January 2018


Cryptocurrencies – Market Update

 

The cryptocurrency market consolidated in January. While prices of Bitcoin, Bitcoin Cash and Ripple fell -10.8%, -31.6% and -39.6% respectively, coins such as Ethereum, Stellar and NEO gained +61.0%, +95.6% and +99.5%. Overall the total market capitalisation of the 200 largest coins grew by +0.2% from 566 to 567 billon USD. Meanwhile the market capitalisation of bitcoin (the largest among cryptocurrencies) fell -10%, from 221 to 198 billion USD. Ethereum regained the second spot with a market capitalisation of USD 113 billion after falling to third position behind Ripple at the end of December. Dash and IOTA have been bumped out of the top 10 market capitalisation table, replaced by NEO and EOS. NEO (up +99% this month) is the new challenger to Ethereum in the cryptocurrency landscape.

Data source: www.coinmarketcap.com

The price correction in Bitcoin has been linked to several factors including investors cashing in on profits made in 2017, reports of further regulation of cryptocurrencies in Asia, and the settlement of the first CBOE bitcoin future contract on 17 January (the price of Bitcoin fell -27.3% in the two days leading up to the futures’ settlement). What has become apparent is that investors have been gradually shifting out of Bitcoin into new coins over the past months. Accordingly, the dominance of Bitcoin’s market capitalisation has been diminishing (see chart below). Since October 2017 Bitcoin’s share of total market capitalisation has fallen from 57% to 35%, while Ethereum and Ripple (combined) have risen from 21% to 29%.

Data source: www.coinmarketcap.com

January’s trading volumes have come down significantly, with an overall 24-hour volume of USD 21 billion as of the 28th, compared to USD 36 billion the month before. In line with the rest of the market, Bitcoin itself posted a drop of USD -5.6 billion (or -42%) in 24h trading volume; its market share of total volume remains around 38%. By contrast, Ethereum’s trading volume was up +17% and the currency is now in second position in the table below. We note that Tether (the coin pegged to USD or EUR) while ranking 23rd in terms of market capitalisation is in third position in the 24-hour volume table.

Data source: www.coinmarketcap.com

During January volatility of the Bitcoin/USD cross rose to highs not seen since three years ago: 20-day realised volatility levels reached 141% on the 18th of January (they averaged 113% throughout December). This corresponds to average daily price variations of about 9% (by comparison the S&P 500 index currently has average daily price variations around 0.5%). The increased volatility in Bitcoin meant that arbitrage opportunities were plentiful during the period. For example, it was not uncommon to observe price discrepancies for BTC/USD of up to 1,000 between various exchanges.

Data source: Bloomberg, www.coinmarketcap.com

Price discrepancies between exchanges are linked to various factors. Limitations imposed on fiat withdrawals (due to local regulations or otherwise) tend to exacerbate them. In general however it is the lack of connection between exchanges and the time and difficulty of moving cash (and to some extent coins or tokens) from one exchange to another that generate opportunities which CRYPTALGO seeks to benefit from.

As we are about to publish this report, we note that the last week had been particularly trying for Bitcoin investors. After surging to almost USD 20,000 in December the world’s largest cryptocurrency plummeted to as low as USD 7,614 on Friday, February 2nd (it surged by USD 1,400 in matter of hours afterwards). We see that the recent hack in Japan, as well as persistent negative coverage regarding the solvency of Bitfinex and Tether are factors that have weighed on confidence. Having said that, the correction provides an opportunity for people who have remained on the side lines to jump into the market.

 

Cryptocurrency Markets, January 2018

 

The following is a highlight of industry news for January.

Early in January it was reported that South Korea may ban local cryptocurrency exchanges. South Korea is one of the largest markets for cryptocurrencies. The reports were later downplayed as Korean officials commented that nothing had been finalised.

On January 9th, Jamie Dimon, chief executive officer of J.P. Morgan Chase & Co, said he regretted describing Bitcoin as a “fraud” in September last year.

Kodak (the photography film company) and Telegram (a messaging service popular within the cryptocurrency community) both announced during January that they were launching their own cryptocurrencies. Kodak’s share price jumped threefold after the announcement.

The Wall Street Journal reported on January 2nd that Peter Thiel’s Founders Fund had made a big bet on Bitcoin, amassing a position of more than $100 million in the cryptocurrency. Later in the month, Mark Zuckerberg posted that Facebook would also look into cryptocurrencies during 2018.

Robinhood, which makes a popular free stock-trading app aimed at younger customers, announced on January 25th it was adding cryptocurrency trading to its services. Barely a week later, it commented that more than one million users had signed up for early access to cryptocurrency trading on its app.

On Friday 26th January, Japanese cryptocurrency exchange Coincheck was victim of a large scale hack which saw it lose around USD 500 million in a coin called NEM, the largest theft of cryptocurrencies on record yet. While the exchange later announced that its customers would be reimbursed, the incident has left some market participants calling for more effective regulation to prevent security lapses in the future.

 

CRYPTALGO Development Status, January 2018

 

Our web-based demo system is available and connected live to 12 exchanges (which include Coinbase, Kraken, Bitstamp, Hitbtc, Bittrex and Poloniex) with a feed covering the five main cryptocurrencies (BTC, BCH, ETH, XRP and LTC) as well as USD. This resulted in a total of 9 different currency pairs (including crypto vs crypto and crypto vs fiat) for which prices are collected across exchanges with a refresh rate in milliseconds. The exchanges represent around $5bn in daily trading volume, or 25% of the total market. The demo focusses on identifying arbitrage opportunities across exchanges for each currency pair. The highest tradeable bid and the lowest tradeable offer are identified in each pair in real time. The depth of the market is monitored to validate each opportunity (see system screenshots below).

We have resumed full time development of ALGOTRADER (CRYPTALGO’s low latency arbitrage system) as our next priority. The trading and cross-exchange balancing modules are being finalised with a view to deploy funds on the system by the end of March. In parallel our operations team is engaging with additional exchanges to open accounts. This will diversify the system’s exposure to exchanges and increase the number of arbitrage opportunities that can be exploited.

We were pleased to formalise a partnership on January 10th with Millennium Global Investments. Millennium is a London based asset manager overseeing over USD 18 billion, and one of the leading global providers of active currency overlay solutions to large institutional investors. Under the partnership CRYPTALGO will provide advisory services to Millennium for technology, cyber-security and digital currencies.

In addition, we announced on January 10th that Michael Huttman was appointed Chairman of the Advisory Board of CRYPTALGO. Michael founded Millenium Global Investments in 1994 and is now the chairman of the company. He has participated in early Fintech investing and will help us in building a first-class, institutional-grade digital currency investment management and brokerage service.

Finally we were pleased that John Winter joined CRYPTALGO’s Advisory Board on January 28th. John is an experienced investment banker with a track record spanning over three decades across global markets. He is an active investor in early stage Fintech and Sustainable Technology companies. His input and advice will be invaluable to CRYPTALGO’s growth and success.

 

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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