Dear Friend, Spring is in the air! With the cold winter months drawing to an end, the crypto market has started to show signs of thawing.
It is still far too early to say that a long-term recovery is underway, but given the devastating second half of 2018, any ray of optimism is welcome. We foresee that sustainable growth will take time, so our excitement regarding the current upward momentum is highly tempered.
The underlying fundamentals suggest that this is not a dead-cat bounce, but rather a small step on a long journey towards global market relevance.
(Our three trends to watch for in March are at the bottom of this email, by the way...)
Overall Crypto Market Cap (via coinmarketcap.com) Market Analysis
The broader cryptocurrency market finally came back to life in February, after starting the month in an extended period of price consolidation towards the lower end of most cryptocurrencies' trading ranges.
Litecoin started off the recovery, with the now-fifth largest cryptocurrency emboldened by improving fundamentals and a strong technical breakout above the $36.00 level, which eventually lead to the popular cryptocurrency gaining close to 75% in market value from its monthly starting price.
Other cryptocurrencies amongst the top-five also joined in the bullish rally, with Bitcoin advancing towards the $4,280 resistance level before succumbing to technical selling below the $4,000 level, after the number one cryptocurrency failed to break above its former monthly high.
Ethereum also staged a decent rally and briefly traded above the $160.00 level, with the second largest cryptocurrency finally breaking away from the psychological $100.00 support level and adding over 50% to its trading value from peak-to-trough.
One of the major stories for February has been the blockbuster move higher in EOS, which moved up the rankings to the number four cryptocurrency in terms of market capitalization. EOS finally broke away from its well-established eight-week trading range, adding 40% to its value from its bullish breakout point to its monthly price peak.
However, EOS started to reverse sharply lower alongside the broader market, with no apparent fundamental catalyst behind the crypto's breakdown, although its recent jump higher had created large pockets of bearish price divergence on the MACD indicator.
Ripple continued to confound most analysts and traders, with the third largest cryptocurrency failing to break away from extremely depressed trading levels, despite the broader market enjoying a decent rally. XRP/USD peaked around the 0.3500 level, after starting the month treading water above the 0.3100 level before eventually giving back all its hard-earned gains.
Outside of the top-ten cryptocurrencies, Ontology was a notable performer, with the now twenty-first largest cryptocurrency by market capitalization adding over 120% to its market capitalization.
Despite the cryptocurrency market capitalization improving from $111 billion to just over $130 billion, the recent pullback has slightly dampened market sentiment, particularly with rumors swirling among crypto players of price manipulation and wash trading being the reason behind the strong rally seen in the broader market.
Looking at March, traders should continue to look at the dominant themes that have been occurring in the cryptocurrency market. Unless we see fundamental surprises or shifts, the big market action is likely to occur outside of the top-ten: as we have been seeing, the lesser known tokens can still print triple-figure monthly gains.
Positive tones should continue in the digital currency market while the top five cryptocurrencies continue to eke out steady gains and hold above this month's breakout areas. All-in-all, as we head into March, market sentiment and activity has picked up considerably when compared to where the cryptocurrency market closed out last month.
The Giants Are Waking
The bulk of the news this months has involved the old world blue chips starting to make some noise in the crypto world. IBM, which has established itself as a heavyweight in the space, and could have 200+ blockchain projects in various stages of development, added another feather to its cap. The company announced its collaboration with Hyundai Commercial around using blockchain to improve the latter's business model.
Facebook went out and acquired Chainspace in a move that may signal more M&A action to come. With the likes of Google and Apple hoarding unfathomable piles of cash it would not be unexpected for them to start making strategic acquisitions.
JPMorgan Chase announced JPMCoin, officially stepping into the crypto ring. The threat to the startup crypto projects from the incumbents has been periodically discussed, but now it is officially real.
XRP is the first to come under fire and we will see if the more agile startup proves to be a match for the powerful, but slow moving behemoth. If XRP does in fact prove to be too much for the bank, the question of M&A may come to the forefront. If you are curious what we think of XRP we just released an in depth analysis and investment rating of XRP please take a look at our recent DARE report on this asset.
The crypto big-boys, though much more timid by comparison, have also been making moves. Coinbase acquired Neutrino in a continued quest to construct the most comprehensive crypto services suite, a move heavily-criticized by some crypto maximalists both for privacy reasons and because of the background of the Neutrino team.
Meanwhile Binance had the much anticipated launch of its DEX Testnet.
During the ICO hype days it seemed like money was not an issue. Today, with ETH and BTC prices still depressed, players with a stable revenue source have really started to separate themselves from the rest. If the trend persists, the gap between the haves and the have-nots will continue to grow.
ICOs Get a Second Life
With STOs solidifying themselves as trending conversation topic, Binance has been using its Launchpad to generate hype over a few select ICO offerings despite an otherwise underwhelming market.
Despite a small sample size we can start seeing a pattern emerging around the launches on Binance. A key ingredient seems to be exclusivity. While with BTT we saw a convergence of two hype machines in Tron and Binance, the Fetch.io sale shows that Binance is not looking to simply restart a past ICO model. So far, we are seeing very conservative hard caps geared towards building demand.
BitTorrent BTT Price Performance (via Cryptocompare.com) 
Both launches have been surrounded by rumors and speculations regarding the fairness of allocation distributions and backroom agreements. According to Binance, during the Fetch.AI sale, of the 9,860 people who successfully submitted a buy order only 2,758 people actually acquired FET.
Still, the faith in Binance's ability to prop up asset volume and prices trumps everything (everyone has their own definition of what this means). To this point investors' faith has been rewarded with returns reminiscent of the old days.
Here's the resulting ROI as of right now on BitTorrent and Fetch.AI
BitTorrent (BTT)
Public Sale Price: $ 0.00012 USD
Price Now: $ 0.0008165 USD
ROI: 6.8X
Fetch.AI (FET)
Public Sale Price: $ 0.0867 USD
Price Now: $ 0.37 USD
ROI: 4.26x
Binance has approached the ICO launches in a very intelligent way, balancing hype and and supply and demand. The fact that the sales were not big from a capital perspective should limit the risk of a black swan event, such as Tron's BitTorrent project failing to meet expectations.
Mistakes are Still Widespread
The industry is still very young and is largely dominated by startups. This is especially evident in the large number of lapses in judgement. Most recently, we saw someone transfer 0.1 Ether for a transaction fee of 2100 ETH. While Sparkpool, the mining pool that received the reward, froze the funds, the transaction, if not found found to be an attempt to launder money, highlights the fact that the industry still suffers from serious design issues.
No less disturbing, has been the situation around QuadrigaCX, where $137 million in crypto assets has become inaccessible after the death of the CEO Gerry Cotten. Some of you might have followed Brian Armstrong's analysis of the situation, which suggests that this likely a case of aggravated mismanagement rather than a scam. 2018 was littered with cases of inappropriate management of hot and cold wallets, and while this case may certainly be unique, it once again brings up the issue of trust when it comes to exchange operators.
With the industry reeling from a protracted period of contraction bad news can be especially damaging. Still, it is important to remember that growing pains are to be expected when dealing with young projects, and despite the outsized coffers most in the space are just that, startups.
Redemption is in the Cards
Mt. Gox has become synonymous with the dark, seedy chapter of the blockchain industry's history. The downfall of the troubled exchanged once seemed like it could kill the young industry in its infancy. Yet, now Brock Pierce is looking to give the story a new ending and bring back the disgraced icon. While there are many in the industry skeptical of the motives behind the resurrection and the ultimate benefit for the industry from it, the Gox Rising does have some potential for a feel good story.
The regulators have also recently shown a merciful side. Gladius Network LLC self-reported and settled charges of running an unregistered securities offering. The project will provide refunds to those who wish and register its tokens, but face no additional penalty. It appears that if you ask for forgiveness it may be granted.
The potential cherry on top for the market is that the SEC will review another ETF proposal, this time from NYSE Arca and Bitwise. If this time SEC somehow accepts the proposed rule change, the market will forgive many of the injuries it has suffered over the years from obscure and slow-to-develop regulations.
Keeping our Ear to the Ground
There are several interesting things that we have been hearing about from our institutional sources.
One is that companies have once again gone out bargain shopping, looking to scoop up troubled or failed projects at a discount. Another is the quiet but noteworthy development of the middle layer of the market infrastructure from big companies. We have seen a growing interest in algofunds.
M&A action around distressed assets is nothing new for traditional industries. Now we are starting to see some similar interest around crypto entities. Companies are searching for projects that have been hammered by the crypto winter to the point of facing annihilation, but whose assets (IP, team, network) represent real value. Acquirers are looking to scoop these up at a discount, even buying out the associated Foundations.
The end goals of these potential acquisitions are still ambiguous. Some are looking to relaunch the projects while other are looking to internalize it and absorb it. In either case, we may see a wave of M&A in the future from both traditional and crypto players.
The middle layer is vital to enable vendors and customers to interface seamlessly. Properly regulated middle layer infrastructure enables greater adoption.
With Fidelity's product expected in May, TD Ameritrade and DRW-backed ErisX expected in Q2 and Cumberland's API being launched in a matter of weeks, there is growing momentum behind the foundation level work in the industry.
We are already seeing that with Rakuten rumored to be looking towards crypto and making its own coin and Go-Jek purchasing Coins.ph. We are hearing of more and more projects considering launching their own coins, which is a positive sign for the industry as a whole
Finally, while asset prices are being beaten around by the bears, investors are looking for opportunities, and Algofunds have become a popular destination for parking capital.
Fundraising has become more difficult than in the past, although Pantera was successful in raising $130M for its third crypto fund. Still, with mining companies like Bitmain posting loses, and the market remaining weak, investors are looking for alternatives. While strategies vary, we are seeing various form of arbitrage becoming popular, as managers try to find alpha in a turbulent environment.
While these funds can be good tools for preventing capital flight from the industry, they also present serious danger. Those familiar with traditional investing spaces will remember the Quant Crash of 2007. The crypto industry is not immune to the dynamics that brought about the event. Given the youth of the industry there is a general lack of historical data, and the opaqueness of the space and unclear regulation makes it hard to evaluate risk models and internal checks. Algo-traders have the ability to amplify momentum moves and exacerbate and even create market panic.
This may not be an immediate concern, but given past history we intend to watch this trend with caution.
What does this all mean?
The market is slowly starting to turn around towards recovery.
After a protracted period of being drunk on hype and easy money, the market is going through a rough hangover, but it will live. Those who were in it for the long haul and were working on industry-critical infrastructure are going to get their moment in the spotlight.
The market has grown tired of hearing about the next "Ethereum killer", people want to see tangible products, something they can use in their day-to-day activities. These middle layer projects will be critical to satisfying this demand. There is a wide populous of interested onlookers who are excited by the possibilities of blockchain, but don't want to dive into the tech. The mass consumer wants things to just work, but does not necessarily care about how.
This stage is critical for the industry. If blockchain can start to power everyday products and services mas adoption will take hold.
The days of trying to skirt by the regulators are also over, and proper registration and certification will be important for growth. The industry is growing up. There are many challenges ahead, but we are excited for what is to come.
THREE KEY TRENDS TO WATCH FOR
1. Continuing interest from Web 2.0 firms and major institutions in creating proprietary cryptos, which lend legitimacy to the industry.
2. Low-cap ICO projects from Binance Launchpad have gotten off to a great start for investors who could get in the door; this may continue until caps increase or until other entities successfully launch similar offerings.
3. Acquisitions of crypto-related firms may well gather speed as established players seek to shortcut their path to market. Even some major ICO projects from 2017 could be targets.
As always, your feedback is appreciated. We are always curious how we can make our research more valuable to you.
Feel free to simply reply to this email and let us know what you think of this week's newsletter.
Best Regards, 
Han Kao
CEO / Founder
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What to expect in cryptocurrency markets in March - a detailed overview.