Weekly Crypto Market Wrap #42, 2020

Week in Review

• Grayscale Investments’ Ethereum Trust became a reporting company in the Securities and Exchange Commission (SEC). (12 Oct. 2020)
• Blockchain technology is estimated to boost the global economy by $1.7 trillion in the next decade with Asia seeing the most economic benefit, report by PwC. (12 Oct. 2020)
• A G7 draft insists that no global stablecoin project, such as Facebook’s Libra, should start operation until it can be fully regulated. (13 Oct. 2020)
• Germany’s first regulated trading venue for digital assets, Boerse Stuttgart Digital Exchange (BSDEX), introduced trading of ETH, LTC and XRP against Euro. (16 Oct. 2020)
• For more information on the past news, check our News Update for October 19th

Winners & Losers

• The cryptocurrencies closed in the lower half of their price range with high positive correlations last week. The crypto market experienced some turbulence at the end of the week after the news that OKEx Chinese founder is under investigation.
• Except for the stable Australian Market, the traditional financial market also experienced some volatility, mainly resulted in the difficulties found by American Democrats and Republicans in reaching an agreement on an additional fiscal stimulus plan.
• Where tiny price change ended the week for most asset classes, lonely VIX received a large positive return. The commodity maintained a negative correlation with all other asset classes.

Macro, Technicals & Order Flow

Bitcoin

• After the breakout of bitcoin’s descending wedge, we see consolidation around $11,500. Recent support is holding at $11,150. If it can keep above this level, we expect the price to continue its rally, breaking $12,000 next week.
• The last move above $12,000 was a false break, taking out stops above these levels. From an order flow perspective, this opens up a clean run to next levels on the second break, if accompanied with increasing volume.
• The options market disagrees with us, pricing a 32% chance of bitcoin hitting 12,000 in October. Why do our views diverge?

   

  • The US presidential race is close. With swinging polls, intermarket volatility and general uncertainty, the election could lead to non-sovereign safe-haven flows: gold & bitcoin.
  • Fidelity is hot on the institutional bitcoin theme – and it’s no surprise that they are positioning for uncertainty. They released a report last week proposing a 5% bitcoin allocation for healthy portfolios. This news has not gone mainstream yet – and we believe Fidelity will push more pieces into the election, leading to inflows.

Ethereum

• Ethereum has been shaking off September’s DeFi volatility. The descending trendline dates back to the highs of 2017/2018, and traders seem to be respecting it. The false break from September was swift, indicating derivative and volume zones.
• Amidst the recent Ethereum consolidation, the DeFi market has been volatile, with some big swings in the tokens that have been fuelling the yield farming craze. Going back to our case for Ethereum, we posit that Ethereum will continue to be the ETF of DeFi, and its bond-like instrument when ETH 2.0 launches.
• We see consolidation into the election, breaking recent September highs on a Trump win.
• The options market is pricing a 20% probability of breaking $400 in October 2020. Whilst we agree with the price range that the options market is pricing (essentially forecasting consolidation), we feel that it is underpricing a $400 break if a significant poll swing to Trump ensues, likely generating a strong rally in risk-markets.

What to Watch

• What will Federal Reserve (Fed) Chairman Jerome Powell speak this Monday on the future of digital assets and their policy implications at the International Monetary Fund’s (IMF) annual meeting?
• Will the Trump administration approve the proposal from the U.S. State Department to add China’s Ant Group into a trade blacklist, before the coming election? If so, how does this affect the value of US dollars and the presidential run?
• Grayscale, digital asset fund manager, raises $1b this quarter. This adds to the line of institutional investments that are occurring in the space – Fidelity leading much of the conversation in the traditional sphere. Keep an eye out for the GBTC trust’s (Grayscale’s listed investment vehicle) inflows as an indicator for institutional/mainstream adoption.

* Index used:

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FAQs

1. What Were the Key Developments in the Cryptocurrency Market for the Week of October 19th, 2020?

Answer: Significant developments included Grayscale Investments’ Ethereum Trust becoming an SEC reporting company, PwC’s estimation that blockchain technology could boost the global economy by $1.7 trillion in the next decade, G7’s draft regulation on global stablecoins like Facebook’s Libra, Germany’s Boerse Stuttgart Digital Exchange introducing trading of ETH, LTC, and XRP against Euro, and turbulence in the crypto market after news of OKEx Chinese founder’s investigation.

2. How Did Bitcoin and Ethereum Perform, and What Were the Technical Insights During the Week?

Answer: Bitcoin consolidated around $11,500, with support at $11,150, and expectations to break $12,000. Ethereum showed signs of shaking off September’s DeFi volatility, respecting the descending trendline dating back to 2017/2018 highs. The options market priced a 32% chance of Bitcoin hitting $12,000 and a 20% probability of Ethereum breaking $400 in October. Factors like the U.S. presidential race and Fidelity’s report on Bitcoin allocation influenced the market outlook.

3. What Were the Correlations Between Cryptocurrencies and Traditional Financial Markets?

Answer: Cryptocurrencies closed in the lower half of their price range with high positive correlations. The traditional financial market experienced volatility due to difficulties in reaching an agreement on an additional fiscal stimulus plan in the U.S. The VIX received a large positive return, and commodities maintained a negative correlation with other asset classes. The crypto market was affected by the investigation of OKEx’s Chinese founder.

4. What Are the Key Watch Items and Questions in the Cryptocurrency Space for the Week?

Answer: Key watch items include Federal Reserve Chairman Jerome Powell’s speech on digital assets, potential U.S. State Department action against China’s Ant Group, and Grayscale’s $1 billion raise this quarter. Questions to consider include the impact of the U.S. election on Bitcoin and gold, the effects of Fidelity’s proposal on Bitcoin allocation, and the influence of institutional investments like Grayscale’s GBTC trust on mainstream adoption.

5. How Did Macro Events and Institutional Involvement Influence the Cryptocurrency Market?

Answer: Macro events like the U.S. presidential race and intermarket volatility played a role in influencing the market, with potential non-sovereign safe-haven flows to gold and Bitcoin. Institutions like Fidelity positioned for uncertainty, proposing a 5% Bitcoin allocation for portfolios. Grayscale’s Ethereum Trust’s SEC reporting status and the introduction of new trading pairs in Germany’s regulated trading venue also shaped the market dynamics.

Disclaimer

This document has been prepared by Zerocap Pty Ltd, its directors, employees and agents for information purposes only and by no means constitutes a solicitation to investment or disinvestment.

The views expressed in this update reflect the analysts’ personal views about the cryptocurrencies. These views may change without notice and are subject to market conditions. All data used in the update are between 4 Oct. 2020 0:00 UTC to 10 Oct. 2020 23:59 UTC from TradingView. Contents presented may be subject to errors. The updates are for personal use only and should not be republished or redistributed. Zerocap Pty Ltd reserves the right of final interpretation for the content hereinabove.