December 15th Update on Cryptoassets, by Van K. Tharp, PhD

OVan Photover the last month we’ve basically had another 50% drop in cryptoassets – and we have passed the point where I’d thought everything would have started to go up. This is a prime example of why you should pay attention to what the market is doing right now rather than what you think it should be doing or what it will be doing. Reality (what is happening now) is a lot more important than your theories about what might be happening. Cryptos have been going down through 2018 and until that decline stops, it’s not a market to even put your big toe into (if you’ll pardon my test the waters metaphor).

2019 will probably be a huge year for cryptoassets but until you see an uptrend, staying out of the market is the best policy. The new target date for the opening of the Intercontinental Exchange (ICE) platform BAKKT is now sometime in January. Microsoft and Starbucks are among some big name partners in the project which will include federally regulated market and custodial services. Institutions typically cannot hold their own assets, someone else (a custodian) has to hold them. For cryptoassets, there are all sorts of issues around security etc. that have to be overcome to solve the custodian issue.

Most institutions would love to have some exposure to cryptos because they are uncorrelated with other assets such as equities. In addition, cryptoassets offer the potential for huge gains, which is exactly what pension funds have been looking for in their portfolios.

Now let’s take a look at the Bloomberg Index, the Bloomberg Galaxy Crypto Index. The index tracks ten major cryptoassets: Bitcoin (BTC), Bitcoin Cash (BTC), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), EOS (EOS), Ripple (XRP), and three privacy coins DASH (DASH), Z-Coin (ZEC), and Monero (XRM). Bloomberg started the index in May at 1000. It reached a high of 1020.73 on May 4th but since then, the index shows a clear downtrend.  Last month, the index dropped 50% and it’s probably dangerous to invest in this asset class until we at least have two months of stable prices. Here is a graph of the index to date –
921 chart1
Bitwise has also opened a HOLD 10 private index fund in which you can actually invest. HOLD’s only difference is that it holds Stellar (XLM) while the Bloomberg Index holds Ethereum Classic (ETC).

Crytocompare also has an index of ten coins and includes: Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, Stellar, Dash, Cardano, and Tronix. So Cardano and Tronix are the two different cryptos held in this index compared to Bloomberg and HOLD 10.

The table below shows Bitcoin, a 1st generation cryptoasset, plus two second generation crypto assets ETH and NEO, and two third generation cryptoassets (Iota and Skycoin). BTC is basically just a ledger whereas Ethereum and Neo both enable smart contract execution based on the ledger. Finally, IOTA and Skycoin are important because they combine smart contracts with huge scalability and zero transaction cost. Just because a crypto is third generation, however, doesn’t mean it will survive or dominate earlier cryptos. I started monitoring these prices in October of last year but I also added prices from Jan. 15, 2017 to put the current crash into perspective.
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Date of the All-Time High Closes
*Dec 16, 2017 ** Jan 13, 2Spet018 ***Jan 15, 2018 **** Dec 8, 2017 ***** Dec 29, 2017

Everything is suddenly down a lot more and I have no idea why except perhaps it’s a last minute attempt by institutions to drive priced down before they plow into the market. This is a guess as they may be something else going on that I’m unaware of today. The market cap for BTC is now under $70 billion and the overall market cap for the top 100 coins is only $104 billion now – down from over $800 billion at the beginning of the year.

The second table includes the market cap for cryptoassets, the percentage of Bitcoin of the total market cap, the percent of market cap for the top five cryptocurrencies, and the number of cryptocurrencies listed.
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* Bitcoin was as high as 90% of the market cap of all cryptos at the beginning of 2017 to as low as 32% at the top of the market. Part of the difference is that there are now nearly 2000 cryptocurrencies. SO the number keeps going up even though the market cap goes down.

** This was the peak of the crypto market in terms of market cap. Data via Tama Churchouse, Asia West Investor email on 4/11/18

The data in both of these tables comes from now lists 2,073 cryptos, but it only gives a market cap for 1,749 coins (which is up by almost 100 coins over last month). The lowest ranking coin with a market cap is YTN. YTN’s total market cap? $29 (twenty-nine dollars). Probably everyone reading this article could afford to buy the entire supply if there is a market for it. Actually, there are five coins with a market cap of under $300 but my favorite coin on the list is in the junk category – PonziCoin. Its $980 market cap is down from $2,756 last month. Anyone want to buy that one? What a name to give a coin.

Yahoo Finance lists prices for about 100 cryptocurrencies so I can run some of my normal studies on the data. I’m only looking at those coins for which there is at least 100 days of data – which does not include every crypto in the top 100 list by market cap. Here are the top 15 by the Market SQN score (for 100 days) –
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Only two cryptos have a Market SQN score over 1.0 this month and only five of the top 15 coins have positive scores. One of my old favorite coins (FCT) is now the top coin.

Bitcoin Cash had a hard fork on November 15th. If you own the crypto you should have it in a wallet or an exchange where you’ll get the full benefit of the fork. It went up initially because of the fork, but now a month later, both sides of the fork don’t have the equivalent value that BCH had prior to the fork.

My separate crypto market model calculates a different listing for the top 15 cryptoassets. Notice that our second listing only has eight coins with positive numbers. Only one coin is green, however, and that might change with today’s movements in the crypto market. The bottom 15 coins are all red and there are some major coins on that list such as ZEN, BCH, ETC STEEM, NEO, DASH, MONERO, and BITCOIN.
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We have also classified the coins by type. We expect to improve this very preliminary version in the near future.

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Nothing in this chart looks like good news.

There are also a number of new coins that might be called stable coins meaning they represent a fiat currency that is fairly stable. The major crypto exchanges are not using many of them but by some time in 2019, there will be an exit strategy for cryptos into stable coins. These new stable coins can probably be trusted… unlike Tether which has no proof that it is really backed by the US Dollar. The top 50 coins in coin market cap now includes several stable coins:

  1. TrueUSD at 26, up from #43
  2. USD Coin at 27, up from #50
  3. DigixDAO at 105, down from #83

Tether is now ranked at #6. I doubt that any of these coins provide a reliable exit strategy just yet. But this is probably also something to look forward to in 2019.

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As I’ve said before, blockchain technology is an institutional revolution, not a technological revolution. Right now many institutions derive their power by determining value. Blockchain technology is likely to change all of that by allowing decentralized groups determine value. Institutions (and here I include big countries), however, will not give up their power easily. Right now, there is a conspiracy going on to keep crypto prices down so that big institutions can accumulate as much as possible while they scare the average guy out of the market.

Meanwhile, Coinbase listed BAT and ZRX which is good news because it means that the SEC does not consider them to be securities under the current SEC regulations. Many ICO projects are on thin ice with the SEC which plans to go after tokens that it considers to be securities. The SEC is also going after the exchanges that list the tokens being investigated.

Apparently, there are many pending ICO and crypto exchange investigations in the SEC’s hands right now. SEC investigations are usually kept confidential until they are resolved. Stephanie Avakian, co-director of the SEC’s enforcement division confirmed that dozens of investigations are now underway and they expect many more in the future. (This, by the way, is why US Citizens are not allowed to participate in most ICOs these days and why many overseas exchanges will not open accounts for US customers.)

A lot of enforcement actions could cause an even bigger drop in confidence from investors and thus in cryptoasset prices. What better time to do this than right before institutions want to pile into the crypto market? I’m making a big assumption that the SEC is a tool that big money uses to help control prices. This assumption may or may not be valid but you have to ask yourself, is this a legitimate enforcement or an attempt through big money to drive cryptoassets prices even lower? This will all probably continue until the SEC provides clear guidelines for what is and is not a security.

I recently saw that Fidelity would be opening up a crypto desk for institutional investors in 2019. So this is more news suggesting that a huge bull market could start again in 2019.

Bottom Line

  1. I don’t know what Bitcoin is going to do but I would guess the next crypto Bull Market will probably start when ICE comes out with its platform for institutional investors to be able to buy and hold cryptos. That is now supposed to happen next month (Jan 2019).
  2. I don’t like BTC because sending it is too slow, too expensive, and it currently uses about 1.5% of the world’s electricity – and this will get much worse. Still, I wouldn’t be surprised to see BTC have a $50K plus valuation soon.
  3. I don’t know if the second and third generation crypto assets (i.e. Iota and Sky) will be the primary vehicles of the future. If they survive, I’m sure there will be lots of changes through forks.
  4. I am convinced that blockchain technology is absolutely here to stay and that the revolution taking place will be the biggest in my lifetime. It will change everything.
  5. One commentator says decentralization is an absolute must for any cryptocurrency to be successful. This is true if blockchain technology is to meet its long-term potential and produce an institutional revolution. But remember that in the near term, institutions will try to take over cryptoassets and any lack of decentralization will actually be a plus for them.
  6. 2018 has been a difficult year because of lack of clarity around cryptoassets’ legal status. To some agencies, they are a form of security. To the IRS (and most national taxing authorities), they are property, which means a tax event occurs as soon as you sell any. For example, if you use a bitcoin debit card to buy coffee, you have just created a tax event. Cryptoassets need the $600 exclusion rule that applies to FOREX before it can become a major alternative to other currencies.
  7. I just read that if you have more than $10,000 on a foreign crypto exchange at any time of the year, you have to file a form with the government or you’ll be in trouble. So if you bought $10,000 work of crypto on Binance and immediately transferred what you bought to a hard wallet, you would still have to file the form.
  8. In addition, crypto projects are in their infancy and these small companies have to deal with the SEC – which makes it difficult for these projects to explode into broad adoption. Huge legal issues hamper innovation.
  9. There will be ETFs for both BTC and ETH in 2019. When that happens, their prices will explode and the crypto market in general will take off big time. Yes, the SEC has turned down numerous requests for crypto ETFs, but it will not turn down the CBOE’s request (coming soon).
  10. I’ve offered to help my staff create their own crypto portfolio but most are too reluctant to do anything. Only my personal assistant and one other staff member have set up one. Given the 50% crash in Nov-Dec, however, it’s probably good that only two are experimenting at this stage!
  11. It’s getting really close to the time to set up a cryptoasset portfolio. If ICE does come out with its platform next month, that will be the start of the next bull market.
  12. Finally, many of the best traders/investors in the world became that way because they were the in the right place at the right time to find a huge edge. Cryptoassets offer this kind of edge.
  13. We will hold a special crypto workshop for the Super Traders next June. That will be our third event for them about trading cryptoassets.
  14. Gabriel Grammatidis is adding a one-day crypto session to his June Forex workshop on how to use his trading systems to trade cryptos. (Dates for the June events will be released soon).

I thought November was going to be exciting but perhaps that excitement will now come in January.

The purpose of this report is to just give you a status quo of the cryptoasset markets. It’s not meant to give recommendations or be predictive in any way.

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