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“That’s Our Two Satoshis”—  Arca Weekly Crypto Recap (BTC, XRP, ZRX, the VIX)

Jeff Dorman, CFA
Oct 1, 2018
What happened this week in the Crypto markets?
Don’t Believe the “Lower Volatility” Hype
The overall crypto market ended the week flat to slightly lower, and for the month, the various crypto indices closed +/- 5%. But as we mentioned last week , it hasn’t been a smooth journey, and this week was no exception. Closing the books on September, we noticed that each of the 4 calendar weeks last month saw peak-to-trough price moves of over 10%, and in some cases, the intra-week ranges surpassed 20%. This past week alone, after a muted start to the week, the crypto market declined rapidly on Tuesday, only to see prices rally back throughout the rest of week, ending the week largely unchanged.
Meanwhile, the public narrative is shifting towards a “ lack of volatility ” by studying technical charts that indicate BTC and other cryptoassets are trading in more narrow price channels. We’ll leave the chart reading for those who are trading every minute of every day, but when we look at these intra-week moves, it suggests something else may be afoot.
So Let’s Start at the Top — Macro View and Consumer Confidence
Viewing the world through a myopic lens is never advisable. While our in-house research team focuses exclusively on crypto markets, our macro viewpoints are shaped by what is occurring in traditional markets. And while many crypto enthusiasts continue to speak out about crypto’s lack of correlation with traditional markets, there are some recent patterns worth exploring further.
We highlighted over the summer that Bitcoin may no longer be an uncorrelated asset , citing a strong correlation between Asian equities and Bitcoin prices. This relationship, while not perfect, continues to hold- and can even be tested with the naked eye simply by watching crypto price direction in early US market hours following a particular strong / weak Asian overnight session.
Furthermore, many believe that Bitcoin will ultimately become “digital gold”. This in turn will make Bitcoin negatively correlated to risk assets. This thinking suggests that other risk assets will be a leading indicator of Bitcoin. However, over the past month, BTC has actually been a LEADING indicator, as measured by the VIX. There were 3 significant BTC corrections in September, and each one was followed by a spike in the VIX.
Graph of BTC Prices vs VIX from Sept 1 — Sept 30, 2018
Source: TradingView
And finally, given our propensity for spotting cross-asset relationships, we admit that this next one has us particularly confused. Since crypto prices follow Asian and emerging market equities, we assume that there must be some relationship between crypto and US / Europe. Then what is the takeaway when two of the largest economic powerhouses are at odds with each other? Such is the case with consumer confidence with US and Europe sentiment heading in opposite directions. This area will requires further analysis.
Notable Movers and Shakers
Historically, correlations have been very high between digital assets, but that may be starting to dissipate. This past week, ⅔ of the Top 25 by market cap moved lower, while ⅓ moved higher week-over-week.
  1. Bitcoin cash (BCH), the 2017 fork of Bitcoin, gained 10% week-over-week following a 27% jump on Thursday. The large spike followed news that Bitmain had officially filed for its IPO on the Hong Kong Exchange, potentially alleviating some of the liquidity issues at Bitmain and thus, BCH (with which a sizeable position sits on Bitmain’s balance sheet).
  2. 0x (ZRX) only finished the week up 1%, despite a 15% gain on Monday following the launch of protocol v 2.0 . 0x was unable to hold onto these gains following Tuesday’s broad selloff.
What We’re Reading this Week
This is a cool idea. There is a new platform that allows people to save BCH and BTC in a time-locked address making the funds unspendable until a specific time. So essentially a user who wants to give 1,000 BCH to their son on his tenth birthday but wants to lock up the funds until he turns 21 can do so using the OSI platform.
AirBNB wants to give hosts equity in its business. Hmm… a community needing an incentive structure for important participants to continue to operate & evangelize within the community. This is a novel-concept; where have we heard that before? (HINT: cryptoassets)
JP Morgan’s reps state that their system is a response to major crypto startups, like Ripple or Stellar, that are now spreading their arms around the global system of banks, offering their products to make overseas payments fast and low-cost using their tokens.
There will always be a debate as to whether or not short-sellers help or hurt markets, but we’re in the camp that short-selling helps markets achieve equilibrium.
Still looking for real life useful applications of blockchain? This song from Taryn Southern marks the world’s first ever experiment in mass music collaboration and backend ownership via smart contracts.
Arca in the Press and on the Streets

And That’s Our Two Satoshis! 

Thanks for reading everyone! Questions or comments, just let us know.  

The Arca Portfolio Management Team
Jeff Dorman, CFA — Portfolio Manager
Katie Talati — Director of Research
Hassan Bassiri , CFA — Junior PM / Analyst

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