“That’s Our Two Satoshis”—  Reminder, It’s Still Really Early in Crypto

What happened this week in the Crypto markets?

Weekend Volatility Book-ended an Otherwise Quiet Week

If you only look at crypto prices once per week (which quite frankly is a good strategy), you’d notice a pattern emerging. We’ve now seen three straight weeks of positive returns, setting February up for what could be the first positive month for crypto markets since July 2018.
Source: Returns are estimates from Bitwise 

Yet it’s not out of the question that these gains fail to hold over the next 4 days, as this past week gave us another glimpse of just how volatile and violent crypto asset prices can be. In 3 out of the 7 trading days last week, the market gave us 3 separate daily moves of greater than 10%. And while most of the price action was positive (including two rip-a-thons Monday and Saturday), the week still culminated with a quick selloff on Sunday that left many digital assets 15–20% below Saturday’s highs.

Graph of Ethereum (ETH) over the past 7 trading days, with 2 large spikes and 1 massive dropSource: Coinmarketcap

To reiterate, week-over-week and month-over-month the crypto market is still much higher than where it began the prior Sunday and the month, respectively. And it’s important not to lose sight of that. From a macro standpoint, crypto is getting better and stronger. Institutional financial firms like Fidelity and Nasdaq are ramping up, pension funds and endowments are making investments, and technology firms like Abra and Samsung are rolling out consumer facing apps. Perhaps more importantly, real use cases for these digital assets are finally emerging, from a truly exciting and innovative decentralized consumer lending and borrowing boom via Ethereum smart contracts, to instant micro-money transfers via the Lightning network on Bitcoin. There is real reason to be excited again about the long-term potential of crypto assets beyond just speculation and price.

But it’s also important to remember that crypto investing is largely a sentiment game, and the sentiment over the last 24 hours has turned decisively negative. While the gains in early February showed signs of a healthy market, where price appreciation was driven by the tokens of real companies and projects that had positive events and improving fundamentals, last week’s rally saw just about every token gain including those that are largely seen as having no long-term value. That’s the danger of crypto — separating the “haves” from the “have nots” works in the long-run, but in the short-run the whole market often gets way ahead of itself. This latest runup of the “have nots” may have ultimately invalidated the whole rally, leading to the sharp decline we saw on Sunday.

The battle in crypto is navigating the short-term volatility while keeping an eye on the larger macro headwinds, all of which are positive.

Equity & Fixed Income Markets Remind us How Early it Really is for Crypto

With the equity markets somehow posting their greatest start since 1987 (cough, Black Monday), and Fixed Income rallying across the board with strong High Yield corporate issuance and a Fed-induced Treasury rally, the volatility in crypto may seem like too much to stomach relative to alternative investment options. The minutes from last month’s Federal Reserve meeting showed near-unanimous support for halting the wind-down of its roughly $4.5 trillion balance sheet, which is creating another (potentially dangerous) risk-on environment.

Given this backdrop, crypto will remain in the shadows for a little while longer. But in these shadows the work is progressing… quickly. It is of course by no means certain that this giant crypto experiment will succeed. Most market participants really do understand that crypto is an experiment in monetary policy, governance, social psychology and technology — and those are difficult subjects for many to latch on to.

But each day that passes where digital assets still exist means it’s slightly more likely than the day before that this market will continue to grow and mature. And even if crypto only mildly succeeds, the upside will still be enormous. A quick look at total wealth relative to the size of the crypto market shows just how much room there is to grow with even modest adoption.

While traditional asset classes are providing comfort for investors today, and may offer most of what investors need today, it’s still worth appreciating just how early it really is for digital asset investments. It isn’t going to take much to move the needle.

Notable Movers and Shakers

Last week was not for the faint of heart. Amidst the volatility, a few noticeable winners and losers emerged.

• Komodo (KMD) is up 6% last week after releasing a tool with the help of Amazon called Chainlizard. Chainlizard is designed to enable the creation of a blockchain in 60 seconds or less and will cost around $160 per month, much lower than other options currently available.
• Eos (EOS), a project that has been quiet for quite some time, is up 24% despite the Sunday sell-off. Price action can be attributed to recent comments from Brendan Blumer, CEO of block.one (the company that built EOS) and a non-crypto business adopting EOS.
• Binance Coin (BNB) swelled 8% last week with the launch of their Binance Chain Testnet and their second ICO sale, Fetch.AI, which launched today. Binance’s new chain will be used to host a decentralized exchange, many believing them to be the group to create a mainstream DEX.
• Ontology (ONT) moved up 48% last week after releasing their development platform on Google Platform Marketplace, which is already available on Amazon AWS and Azure. Having ONT’s technology available on these cloud providers allows individuals to set up and code smart contracts without having to set up a local environment.
• After lagging the market over the last month, Stellar Lumens (XLM) gained of 6% last week after IBM’s head of blockchain announced that its IBM World Wire product built on Stellar, would be launching with a number of banking partners soon. More details will be shared at Asia’s Money 20/20 in March.

 

 

Arca in the Press & on the Streets

• Risk.net talked to the Arca Portfolio team about how they think about risk and fundamental valuation in crypto. The story is behind a payment wall but we think it’s worth paying for.
• In last week’s “Reading the Merkle Leaves”, Arca’s CLO, Phil Liu, discusses the two catalysts necessary for mass crypto adoption: improved security and recoverability and a new blockchain securities settlement system.
• Arca CEO Rayne Steinberg was at the Oppenheimer Blockchain Conference last week, speaking on the “Investing in Blockchain” panel about institutional focus in crypto, a panel that also featured Multicoin Capital, Delphi Digital, Sterling Global and Vision Hill Capital.
• Reminder! Jeff Dorman, Arca’s Portfolio Manager, will be in San Francisco tomorrow (Tuesday, February 26). Reach out to us if you’d like to arrange a meeting.

And That’s Our Two Satoshis!