February 2018


Cryptocurrencies – Market Update

 

Cryptocurrency prices fell in February. The correction proved more severe in altcoins (-27.9% across the 9 largest coins, after Bitcoin) than in Bitcoin itself (-16.7%), underlining the potential of the largest crypocurrency as a store of value. It also (for now) seems to contradict the view that Bitcoin may ultimately be replaced by second and third generation cryptocurrencies which are better adapted to large numbers of small transactions. The price of Bitcoin hit a low of 5,922 USD on February 6th, before rebounding and stablising around the 10,000 USD mark. The market capitalisation of the 200 largest coins fell from 567bn to 424bn USD, a drop of -25%. To put these figures into perspective, the same market capitalisation was worth 18bn USD in January 2017. As such, today’s levels are around 24 times what they were one year ago. Within a table full of negative returns in February (see below), Litecoin was the only currency in the top 10 that managed to post gains (+12.9%). Litecoin has often been seen as a smaller companion of Bitcoin, but during February more investors and the general public came to recognize its standalone value. The sentiment was supported by the launch of LitePay on February 26th. (LitePay, an alternative to BitPay, allows merchants and businesses to accept Litecoins for their services and products). In terms of market capitalisation rankings, the top four spots remained unchanged at the end Feburary (BTC, ETH, XRP and BCH). Litecoin moved up two ranks, while NEM (a currency that suffered a large scale hack on January 26th during which USD 500 million worth of coins were stolen) dropped out of the table.

Data source: www.coinmarketcap.com

The evolution of relative market capitalisations in February also showed the resilience of Bitcoin, while the position of smaller coins declined (see table below). Bitcoin’s share of the market rose from 35% to 39%.

Data source: www.coinmarketcap.com

In line with overall market capitalisations, trading volumes contracted by -25% in February, with Bitcoin marginally increasing its share relative to other currencies. The overall 24 hour volaume for the 200 largest cryptocoins stood at 15.9bn USD as of February 25th. This is a little less than half the volumes traded on cryptocurrency exchanges last December.

Data source: www.coinmarketcap.com

Meanwhile, market volatility rose further (in line with financial markets in general) as the average daily price range for BTC/USD exceeded USD 1,500 on four trading days during the month. The 20-day realised volatility of BTC/USD topped 148% on February 9th before receeding back to 135%.

Data source: Bloomberg

Arbitrage opportunitities remained plentiful during February. Across the twelve exchanges we are connected to (and the nine currency pairs monitored in our system) we currently see price inefficiencies ranging from 2.3% to 5.3% for crosses against USD, and from 0.2% to 0.4% for pure cryptocurrency crosses. These inefficiencies have reached levels as high as 10% during the month. Our confidence in ALGOTRADER’s (CRYPTALGO’s low latency arbitrage system) revenue generating ability remains unchanged.

Finally, volumes raised in ICOs during February have been low, with a total of 680 million USD reported by Token Data (as of February 26th). Only 31 ICOs were succesful in raising any money, with the largest amount (USD 45 million) going to Arcblock. This is in contrast with January when ICO volumes came close to USD 1.5bn, across 72 different new tokens.

Data source: Token Data ; Feb-18* volumes are up to February 26th only

Cryptocurrency Market News

 

We were interested to read an article published on Feburary 18th reporting that high speed trading firms such as Circle Trade, Jump Trading and DRW Cumberland are generating large revenues by trading coins and exploting inefficiencies across cyrptocurrency exchanges. We look forward to launching our beta version of ALGOTRADER in the coming months to join the ranks.

Telegram – the developers of a messaging service popular with the cryptocurrency community – confirmed in February with the SEC that it had privately raised USD 850 million in a pre-sale ICO. The public sale is planned later this year and is set to become the biggest inital coin offering in history.

In Switzerland, the financial markets supervisory authority FINMA published new ICO guidelines on February 16th, setting out how the regulator intends to apply financial market legislation to ICOs. FINMA confirms that not all ICOs will fall under existing regulatory requirements, and that these will depend on the type of token being offered. To that end, FINMA has categorised tokens into payment tokens, utility tokens, and asset tokens (the terminology is not generally recognised though, FINMA admits).  

Payment company Circle (owner of Circle Trade, its cryptocurrency trading arm) announced on February 26th that it was acquiring Poloniex, a well established cryptocurrency exchange which has been around since 2014. The acquisition appears to be an opportunity for Poloniex to revitalise, and for Cirlce to consolidate it’s presence in the cryptocurrency market.

On the same date (February 26th), the Israeli Supreme Court reached a decision which will require banks to allow their customers to trade cryptocurrencies, and prohibiting them from limiting the bank accounts of companies associated with the cryptocurrency market. This went against a decision by Leumi Bank in December last year to block payments to digital currency exchanges.

Traditional retail banking groups still remain on the sidelines of the cryptocurrency market. On February 5th Lloyds Bank, Bank of Scotland, Halifax, MBNA and other members of Lloyds Banking Group announced that they would ban cryptocurrency purchases made with credit cards. This followed a similar announcement on February 2nd in the US by Bank of America, J.P. Morgan, and Citigroup. By contrast, Australia’s four largest banks (ANZ, Westpac, National Australia Bank and the Commonwealth Bank) confirmed the next day (February 6th) that they would no prohibit their customers from buying digital currencies.

 

CRYPTALGO Development Status

 

We have made further hires in our technology team and have expanded the development team working with Ram, our Chief Technology Officer. The team is testing the arbitrage identification module which filters through around 2.5 million trades per 24 hour period. We are also finalising the execution module, which controls ALGOTRADER’s trade execution logic on exchanges.

In the meantime, the business development team is engaged in high level discussions with European and US based banks, asset managers, hedge funds and exchange technology platforms for the implementation of strategic partnerships. CRYPTALGO is also evaluating the launch of two algorithmic fund products for Asian and European markets in compliance with local regulations. In addition, the firm is focussed on the launch of brokerage and market making tools, as well as asset management products, for investors who prefer institutional off the shelf solutions for market access to cryptocurrencies within best in class security protocols. 

Finally we are actively engaging with investors who are planning to participate in CRYPTALGO’s ALGO token pre-sale. Please do not hesitate to register your interest at [email protected] for more information.

 

Disclaimer: the information contained herein is being furnished for discussion purposes only and may be subject to completion or amendment through the delivery of additional documentation.  This communication does not constitute an offer to sell or the solicitation of an offer to purchase any security, future or other financial instrument or product. Information is presented as of the date and, if applicable, time indicated. CRYPTALGO does not accept any responsibility for updating any such information. Any historical or simulated results presented herein should not and cannot be viewed as an indicator of future performance. Market views and opinions are current opinions only. CRYPTALGO is not an adviser as to legal, taxation, accounting, regulatory or financial matters in any jurisdiction, does not act as fiduciary or financial, investment or commodities trading advisor for any of its counterparties, and is not providing any advice as to any such matter to the recipient.  The recipient should discuss such matters with the recipient’s advisers or counsel and make an independent evaluation and judgment with respect to them.

Past performance may not be a reliable guide to future performance.

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