Dear Friend, Hope and volatility. These have been the two big themes of the past month.
Bitcoin has finally started to pick up steam, which has catalyzed the alt market even more. However, sudden macro shocks have periodically covered the CMC pages in a sea of red.
Still, with investors now actively buying the dips it looks like good news is great news and bad news isn't all that bad. Fundamentally, little has changed and the market is once again growing, albeit this time in a stepwise fashion.
Real adoption still appears to be further away than most seem to think, so it stands to reason that we should expect a small correction or several in the near future. In the coming months we will see if the market has learned the lessons of "irrational exuberance".
Overall Crypto Market Cap (via Coinmarketcap.com)
Market Analysis
In early April bitcoin broke through the important $4,200 barrier. This appeared to have set-off some algorithmic buying and soon enough we reached the $4,700 and $5,200 levels. While there have also been a number of corrections there overall trend has been positive... until the recent allegations of fraud against the Bitfinex operator. You can find our recap of the full Bitfinex-Tether saga here.
The alt coins, which were already looking up prior to us seeing Bitcoin movement, experienced the ups and downs with extreme vigor in both directions. It should also be noted that while bitcoin is widely considered the keystone of the crypto market it also has one of the highest short/long ratio, surpassing most of the more volatile alt coins. While this could be explained by liquidity parameters it is still an interesting phenomenon that represents the present misalignments in the market.
SUPPORT & RESISTANCE
Key technical support for Bitcoin is currently located at the $4,900 and $4,600 levels, with a move below the $4,600 likely to spark a wave of fresh technical selling back down to the $4,100 support level.
Looking at the upside, multiple daily price closes above the $5,200 level should encourage buyers to start to test back toward the $5,685 level. Key technical resistance above the $5,685 level is currently located at the $6,000 level and the November 14th swing-high, at $6,434, with extended monthly resistance found at the $7,370 level.
Aside from the trading action in Bitcoin, Tezos was once again in the news and on the move, with the cryptocurrency racing up the market capitalization ladder and adding over seventy percent to its value from peak to trough this month.
Bitcoin Cash became the best performer among the top ten coins, with the popular cryptocurrency briefly trading above the $300.00 level. Bitcoin Cash's 200-day moving average is located around the $224.00 level, if the BCH/USD pair starts to trade below it, technical selling towards the $200.00 level appears likely, while critical support below, at $173.00.
EOS also posted its third consecutive month of strong gains, with the cryptocurrency on course to adding over sixty percent to its market value since the start of 2019. Should bulls move the EOS/USD pair to a fresh yearly trading high this month, a much stronger rally towards the June 2018 trading high could ensue according to the bullish pattern on the daily time frame.
Bullish patterns on the daily time frame suggest that Ethereum could still advance towards the $235.00 level, while Litecoin could trade towards $160.00. Critical support for Ethereum below the $150.00 level is currently located at the $125.00 level, with daily closes below this level should be seen as particularly bearish.
Litecoin shows near-term support is found at the $69.00 and $60.00 levels, while major monthly support is located around the $50.00 level, which is just above the start of the March rally.
Ripple suffered a tumultuous month, with the third largest cryptocurrency rising to a fresh 2019 trading high before later giving back all of its monthly gains and tumbling to its lowest trading level since September 2018. The $0.2900 appears to be the line in the sand for Ripple, with critical technical support below located at the $0.2500, while major topside resistance is found at the $0.3480 level.
Talk Around the Institutional Watercooler
OTC desks are where investors go risk-off, at least in the short-term. The breakout that finally occurred for bitcoin coupled with the sell-offs of altcoins is seen as investors shifting from the more volatile assets to more solidly footed assets. This can also be seen in stable coins trading above the $1.00 mark. Investors appear to be very gun-shy at the moment, so it would not be surprising to see continued seesaw action in the near-term.
Investors are smarter and institutional players are taking more care to position bitcoin as "gateway" coin as opposed to the holy grail of crypto. 2018 is being re-evaluated in the context of all of the development that went on during the seeming collapse of prices. There is money sitting on the sidelines and waiting for a confirmation of the bull market and project fundamentals.
In terms of bitcoin, that means a growing expectation of the $7,000-$8,000, which some expect to set off a run to the $10,000 level. To be clear, the excitement is tamer than what we saw towards the end of 2017. Instead of people screaming "buy everything", we are now seeing sobered-up investors returning with a realization that not every project is a scam.
Even more encouraging support has appeared on the technical front as the emergence of the "golden cross" for BTC has triggered an acknowledgement of the beginnings of a bull market for many technical analysts. Mati Greenspan from eToro published a nice explanation of the golden cross here
We have also seen elevated interest in staking. With investors looking for passive income, some PoS blockchains are offering enticing yield prospects. Tezos, has been one such example, offering a yield over 1% at the moment. The prospects of a respectable stable ROI, has increased demand for the native coin, which in part, explains the recent run-up in the price of the cryptocurrency. Other notable large and mid-cap high yield projects include IOST (17.85%), Decred (11.06%) and Waves (6.12%).
Lets Take a Look at What is Cooking in the Lab
During the months of ICO hype, evaluation criteria for projects was largely vague and often steeped in hunches and gut feelings. However, one common factor in just about any framework was the team. So, it is no surprise that technologically strong, academia-rooted groups garnered a lot of faith and support. Well, we are now fast approaching the moment of truth for many of those projects.
Cardano, a project associated with the peer-reviewed process, appears just about ready for the much anticipated Shelley, which will realize the staking and delegation promises of the project.
Algorand, a project with one of the strongest science teams in the industry, including the Turing award winning founder, Silvio Micali, is expecting a mainnet launch in Q2 of this year. ThunderCore, with a team that features Elaine Shi, has already had a pre-release and is expecting a full launch in Q3 of this year. Projects like Oasis Labs and Alacris also merit mentioning and there are a number of other academically strong teams getting ready to show the fruits of their efforts.
There are several reasons for why this is important. One, academia has routinely attracted smart money and success of one or more of these teams could douse some of the skepticism of those on the sidelines. It is easier to build a strong engineering team than to assemble a top research team, so there are a lot of hopes associated with some of these projects.
Furthermore, these projects could be the first real showcase of the capabilities of PoS. With Ethereum looking to move to PoS, and many of its supporters holding out for the promise of improved scalability, these academia launches could validate or dash those hopes. So keep your eyes peeled for indications of either case.
Rewards Ahead of Results
One thing of note is that a number of projects have been steadily growing seemingly in anticipation of important releases or announcements. For example, ADA has been growing at an impressive rate in what looks like anticipation of Shelley, XEM, has been up on rekindled hopes of the Catapult, IOST has been growing in what looks like hopes for OnBlock-driven adoption. There are many more names that have benefited from outsized optimism and that is concerning.
It is not uncommon in the equities space for stocks to grow in anticipation of an upcoming product launch or regulatory approval, especially in the case of micro-cap IT and biotech companies. However, these price moves are usually associated with a decreasing risk associated with a forecasted revenue stream(s). Here revenue streams have been substituted for adoption, but it does not appear as if many people are running the numbers.
There is talk of boosted adoption and/or growing demanding for the token due to staking requirements, but there is nothing concrete and there is very little historical data to inform analysis. So, as prices start to eclipse 2x returns in a matter of months, associated risk also increases. Lots of things can go wrong and at the very minimum a launch can get delayed. With prices being driven by expectations, any snag can be immensely damaging to price, as can be seen from the Digitex launch postponement.
At the very minimum, investors have to ask, have the coming technological changes already been priced in? It is encouraging to see growing optimism, but we want to caution against gambling.
This is especially relevant in regards to the recent wave of IEOs. While there has been a lot of excitement and talk of industry maturation, the price graphs for many of these projects tell a different story. The common trend is for a short term initial spike, and then a continuous decline thereafter.
The exchange-led due diligence could be considered progress, but with so many of these exchanges facing suspicions surrounding inflated volume numbers, the issues of quality and liquidity persist. The exchanges have learned how to create the illusion of scarcity and hype in the post ICO world, but nothing fundamentally has changed. So, caution is advised.
The Path to Adoption Winds Forward
Still, there are a number of positive developments on the adoption front to get excited about. The recent news about Nike stepping into the crypto space has many salivating over the possibilities around introducing the company's massive consumer base to the industry.
BMW partnered with VeChain to produce the VerifyCar app to address mileage rollback in the used car segment in Germany. Microsoft has been another blue chip to pour money into the space, recently funding development bounties in the Ethereum ecosystem. The legal cannabis space (which has seen many crypto-based efforts) has continued to show plenty of promise, with the Mile High Labs and Chain.io, as an example, partnering to address supply chain issues.
As always there a number of startups working in the financial and gaming industry, but with primary markets still quiet, their efforts have been less public.
Also, while the launch of Bakkt has been stalled by regulatory processes, eToro announced the launch of eToroX. Besides introducing the cryptocurrency exchange, the company introduced 8 new fiat-pegged stable-coins. The past few months have seen a stable coin party of sorts, with a number of players launching or announcing their own stable-coins. While there have been a number of criticisms of the instrument and its impact on the industry, these could help with liquidity in the space.
From our conversations with different development teams we also see a growing demand from private and permissioned blockchain solutions. Development shops are using open source code to develop customized solutions for customers and that is a double-edged sword. On one hand, blockchain implementation is a sign of growing adoption, but on the other hand, private solutions do nothing for the utilization of the underlying assets of the public blockchains.
Investors need to be very careful when analyzing the boastful claims of foundations regarding business adoption, and scrutinize whether implementations are using public or private chains.
Another pattern of note, development shops don't necessarily have preferences for one chain over another - this is a business-driven requirement. However, they do build dApps to experiment and gain experience, so that they expand their portfolio and have something to show clients. What this means is that business development within blockchain ecosystems carries a lot of weight, and that there are a fair number of "ghost dApps" created for research purposes that may be skewing the adoption picture.
The Regulators are Making their Presence Known
April was a big month for regulation. To start SEC issued guidance on tokens to further clarify its position on the digital assets and their distribution. The guidelines appear to significantly stymie potential crowdfunding efforts from startups in the US. Simultaneously, this gives an edge to the incumbents that have been trying to play catch as of late, and turns attention to tokenization efforts, a trend that has been becoming very popular among established firms.
There have already been a number of cases where projects that have conducted an ICO were found to have performed an unregistered sale of securities. These projects were ordered to return the funds. Now Atonomi is facing a federal class action lawsuit, and is facing the possibility of needing to return $25 million back to investors.
Unfortunately, the bad news does not end there. The Indian government is discussing a bill to ban cryptocurrencies. Given that India's population is over 1.35 billion people, a carpet ban would be damaging to the global adoption of those in the crypto space.
Still, the most painful received bit of regulatory news came in regards to the alleged misconduct by Bitfinex. The news saw bitcoin tumble more than 5% before recovering. With Tether being used in as much as 81% of BTC trades, any doubt surrounding the stable-coin could have negative ramifications in the near term.
On a related note, it appears as if there was a large sale of BTC prior to the story going public. With the regulators already on edge the possibility of insider-trading is concerning. The industry is still highly unregulated and with various exchange entities across various geographic and legal landscapes the space needs to expedite self-regulation efforts in order to avoid any reactionary measures from regulators.
On that note, Binance (see our recent DARE report on BNB) made some noise when it delisted Bitcoin SV. Industry leaders have been unifying in their support against Craig Wright, who has started to take the naysayers to court. The embattled cryptocurrency lost nearly 20% of its value in the immediate aftermath. However, somewhat surprisingly, the coin has proved resilient and has avoided a fire sale, at least for now. The situation also highlighted just how much power certain individuals like Changpeng Zhao, have in this space. For all the talk of decentralization, the current reality is very centralized.
What Does This All Mean?
Spring is upon us. There are more indicators that the current bull run is not just short-term run-up. This is especially telling in how the market deals with negative news. Still, it's evident that investors have been traumatized by the crypto winter, and every time there is a set back they get flashbacks of the past onslaught and so we see flashes of deep red on CMC.
The next few months will be very important for the industry, as several academic and engineering heavyweight teams will be showcasing the results of the long and often under-reported developments efforts.
Despite the bear market, the industry is flush with cash. Given the hype and the "too-big-to-fail" moniker being thrown around, we are facing an increased risk of one of the current leaders flopping in an Enron-like fashion. That is why it is absolutely critical for the teams that have raised on the strength of team credentials deliver and validate the years of development that have gone into their projects.
Ultimately though, everything always comes back to adoption. In 2018 we came face-to-face with the realization that most teams don't have a tangible plan beyond delivering a mainnet. So, as the mainnets are going live one after another, projects will need to prove that they have learned from industry's past mistakes and that they can deliver solid go-to-market strategies.
Special thanks to Mati Greenspan from eToro and Justin Chow from Cumberland | DRW for sharing their insights.
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Recap - Day in Crypto - BitcoinNews.com for 04/30/2019