Circle research

Weekly Crypto Recap 11/23-11/29

Know & go

  • Highlight of the week: While hard to pinpoint, there were multiple factors that could have contributed to the recent crypto market decline. Read on for potential reasons.
  • Three things to know: (1) Brief market reversal (2) Bear market creates pain for miners, ICOs, and crypto funds (3) SEC charges crypto celebrities for promoting ICOs.
  • BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by Bitmex) fell to a low of 14% on Nov 14 and has been steadily rising since then. It is now at 112%.
  • This week, total crypto market hit a YTD low of $120 billion on Nov 25 with BTC falling as low as $3500 on some exchanges and ETH briefly dropping into the double digits. The market is now down 7.2% w/w. BTC is trading at $4019 (down 6.7% w/w), ETH is at $113 (down 11.9% w/w).*
    *As of 11/30 10:15 AM EST

Weekly market snapshot

Top Stories

Musings on the crypto bear market

Total crypto market cap had been trading in the $200 billion to $230 billion range from the end of September to mid-November. Bitcoin had been trading in the $6200 to $6700 range over the same time period, with a period of historically low volatility.

This changed as the crypto market cap fell from ~$210 billion to ~$180 billion and BTC fell from $6350 to $5350 on Nov 14 to Nov 15 (the date of the BCH hard fork). The market continued to fall, going from ~$180 billion to ~$120 billion between Nov 15 to Nov 25, and BTC going from $5350 on Nov 15 to a low of $3600 on Nov 27 (below $3500 on some exchanges).

Factors that could have contributed to the accelerated decline in prices over the past two weeks include the messy BCH hard fork, selling pressure from miners, the unwinding of levered positions as market participants near margin calls, ICO treasuries selling ETH raised (170K this month, as of Nov 26), and a constant stream of regulatory news (i.e. SEC action against EtherDelta and two ICOs).* Of the factors mentioned, a key contributor could be that miners, sensitive to short term price movements, are hitting their break-even point in terms of cash flows and offloading their assets onto the market as a result.

Miners shut down

According to Coindesk's interview with the founder of the third largest mining pool F2Pool (Mao Shixing), between 600K to 800K bitcoin miners have shut down operations in the last two weeks (as of Nov 26), which is likely driven by a decline in bitcoin prices and subsequently total network hashrate. The network hashrate (7-day avg) fell by about 13% between Nov 10 and Nov 24.

Shixing says miners shutting down operations are likely those with older machines. Factors putting pressure on Chinese miners specifically include the significant decline in the price of bitcoin, the rising cost of electricity in China, and Chinese manufacturers releasing upgraded hardware, making older machines obsolete more quickly. All these things combined exacerbate the pain felt by smaller miners and those with older equipment. Diar published a similar analysis claiming that the decline in the bitcoin price has caused 20% of miners to turn off mining operations due to compressed gross profit margins. Bitcoin Wisdom provides a visual representation of hashrate versus mining difficulty.

In a timely deep dive report, Coinshares Research backs into the point at which miners are likely to halt operations: “As soon as opex exceeds income and mining gear becomes cash flow negative, it no longer makes sense to even leave on, as it is now just burning cash. This is the point at which miners remove gear from the network, not at the point of negative ROI”. They assure us that this is not the beginning of a “death spiral”. Bitcoin worked at $10, at $20,000, and will continue to work at its current price.

*We note that it is difficult to determine whether the decline was in fact driven by these factors, and if so, quantify what portion of the move was driven by which factor.

In other news

  • At Consensus Invest, SEC Chairman, Jay Clayton, shared what he thinks is needed before the SEC will issue approvals around crypto trading, ICOs, and more. You can watch the full conversation here. Caitlin Long, Stephen Palley, and Lewis Cohen unpack the commentary. Source.
  • The SEC charged two celebrities (Floyd Mayweather and DJ Khaled) with illegally promoting token offerings for compensation. Mayweather agreed to pay a total of $614,775 and Khaled agreed to pay total fines of $152,725. Source.
  • The Colorado Division of Securities filed four new cease and desist orders against fraudulent ICOs. Since combining the ICO task force with the Division in May, the regulator has filed 20 total cases against allegedly fraudulent ICOs. Source.
  • Ohio became the first state to allow businesses to pay taxes in bitcoin through a partnership with BitPay, which will convert the bitcoin to dollars for the treasurer's office. Source.
  • Fidelity could expand crypto trading services beyond Bitcoin and Ether to the top five to seven crypto assets by market cap. Source.
  • SIX launched Amun Crypto ETP based on Amun Crypto Basket Index (HODL5), an index with the four most liquid crypto assets, BTC, ETH, XRP, and LTC. Source. Jane Street and Flow Traders have become authorized participants for the ETP. Source.
  • Messari launched a disclosures registry with twelve initial applicants to provide greater transparency and accountability for projects that join. Source.
  • Harbor, a security token platform, officially launched on Tuesday, and it's first tokenized security is a REIT representing a stake in a $20 million mega-dorm for students at USC. Source.
  • Amazon launched Quantum Ledger Database - a "fully managed ledger database with a central trusted authority", which it claims can execute two to three times more transactions, and Amazon Managed Blockchain, which supports Hyperledger and Ethereum. Source.
  • Van Eck and Nasdaq announced a partnership to release transparent, regulated, surveilled crypto asset products such as bitcoin futures using Nasdaq's SMARTS system to market. Source.
  • Galaxy Digital's net realized and unrealized losses on crypto assets were $41 million in 3Q18, and $136 million for the first nine months of the year. Source.
  • Coinbase Pro launched trading in Zcash (ZEC). Source.
  • Steem laid off 70% of its employees and begins a restructuring due to the prolonged bear market. Source.
  • Gnosis Safe, Gnosis' smart contract-based, multisig wallet is live on mainnet. Source.
  • Augur rolled out exploreaugur.com, a minimalist website outlining markets, recent trades, order books, and more.
  • Will O'Beirne launched and demoed Lightning Joule Chrome extension for sending lightning payments directly from Chrome.
  • Tron is planning on launching a $100 million gaming fund called Tron Arcade. Source.
  • Mythical Games, building games on EOS, raised a $16 million Series A round. Source.

What we’re reading

  • Marco Santori Twitter Thread on OFAC adding Bitcoin addresses to list of sanctioned parties. Nobody within OFAC's jurisdiction can legally transact with persons on this list. Laurent explains what it means to "transact with" persons on the list. This is the first time OFAC has added Bitcoin addresses to the list, however, they told us they might be doing so in March 2018.
  • My First Impressions of the Casa Bitcoin Node. Hasufly shares thoughts on his experience with the Casa Bitcoin node. Casa built the Casa Lightning Node to allow anyone to run a lightning node out of their home.
  • ICOs and Crypto Fund Managers are in trouble. Anthony Pompliano, Founder of Morgan Creek, explains why ICOs and fund managers are in trouble. He explains that crypto funds could face pressure due to the clause that prevents them from collecting performance fees if NAV (net asset value) is lower in the most recent investment period relative to the last.
  • The Wood Zamfir Governance Debates. CleanApp published a post outlining the similarities and differences in Gavid Wood and Vlad Zamfir's take on governance in crypto. Gavin Wood is on the side of a more formal governance process and Zamfir is on the side of a less formal governance process.
  • Demystifying the road to Ethereum 2.0. Maria Paula Fernandez transcribed the Serenity Q&A session at ETHMagicians.

What we’re listening to

Circle in the news

Where we’ll be in December

  • Women Leaders in HK Fintech Event, Hong Kong, 12/3
  • EPO - Patenting Blockchain, Rijswijk, NL, 12/4
  • Latin America Bit Conf., Santiago, Chile, 12/5-12/8
  • Bloomberg Crypto Summit, London, UK, 12/7
  • TEDxWomen, Bologna, IT, 12/8

If you have any thoughts or questions, please reach out at [email protected].

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