MAX Digital Asset Weekly, Nov 30


Digital Asset Weekly, Nov 30

This communication has been prepared as market commentary only and is not intended as investment advice


Digital Assets managed to show some signs of life this week, recovering from a mid-week low of -22% to end the week only modestly lower.  Breadth improved slightly with just over 1/3 of the top 200 coins / tokens ending higher.  Volume was down slightly from active trading last week, putting November on pace to be the most actively traded month since May.

News flow was more of a mixed bag this week, but was largely dominated by institutional and regulatory headlines, including: 1) SEC pushing back somewhat on hopes for a BTC ETF, 2) The chairman of the NYSE saying digital assets are here to stay, 3) NASDAQ reaffirming BTC futures aspirations (despite the price pull back), 4) Coinbase launching a new OTC platform on the back of increased institutional demand, and 5) Dismal 3Q financials from Novogratz’s Galaxy Fund.

The mining sector remained in focus with reports of more headaches for troubled mining giant Bitmain and more reports of miner capitulations.

Probably the biggest story of the week, though, was the launch of digital asset exchange Huobi’s new derivative platform – backed by a massive 20,000 BTC insurance fund.  This is clearly an effort to make a run at BitMEX, the current leader in digital asset derivatives and likely foreshadows a round of expansion in derivative products across the space.  It is important to note that in traditional financial markets, the global derivatives market (~US$500T) is about 5x larger than the global spot equities market (~US$100T) – whilst in digital asserts the derivatives market is just a fraction of the spot market.  

Looking into next week, think there’s a possibility for an extension of this week’s bounce.  Despite an almost 50% pullback across the digital asset space over the previous 2 weeks, short sellers look to be pressing their positions with shorts in BTC increasing to the top end of the YTD range.  This week’s price bounce was punctuated by BTC’s biggest single day gain in 7 months, if there’s much follow through over the next couple of days, could easily see a scenario in which short covering takes us back up to the US$6000 level.


* Bitcoin not great for evading sanctions – treasury department sanctions two BTC addresses
  - Under pressure from US sanctions, Iran is said to have employed ransom ware attacks to raise funds
  - Led to authorities taking the unprecedented action of sanctioning two addresses on the Bitcoin network
  - Demonstrates how transactions on the blockchain are easily tracked and why BTC is actually a poor tool of choice for
    evading sanctions and laundering money as it leaves a permanent, immutable record of transaction histories

* Have we seen the bottom?
  - Bitcoin’s -40% 30 day ROC reading, pick up in volume and bearish tone look a lot like previous bottoms


* Huobi launches derivative platform with massive 20K BTC insurance fund
  - Think the real news here is the massive 20k BTC reserve fund
  - It looks pretty clearly like Huobi is targeting BitMex’s spot as the dominant derivatives platform

* F2 Pool: Between 600 – 800k BTC miners shut down since mid Nov
  - Cites a seasonal electricity price gain in parts of China, prices up from US$0.02 to >US$0.04
  - Think that breakeven for the most efficient, top tier of miners is probably ~$2500 – 3000
  - Many of the 2nd and 3rd tier are probably out of the money at this level 

* Bitmain said to be caught in cash crunch - selling BTC to make TSMC payments
  - Reportedly had a US$1B bill with TSMC, has paid back ~ $700M
  - Am suspicious of the source of this article as Coingeek is an ardent BCH SV supporter
  - Had previously heard that TSMC required prefunding from miners

* Security Token offers $20 million in private equity in a USC student housing development
  - Will let accredited investors buy in for as little as $21,000
  - Buyers will receive tokens that amount to securities, which they will eventually be able to sell on exchanges
  - Sounds a bit like letting accredited investors in at NAV…and allowing them to sell to retail at a premium 

* Ohio becomes the first state to accept BTC for taxes
  - The option is only open to businesses at the moment, but is expected to expand to individuals

* Korean lawmaker introduces bill to promote crypto trading 
  - Suggests a plan for developing guidelines around security, taxation, etc

* NYSE chairman: BTC and Digital Assets are here to stay
  - “Will digital assets survive?,” he would say that “the unequivocal answer is yes.”

* SEC: Lack of investor protection and market manipulation makes BTC ETF unlikely
  - Ironic given reports this week that Citi and JPM have to pay $182m to settle rate rigging lawsuit 
  - Reminiscent of previous comments from SEC Commissioner Hester M. Peirce in which she
    suggested that regulators were applying a higher than normal level of scrutiny to the ETF

* NASDAQ wants BTC futures listing despite price retreat 
  - NASDAQ was originally targeting mid Dec launch, but has been pushed back to 1Q19

* Speculation Dan Larimer may leave EOS for a new project
  - Larimer is the founder of a number of major crypto projects including Steemit and EOS
  - EOS raised a record US$4.5B in funding through a year long ICO in 2017

* Novogratz’s trading desk lost $41M last quarter 
  - Total for the previous 9 months was US$136m, shares of Galaxy’s fund -55% this month

* Billions of XRP on the move while concerns rise over whether Ripple is a security 
  - Roughly US$1B of XRP has moved from what is believed to be Ripple’s escrow wallet
  - Article highlights renewed speculation this week on whether the SEC would label XRP a security

* BSV squeezed on Binance due to lack of supply 
  - Article highlights how Binance’s failure to fully support BSV caused a demand/supply imbalance
    which caused BSV (the SV fork of BCH) to rip >100% in less than a week

* Steemit cuts 70% of employees
  - The Steem token is down ~96% from it’s all time high

* Coinbase launches institutional OTC trading platform 
  - Cites increased demand for OTC crypto trading from institutional players

* Bitmain facing $5M class action lawsuit 
 - Suit alleges it mined cryptocurrency for its own benefit on its customers’ devices
 - Lawsuit is a new addition to a long list of headaches for the company - good summary here 

*  Google searches for Bitcoin hit highest level since April 


Chart 1.  Price vs Volume
- BSV leads by a long shot after a lack of offers on exchanges sees price rocket



Chart 2.  50 Day Z Score vs 52 Week Range
- Most major coins / tokens continue to trade at the extreme bottom end of their 52-week ranges
- But much improved from last week


Chart 3 Weekly Price WoW %.
- BSV +128% as exchanges struggle offer withdrawals and conversion after the BCH hard fork



Chart 4. Price WoW % - By Thematic  
- Privacy outperformance was led by XVG ahead of its Bithumb listing this week



Chart 4.  Averaged Daily T/O - By Month
- November looks like it will be one of the most actively traded months of 2H18