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“That’s Our Two Satoshis”—  Crypto Market Recap (ETH, BTC, XRP)

Jeff Dorman, CFA
Oct 29, 2018
What happened this week in the Crypto markets?
YES, crypto is now boring relative to global markets (in a good way)
Surprisingly, it was a pretty listless and boring week for crypto assets. That’s fairly remarkable during a week when global equity markets fell 4–6% and the VIX spiked 25%, but it is the truth, and could be a very powerful motivator for future asset allocation trends. In a global world that is more interdependent than ever due to a decade of coordinated and potentially irresponsible global monetary policy, it’s a breath of fresh air to see that none of the outside market forces are spilling over into crypto. The crypto markets continue to be completely uncorrelated to all other asset classes.
Bitcoin (BTC) 90-day rolling correlations vs the S&P 500, Gold and the VIX
Source: SIFR Data
So what is influencing crypto prices?
The overall crypto market was basically unchanged week-over-week, with little to no intra-week volatility. We’ve highlighted recently that most crypto news, from Fidelity to Bakkt to large venture investments, has been universally positive, and that continues to be the case despite the market not pricing in this bullishness. And while this may not be leading to higher prices today, at some point we’ll likely look back at 2018 as the “setting the stage for future growth” years.
For now, there are three overarching themes dominating the current market:
  1. Lack of volatility
  2. Small caps (or “alt-coins” — any token outside the “mainstream” cryptocurrencies of Bitcoin, Ethereum, Litecoin, etc.”) are outperforming large caps
  3. Token-specific news having real effects on individual token prices
1) Lack of volatility
Conspiracy theories aside, something is subduing volatility. As our friends at Circle noted, the spread between the 10-day volatility of the NYSE FANG+ Index vs. BTC rose to a record high of 46%. Similarly, BTC’s 10-day volatility hasn’t been this low since October 2016 . And yet another measure of volatility, BVOL (the rolling 30-day annualized volatility as calculated by Bitmex) currently sits at 23, down from the low 30s earlier this month and over 100 earlier this year.
Bitcoin Historical Volatility Index (BVOL) falls to record lows
Source: TradingView
2) The “alt-coin” rally
Most news outlets, crypto indexes, and volatility metrics (like those shown above) focus on the largest and most liquid cryptocurrencies (Bitcoin, Ethereum, Ripple, EOS, etc). But behind the curtain is another 2000+ tokens, of which 100 or so represent interests in projects and protocols that have exhibited some measurable growth and progress. And despite October shaping up to be another down month (third consecutive) for the broader crypto market, these “alt-coins” are starting to outperform and break away from the pack.
In fact, in the past month, there have been 18 tokens in the Top 100 that have risen over 20%, compared to just 6 tokens that have lost 20% or more (a 3:1 ratio). Many of these alt-coins are ERC-20 tokens (meaning they run on the Ethereum protocol), and have outperformed Ethereum.
Alt-coins on the Ethereum protocol have outperformed Ethereum
Source: Santiment
3) News matters (and is driving individual token performance)
The outperformers mentioned above haven’t just been moving higher for technical reasons, they have been moving higher following real identifiable catalysts (some catalysts are stronger than others, but it still points to news leading price rather than the other way around). This is a sign of health in a slowly maturing market, as investor performance can now be traced to picking winners and losers that exhibit real events and news, rather than just broad market moves. So when you combine the lack of volatility in the broader market, with the fact that correlations between the largest cap tokens remain high , the case can be made that active management and research now matter more than ever.
Examples of news-related catalysts:
The Case for Active Management in Crypto
All of the items mentioned above lead to one undeniable conclusion — Active management matters in crypto. While Warren Buffett famously bet (and won) $1 million that a passive index would outperform actively managed hedge funds , this just isn’t true in crypto today. This space is too new and the Indexes too basic to fully capture the potential of this asset class.
Take September’s Index returns for example. Four of the most cited crypto Indexes returned values that were in an 11% range, from -8% to +3%. Meanwhile, the Eureka Crypto Hedge Fund Index outperformed all Indexes in each of the past 2 months. These Indexes are supposed to represent the broader market, but clearly, this isn’t the case when individual token selection matters so much (i.e. performance is being driven by whether or not you hold one or more of the outperforming tokens).
When investors respond to specific news about individual assets rather than trading on general market sentiment alone, it is a positive for the overall industry and a good reason to start your due diligence process with a handful of reputable fund managers that have developed strategies to identify and capture this alpha.
Notable Movers and Shakers
As mentioned above, even as most crypto indexes head towards a third consecutive month of negative returns, many smaller caps are having a great month
  • Ravencoin (RVN) increased further last week following an already impressive 221% price jump after RVN was listed on Binance on October 12. The token was buoyed further last week by news that its mainnet would launch on October 31 .
  • Polymath (POLY) has continued its upward march, rising 29% week-over-week. The news of tZero’s token issuance has gone over well with investors as the coin is now up 73% in the last month.Verisatum (VERI), a peer-to-peer capital markets token, rose 26% last week after announcing the hiring of Jeffrey Tabak as Co-CEO , following the prior week’s news regarding its expansion into Africa.
  • Chainlink (LINK) moved up 17% last week on news that it has partnered with the Web3 Foundation to improve the Polkadot system. Specifically, LINK will be providing data via its decentralized Oracle network for Polkadot’s data feeds.
What We’re Reading this Week
The team at 13D Research discusses how to think about decentralization in a broader context. Decentralization, they argue, is not just for blockchain technology but can benefit many other industries including energy and data, which to date have been extremely centralized and offer single points of failure.
Ripple made more noise last week by releasing a positive Q3 market report. This follows their partnership with the Bill and Melinda Gates Foundation and inclusion in Coinbase’s new custody offering . The report details that sales for XRP doubled during the quarter, noting that although the price is down from the beginning of the year, Ripple has tracked the rest of the cryptocurrency market and has decreased in volatility during the third quarter.
Japan is leading the crypto space yet again; this week the FSA accredited the Japanese Virtual Currency Exchange Association as a “certified fund settlement business association”, essentially making it a self-regulatory organization for crypto exchanges.
Vo1t solves security using old nuclear bunkers at undisclosed locations worldwide. Read more about how serious crypto custody providers have to deal with the dangers of theft and robberies in the space.

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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