Crypto Market Update: Blow Up

Crypto Market Update

My weekly crypto market update uses a standard set of information sources.

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.

crypto index market update 05.14.18.png

Obserservations

  • Bletchley 10 and Total Market down over 16% against USD over the past week
  • Both Remain up over 20% over last 30 days
  • Even Indexes roughly down the same amount as weighted indexes over last week
  • Platform, Application, and Currency indexes all down against USD and BTC.
  • Currency has performed best recently and is up over 25% vs BTC over last 90 days

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: $410.58 billion

total market cap 05.14.2018

 

Market Share of Top Cryptocurrencies

Market Share of Top 5 Cryptocurrencies - 05-14-18

Bitcoin’s market share has declined to ~36%, 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 85% of the total crypto market share.

TradingView Technical Indicators

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

tradingview technical indicator score crypto 05.14.2018

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). 

  • BTC has turned much more negative in the short-term, while the 30-day technical analysis remains very positive
  • ETH remains postive vs USD, albeit less strongly than last week.

CRYPTO PERFORMANCE

bitcoin eth performance 05.14.18

  • BTC down over 7.5% vs USD over last week
  • BTC up 418% in last year – and “only” 35% in last 6 months.

Google Trends

Google Trends Bitcoin + Crypto 05-14-2018.png

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

I’m tempted to stop tracking this, as  I believe there will be fewer searches as the public gains knowledge. However, significant price action could still lead to search volume surges.

WooBull Charts

Bitcoin NVT Ratio - 05.14.2018

NVT RatioThis long-term cycle tracking ratio has mostly continued a downward trend, although a slight uptick in the past few days. Regardless, the ratio is quite high and suggests a further downturn is due.

 

NVT Signal -This short-term signal has moved down significantly over the past week from 142 to 126. It appears to be breaking a support trend, suggesting bearish price movement in the short term.

In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Willy Woo recently gave is own update using the two charts above in a Twitter post. Great insight as to how he reads these charts. His take:

Putting it all together, BTC is still unwinding from mania, I think we are on the plateau of another dead cat, I put the next downward move, more gentle this time in the window of 7-14 days from now. /7

But price-wise I don’t think we are that far from the bottom. So not far to go on the short side, lots of long to go when it fully unwinds and sets up in the second half of this year. /8

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 05.14.2018

Kalvichkin’s NVT – Similar to NVT Signal, Kalvichikin’s has begun to trend downward both both BTC and ETH.

Articles of Note

On Radical Markets

Here’s a post from Vitalik Buterin inspired Eric Posner and Glen Weyl’s new book, Radical Markets,

First, although I spend most of my time in the blockchain/crypto space heading up the Ethereum project and in some cases providing various kinds of support to projects in the space, I do also have broader interests, of which the use of economics and mechanism design to make more open, free, egalitarian and efficient systems for human cooperation, including improving or replacing present-day corporations and governments, is a major one.

Consider a system where property owners themselves specify what the value of their property is, and pay a tax rate of, say, 2% of that value per year. But here is the twist: whatever value they specify for their property, they have to be willing to sell it to anyone at that price.

Sitting with the cyber-sleuths who track cryptocurrency criminals

Crypto isn’t as secure as many believe, as shown in this inside look at fighting criminals using crypto.

Once multiple accounts have been linked to the same owner, you can try to figure out who that owner is. Linking Bitcoin accounts to real-world identities is possible because information tends to leak out. Regulated cryptocurrency exchanges—generally those in the US or Europe—must follow know-your-customer and anti-money-laundering rules, which require people to hand over identification before using their services. Some people are even so careless as to post their supposedly private Bitcoin addresses in online forums. “What people forget is that the blockchain is just one half of the equation,” says Knottenbelt.

In blockchain we trust – MIT Technology Review

Regardless of the price, blockchain will have major implications, as predicted in this piece on how this is a shirt akin to the advent of double ledger bookkeeping.

A new form of bookkeeping might seem like a dull accomplishment. Yet for thousands of years, going back to Hammurabi’s Babylon, ledgers have been the bedrock of civilization. That’s because the exchanges of value on which society is founded require us to trust each other’s claims about what we own, what we’re owed, and what we owe. To achieve that trust, we need a common system for keeping track of our transactions, a system that gives definition and order to society itself. How else would we know that Jeff Bezos is the world’s richest human being, that the GDP of Argentina is $620 billion, that 71 percent of the world’s population lives on less than $10 a day, or that Apple’s shares are trading at a particular multiple of the company’s earnings per share?

 ‘Ebay for CryptoKitties’ Raises $2 Million from All-Star VCs
Digital goods are just getting started and marketplaces seem like a natural way to exchange them.

 users need a place to more easily buy and sell those items.

It turns out OpenSea wasn’t alone: the decentralized online marketplace for physical itemsOpenBazaar has plans to open up its platform for digital items such as CryptoKitties as well, plus OPSkins recently created Wax, a platform for spinning up decentralized exchange services for these items.

Word on the street: A big week for institutional interest in crypto

includes:

JP Morgan’s boss of blockchain project says more to come

NYSE owner planning bitcoin swaps and crypto exchange

Former Goldman Sachs president backs blockchain

The 10 largest ICO fund raises: successes, controversies and lessons learned
The top ten ICOs have been very successful in gaining early positive attention around their projects; however, many on this list have had lackluster performances in the time since their ICOs.

Final Thoughts

Bitcoin and the crypto markets more widely look susceptible to a short term price drop. Long term, there are are still many positive signs that it will “blow up.”

For me, I grew up listening to hip hop, I grew up in Oakland. It’s a little bit more like, “let’s try to make something that doesn’t suck, let’s try to do great stuff, let’s try to make big things”. But it’s a little bit less of, “let’s create an in-crowd and define all the things that that in-crowd hates so that we all feel closer to each other”.

How Token Hodlers Create Added Volatility

A post from late September by Primoz Kordez, an advisor at ICONOMI, on token “hodlers” create volatility:

…there will always be a certain share of token holders who act as investors, either active or passive. Even if these investors are passive in their behavior, do they really have no effect on a network at all? Interestingly, in the token economy an investor is someone who impacts the floating number of tokens that can be utilized. By having more “hodlers” or passive investors in the token ownership structure, they effectively take tokens out of circulation for use. Assuming velocity of tokens and total spending stay constant, the floating value per token must increase if more tokens are hoarded by investors.

Essentially, the number of active tokens is reduced thus making them more susceptible to large swings caused by a large buy or sell from a passive investor. If a number of tokens are suddenly dumped onto the market:

It can lead to a downward spiral in which investors’ decisions cause underutilization of tokens exchanged, leading to lower network value and causing additional investors to flee.

This problem is most costly when token utility users (as opposed to passive holder) need more tokens to meet increased utility demands. They must trade for the tokens from another coin at a poor rate and don’t benefit from a higher token value since they require tokens for real usage.

The best scenario for stable and predictive token dynamics is to have more actual users in the ownership structure, but this isn’t something that can really be controlled.

Good projects need to be owned by real users – not passive investors. Users get the most value out of the network and should be rewarded for usage. Perhaps it’s possible to reward heavy users with increased token values or additional tokens. Using Vitalik’s idea of a predetermined sink, some percent of unused tokens could be burned, thus slightly reducing the number of tokens held by non-users? (A holding tax of sorts).

For stable token values, sinks are highly beneficial

Vitalik published a post on the valuation of medium of exchange tokens, which have dominated the ICO landscape. This type of token implies that it can be exchanges for goods and services on a platform built by the development team. It’s similar to a Kickstarter-style funding, except that tokens must have ongoing value. It’s not sufficient to deliver a product once.

…the cycle is not complete, and in fact it never will be; there needs to be an ongoing stream of buyers and sellers for the token to continue having its value.

He goes on to the many factors that go into determining the value of a token, concluding:

One immediate conclusion from this particular insight is that appcoins are very much a multi-equilibrium game….Another, and perhaps even more important, conclusion is that the market cap of an appcoin depends crucially on the holding time H. If someone creates a very efficient exchange, which allows users to purchase an appcoin in real time and then immediately use it in the application, then allowing sellers to immediately cash out, then the market cap would drop precipitously….hyper-efficient exchanges are around the corner

Due to this, he says values cannot be sustained solely on their usage as a medium of exchange; there are too many outside factors. He cites Etherdelta as an example of an alternative model, where fees are collected in the interface. Another option it to set a side a specific amount to buy back tokens and burn them, thus reducing deflation/costs of holding over time.

The important thing is that for the token to have a stable value, it is highly beneficial for the token supply to have sinks – places where tokens actually disappear and so the total token quantity decreases over time.

There’s been a lot of discussion lately about the value of tokens and the right way to do a token sale/ICO. The standards around tokens/ICOs need to be raised and hopefully this helps push more projects in the right directly. Of course, it won’t do much to help the dozens of poorly structured projects that have already raised millions.