To everything there is a season, and a time for every purpose under heaven: A time to be born, and a time to die; a time to sow and a time to reap; a time to kill and a time to heal, a time to break down and a time to build… – Ecclesiastes 3:1-3
The last week in crypto currencies reduced the market capitalization by $41.5 billion, with most crypto indices falling 25%. BTC touched $4035 off from the 2018 high of $19,843.11, while ETC fell to $119.402 from $1,420.86. Price action rather than news again dominated the space. Understanding the drivers for the retracement in price will sow the seeds for knowing the opportunity to rally again. The reasons for any price drop in any market are numerous – more sellers than buyers – but here are the standard three:
1) Technical – the break of $6000 and $5800 last week led to a Fibonacci retracement to $4200 in BTC.
2) News – Bakkt delays launch. Bakkt delayed the launch of their Bitcoin futures trading platform until January 24, 2019. The delay came just 1 day after the price of Bitcoin and the cryptocurrency market as a whole began to plummet. Of course, there is also the ongoing BTC Cash SV vs. ABC hashwar, the ongoing SEC/CFTC investigations, and the exchange issues that populate headlines and add to the gloom.
3) Leverage – The unwind of ETH ICO money continues to be a significant driver of selling as the platform allowed fractional money growth and that unwinds with the price drop. While these three factors explain much of the reasoning for selling digital assets there are two other stories that matter – the correlation of the crypto market to all other risky assets – whether that is oil which fell significantly or equities where the tech sector again led losses – FAANG is now in a bear market. Both are fundamentally connected to crypto currencies as one captures the cost of energy and the other the growth and value proposition of new technology. The other factor that matters is seasonal – and not just a calendar year view – but a business or bubble cycle outlook. This is where the BTC bubble sits in comparison to other famous financial manias.
The rise and fall of markets is universal. The key for understanding what drove the cycle remains essential for believing in the 5th wave of rebuying for this asset class.There are a number of things supporting the 2019 outlook for crypto – here are the top 3 mentioned in the last week:
1) Security Tokens. These are seen replacing the leverage crisis from the ERC-20s and ICOs of 2018 with a more equity like ownership structure, regulatory clarity and blockchain efficiency. Many see this as the viable alternative to present IPOs and VC funding. Platforms like tZERO, Securitize and Polymath are all building frameworks for tokenizing equity today.
2) Bakkt and more institutional futures. The delays this week hurt the market but its planned start in January 2019 matters as it allows the NYSE to list the contracts and adds to transparency and liquidity in the space. The key difference is this one – The BAKKT contract fundamentally differs from existing institutional focused futures provided by the CME and CBOE platforms, because first, the product is physically settled. Meaning traders receive actual Bitcoin at the end of their contracts following initial payment with dollars. This means new Bitcoin is purchased by BAKKT with each new speculative contract agreement — in contrast with CME and CBOE futures where all bets on price movement have final settlement in US dollars. Second, the contracts won’t support margin or leverage. Again, this is in contrast to the riskier, leveraged BTC future options available on platforms like Bitmex, CME and CBOE.
