Section 1: Global market update



In the cryptosphere, the atmosphere during recent months has been electric – even more so than usual. The renewed excitement around cryptocurrency prices has revived interest, waking up enthusiasts and opponents, not to mention those who continued to be involved after the 2018 downturn.


What is impressive with distributed ledger technologies is that it touches so many levels of the economic landscape, and to their essence. As such, it is challenging to guess how many of the current business models are going to be wiped out and how fast. Never before has a brand new (and readily available) macro-economic model been able to replace central banking principles, so it is clear it has almost no chance of overtaking the present system without significant opposition, in a situation whereas many will lose in the transformation, as those who will win.

So much uncertainty is both scary and exciting, and in principle, not much of it has been resolved over the past two years. We are all aware of what DLTs can do, but the social acceptance of it is not at all apparent. In this context, the inception of Libra, the all-out explosion in industrial projects that we are witnessing in 2019, the laborious effort to solve scalability issues, and the non-coordinated involvement of governments are all signs that much is going on in all directions. As such, it becomes impossible for a single individual to survey even the major current initiatives and use cases.


How some structure is going to emerge is unclear, but systems never diverge indefinitely without breaking apart. Some structure is needed, and with no surprise, we are starting to observe that standardization is a topic embraced by the actors in virtually all ecosystems. The least we can say is that there are still some exciting times ahead!




In early June, awakened by the price spikes, bears began to voice their doubts and concerns about Bitcoin, the likes of which we had not seen for a long time, since the beginning of 2018. This did not prevent cryptocurrencies from reaching surprisingly high levels during the same month.


In fact, with the price of Bitcoin, reaching almost US$14,000, the technical price pattern was not the same as that seen in 2015-2017. Whatever reason you ascribe to it, the reversal of the trend towards a period of growth has been faster and more vigorous than most people would have expected. We are probably not taking any risk in saying that it was the fundamental elements that investors/speculators believed in that caused the mid-year price increase – and they probably still have the same beliefs. Whatever it was, it prompted a new wave of entrants seeking to buy crypto assets and caused enthusiasts to be reluctant to sell, while opponents were simply out of the market (so, have no or little influence on it).


Since the observable events follow a different path, let’s take a minute to reflect on what the differences are between 2019 and 2015?

  • In 2015, there were no newspapers/websites/channels, or very few, that were talking about Bitcoin, let alone Ethereum or any altcoin. Today, the press knows that talking about crypto will sell papers, and the mainstream media often broadcast news of crypto price movements, probably creating a positive feedback loop that did not exist four years ago. In part, this may explain the surge in price volatility seen since the beginning of April.

  • The viral effect of enthusiasts in their environments may not be in proportion to their number. Professionals, especially traders, have also entered the field in large numbers since then (and the possibility that some may attempt to manipulate the markets cannot be excluded). Actors have gained a better understanding of the technology and of the true nature of the crypto assets they are getting into, which may have had the effect of quenching some of the hype that was fueled by uncontrolled “fear of missing out”, so perhaps making the whole environment a little less volatile.

  • Due to the unprecedented exposure gained by Bitcoin, Ethereum, XRP, etc., the kind of people that are entering or considering entering the field is changing, and their modus operandi, as well as the depth of their pockets, cannot be the same, even if their psychology is similar – which it is not. We will touch on that later in the report, but that might be the most significant change, compared to four years ago.

  • Today, access to cryptocurrency is democratized, let’s even say more comfortable than it was in 2015. Exchange platforms have matured, and user interfaces and trading facilities on all of them have been improved. The inflow of money to the sector remains a crucial point, but it is a fact that more services are now available than ever to get in and out. Hacks continue to happen, but they represent a smaller portion of the capital handled. Also, platforms are more efficient at ​fixing weaknesses, and news of malicious activities are no longer regularly hitting the headlines.

  • In terms of trading behavior, for similar price levels, we observe much higher traded volumes on the platforms, almost tenfold, according to CoinMarketCap. So, even if much of it is fake (probably at the time a good portion was fake already), we can safely say that there has been a significant increase in real activity. This is undoubtedly fueling today’s volatility, and the dynamic is stronger than could be observed in the previous cycle.

  • Use cases and concrete adoptions are still weak, but growing almost exponentially. The pace at which businesses and services are launching using the technology is mind-blowing compared to what it looked like a year ago. This is another feedback loop that was not as powerful in 2016.

  • Governments and regulators have taken positions regarding cryptocurrencies, although not on everything. Nevertheless, and threatening declarations from officials are going to resume, and are likely to intensify as the price of cryptocurrencies goes up. However, the past two years have shown that Bitcoin ownership and its use for payment are not expected to be banned in democracies, so the legal environment is somewhat firmer than it was. At the same time, the threat that BTC & co poses to officials is going to grow with its adoption level, which is likely to impact its growth pattern, and has the potential to moderate the excessive behaviors we have been used to.


For this time let’s look at the correlations between crypto assets, rather than between the crypto classes. Interesting comments can be made, especially between Bitcoin and any other coin:


  • We can observe an apparent general increase in the correlation figures in recent years. To us, this is very instructive because it is counterintuitive. One would have thought that the crypto assets that are out there are very different objects based on their characteristics: infrastructure, ownership, anonymity, etc. So, we would have expected that the various asset classes would evolve independently, as investors or speculators projected a different mid-term future for each of them. Well, at least lately, this has not been the case at all.

  • Before mid-2017, the correlations between altcoins and Bitcoin (and among altcoins themselves) were quite messy. Since then, the increases and decreases in correlation are much more of a crowd move. The particular case of Ethereum is extreme: at the beginning of its life, ETH was negatively correlated to BTC. Since mid-2018, its correlation has been 0.8.

  • Almost all correlations increased from below 0.5 to above 0.75 during the first half of 2018, which was the start of the bear market. Since July 2018, the correlations have plateaued, and recently the trend is for a minor decrease in correlation, especially Litecoin; everyone is free to interpret this as they prefer, but to us, a year-on-year low in correlation may indicate that the crypto market has been moving in a bullish direction.

Still, on correlation considerations, it is noticeable that the BTC rally at the end of June occurred simultaneously with a surge in the gold price, and expectations of accommodating monetary policies by the Federal Reserve.


Exchange volumes

We can only confirm that off-chain exchange volumes have increased drastically in 2019, even when compared to 2017. They are also superior to the volume registered at the beginning of 2018 and considering that they are expressed in fiat terms, this is even more striking when transposed to cryptocurrencies.


After a peak at the end of June, volumes have stabilized. One can expect that the increase will resume during the next rally. (see Figure 1 and 2).


















Articulation with the global economic situation

Whether due to an explosion of unrest in Hong Kong, the intensifying trade war between the US and China, or the Ormuz Detroit oil tankers at the center of Saudi-Iranian rivalry, it seems that the price of Bitcoin benefits each time. This is not to say that increasing world tensions are good news for cryptocurrencies, but one has to acknowledge that this might well be happening, and each time war scenarios are evoked, declining faith in fiat currencies, which are subject to depreciation, becomes a driver for a diversion towards BTC & co.


A significant piece of related news in the past three months was the decision by central bankers to maintain their accommodating policies. Central bankers usually tend to ease the money supply when the stock exchange collapses and lending by commercial banks declines, however, we are not yet in this situation, which is quite surprising.


The US Federal Reserve decreased interest rates by 0.25% to extinguish “threats ranging from uncertainties caused by Trump's trade wars, to chronically low inflation and a dim global outlook”, a move that has not been seen in over a decade.


You may be wondering if this is a countercyclical attempt to pre-empt the impending stock exchange crisis, believing that governments cannot afford a rise in interest rates at the current level of debt. The reality is that the money supply is likely to remain plentiful shortly, or at least the expressed signal is that it is not going to be tightened.


And arguably, the relative sustained abundance of liquidity is good news for the short-term price outlook for cryptocurrencies and other high-risk assets.

Macroeconomic impacts of crypto-assets

AAn interesting comment has come from Joseph Stiglitz – recipient of the Nobel Prize for Economics. He has stated that cryptocurrencies should be shut down. His view is that cryptocurrencies enable illicit activity by making financial transactions less transparent. He believes that the privacy of transactions should be fought because when more data is available in the real-time economy, it is more efficient and can be more effectively regulated.



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