Rehashed – #2  History Repeats (Even in Cryptocurrency)

 

Innovation Nation

New Zealand continues to make inroads in pursuit of becoming a global blockchain leader. FinTech NZ CEO James Brown recently highlighted many positive initiatives in development, including the increasing amount of Edmund Hillary Fellowship recipients who are focused on blockchain solutions.

NZ-based blockchain startup Choice has just raised NZD$1 million from the NEM Foundation for its payments gateway platform. They include a social impact component in their architecture and are taking on the market share of Visa and Mastercard. They face the formidable barrier of providing a lower-fee solution for both the consumer and merchant in order to spur adoption by both.

Storm in a Teacup

I typically don’t like to comment on price movement but the bear market we are observing deserves attention. The chatter this week has been focused on the impending Bitcoin death cross (a technical term for when the 50-day moving average passes through the 200-day moving average), which can indicate a looming price crash. The overriding sentiment is that we are at a critical inflection point; technical analysts continue to look for further confirmation of a prolonged bear market versus a potential falling wedge support, which favours the bulls.

So the technicals aren’t looking so hot but as with anything, it’s good to step back and take a look at the big picture. Since Bitcoin’s inception, the market has been at the whim of massive drawdowns.

Image courtesy of Steemit

Considered in isolation, such dips can be hard to stomach but the volatile nature of Bitcoin has historically seen the market experience both euphoric rallies and painful drawdowns. These drawdowns have been a consistent characteristic of Bitcoin’s price history. Although Bitcoin has plunged nearly 40% year-to-date, it would still need to fall another 85% to erase all of 2017’s gains.

The Parallels between Price

Something that I’ve been monitoring lately is the decoupling of cryptocurrency correlations. The entire asset class, particularly large-cap cryptocurrencies, have typically traded in lockstep with Bitcoin. A look at the BTC/ETH pair shows a highly positive correlation (0.9) over the past two years, which has since decreased to only being moderately correlated (0.6) over the past three months. This divergence of correlations is healthy for the ecosystem as investors can build more diversified portfolios within the asset class. The trend indicates a maturation towards the independent fundamental evaluation of projects, rather than blanket speculative investment.

As we see divergence within cryptocurrencies as an asset class, we are observing minor increases in correlations to traditional asset classes. One of the touted advantages of owning cryptocurrencies is that they have a low correlation to other asset classes; the thesis being that if your stocks or bonds have a down year, you may see healthy returns with your cryptocurrency allocation. The continuation of these trends through 2018 will be an interesting story to follow, particularly from an institutional point of view.

In the News

The New Zealand Cybersecurity Unit, CERT NZ, has observed a rise in cryptocurrency scams as attackers take advantage of increased investment in the space. These types of scams have resulted in nearly $265K of losses in Q4 alone here

The Ethereum ecosystem gained a powerful public ally this week, as Coinbase (the largest US Crypto exchange) announced it was adding support for ERC-20 tokens here

Globally, the regulatory story continues. Exchanges are taking flight to regulatory safe-havens: Binance announced relocation to Malta here and Bitfinex is packing its bags to Switzerland here

Weathered under economic sanctions, the North Korean regime appears to be turning to cryptocurrency with Pyongyang’s hackers targeting exchanges here

In a ‘first of its kind’ pilot project, US voters in some counties of West Virginia will be able to use Blockchain to cast mobile ballets here

Upcoming Dates

April 2-3 – Global Blockchain Forum, Santa Clara, U.S. here

April 5-6 – De/Centralize 2018, Singapore here

April 6 – ($XMR) Monero Hard Fork here (Note: this is a scheduled and consensual network upgrade. Thus, unlike the BCH / BTC fork, a new coin won’t be created)

Thanks for your company, stay tuned for next week’s edition of Rehashed.

Freddie Archibald

 

View previous issue: Rehashed – #1 Riding the Cryptocurrency Regulatory Wave

View next issue: Rehashed – #3 Taxing Times: IRD releases Cryptocurrency Tax Guidance


About the author:

Capital markets to crypto convert. From Christchurch →  Boston → New York, Freddie became infatuated with the potential of the digital asset economy after randomly plucking a book on bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.

Disclaimer:  The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.

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