or, now, you click to enroll in an app and it does all of your asset-allocating and stock-picking and tax-harvesting and so forth for you. I think that a lot of financial technology is heading in the direction of perfecting that vanishing act, so that in 20 years you’ll just think about financial things less than you do now.

Really ambitious proponents of blockchain technology, though, envision a world in which a lot of identity information — your citizenship and marital status and college degrees and employment and certifications and whatnot, maybe your fingerprints and retinas and DNA, as well as of course your credit information — are encoded on a blockchain and used in every aspect of your life.

And from Cowen:

Perhaps I expect bigger changes than you do, so let me follow up on a few possible future scenarios. Here’s one to start with: Big data and algorithms will become so good that only the good credit risks will be able to borrow. Of course this will help many creditworthy people, but the social-insurance function of credit might disappear with large numbers of risky borrowers locked out of the loan market and perhaps some insurance markets too.

 

Levine is, as usual, quite level-headed about new developments and seemingly prepared to be underwhelmed. Cowen sees bigger potential problems, which he’s also wont to do.