Cryptos Needn’t be Cryptic
When the bear ends
As of Friday, 15 February, the bear market has lasted 420 days. By the end of this week, it will be the longest bear market in crypto's relatively short history. From December 2017 until the start of this month, Bitcoin has dropped more than 80 percent (since hitting an all-time high of nearly $20,000), with little indication of a turnaround. But don't despair just yet - even though we are close to seeing the longest stretch, it's not the deepest. The five-month bear of 2011 saw a drawdown of 93% and the crypto winter from the end of 2013 to the beginning of 2015 saw a total drawdown of 86%. Actually, bitcoin has managed to set higher lows in six of the last seven years. In other words, bitcoin's price bottom is incrementally higher almost every year, stretching back to 2012.
The rationale behind the ongoing decline? One word – Bitcoin ETF (or is that two?). If you\ve heard these three letters too many times by now, but still can't account for their mysterious powers to stir crypto prices - let's try to unpack this. Many analysts see the ongoing market decline as a ricochet off the back of the U.S. Securities and Exchange Commission's recent delays and withdrawal of the Bitcoin ETF by investment firm VanEck and blockchain company SolidX on the Chicago Board Options Exchange (which has since refiled). In fact, the SEC has already rejected at least 10 such proposals. This may change soon though. In an interview last week, Robert J. Jackson Jr., a commissioner at the SEC, said: “Eventually, do I think someone will satisfy the standards that we've laid out there? I hope so, yes, and I think so.”.
Predicting crypto price in this nascent industry is notoriously difficult, and many analysts have been burned trying to come up with logical frameworks. What is certain though is that this year regulatory factors will play a big part of the industry's evolution.
The year of the stablecoin?
In January, Tether climbed to fourth place in the crypto rankings by market cap, superseding popular coins such as EOS, Bitcoin Cash and Litecoin. Many within the crypto industry, including ourselves, have touted 2019 as the year of the stablecoin, and clearly there is support in the market for the most well-known of these in Tether. However, upon closer inspection, the shift in Tether's market cap appears to have been caused by lower liquidity in the market around the more popular cryptoassets, including bitcoin, XRP and Ether. This was a temporary move by investors wanting to reduce their exposure to cryptos, and placing equity in Tether, which is pegged to the US Dollar. Therefore, it is more a sign of investor sentiment in the market than a widespread take-up of Tether.
There is now real-time data showing that Tether is no longer as dominant in the stablecoin space as it has previously been, with other competitive solutions emerging. While trading volumes of Tether are stable, new stablecoins like TrueUSD, Paxos and Gemini have been gaining ground. This is good news for the stablecoin market as we start to see real competition that could spur further innovation in the ecosystem.
While it might take some time before a national government decides to issue currency in the form of stablecoin (which will be a huge leap for the market), investors are becoming increasingly sophisticated and are looking to combine the advantages of crypto while being less exposed to the volatility in the wider market. With the increased demand, we expect to see significant innovation in the space in 2019 and beyond.
Pension funds dipping their toes in the water
I read with interest the news that two US pension funds have made a $40 million investment in the Morgan Creek Blockchain Opportunities Fund. In my view, this can be seen as robust risk management. The two Fairfax pension funds have a combined $5.7 billion under management so this exposure is less than one percent. This means the potential upside from a rally in crypto far outweighs the downside risk. It will be interesting to see if other pension funds follow suit.
Author： Simon Peters
Executive editor： Emily Sun