The Cryptomarket Quarterly Review – Q3 2019

It was a quarter for the crypto bears in the 3rd. Michael Stark, an analyst at Exness, shared his views on what went on and what’s likely to come.
Bob Mason
Many coins of various cryptocurrencies

The Top 10

It was a quarter to forget for the crypto bulls in the 3rd quarter.

Tron’s TRX led the way down, sliding by 54.35%, which ultimately saw a brief visit to the top 10, by market cap, come to an end. Things were not much better for Cardano’s ADA, which also fell out of the top 10, having given up 54.26% in the quarter. Bitcoin Cash SV (-53.94%) and Binance Coin (-50.24%) saw their values also halve as the crypto market took a big hit in the wake of a particularly bullish run through to late June.

Also falling out of the top 10 in the 3rd quarter was Monero’s XMR, which briefly took the number 10 spot before hitting reverse. Monero’s XMR slid by 35.5% in the quarter.

Perhaps the greatest event of the quarter, however, was the rise and demise of Litecoin. For the quarter, Litecoin tumbled by 54.04%, also a notable loss amongst its peers, but with one difference.

Litecoin had surged to a 22nd June current year high $146 in anticipation of its August 5th halving before hitting reverse. The rally through the first half of the year had seen Litecoin jump by 390% to June’s current year high.

Through the 3rd quarter, Litecoin saw its bullish trend unravel, however, as investors jumped ship ahead of the actual halving event.

Bitcoin

Across the rest of the majors, Bitcoin outperformed the pack, falling by just 22.9%. Ripple’s XRP and Ethereum also saw more modest losses of 34.5% and 37.5% respectively.

Bitcoin, however, had seen limited downside through much of the quarter, with Bitcoin managing to recover to $12,000 levels in early August. The recovery had come off the back of a slide from June’s current year high $13,764.

A late September, broad-based crypto market sell-off did the damage, with Bitcoin visiting $7,000 levels before finding support.

In spite of Bitcoin’s late in the quarter sell-off, the near-term bullish trend remained intact, with Bitcoin avoiding a slide through the 62% FIB of $7,245.

Coming out of the 3rd quarter, Bitcoin was the only member of the top 10 to continue enjoying a bullish trend. The rest of the majors had resumed their extended bearish trends by late September.

Market Caps and Bitcoin Dominance

Through the 3rd quarter, the crypto total market cap fell back from a 10th July high $356.35bnb to a 30th September low $208.75bn.

Bitcoin’s more modest losses through the quarter saw its dominance level peak at an early September 71.24%. Bitcoin’s dominance had stood at sub-65% levels back in July.

As had been the case historically, Bitcoin’s rise in dominance was reflective of its safe-haven status within the crypto sphere.

Halving Events

On 5th August 2019, Litecoin experienced its 2nd halving event. Litecoin’s halving event was considered significant as Litecoin rewards for producing blocks were halved. This time around the number of Litecoin rewards was halved from 25 Litecoin to 12.5 Litecoin.

Litecoin’s last halving event, back in 2015 had gone unnoticed. The vast majority of crypto exchanges had yet to launch and the total crypto market cap had stood at just $4.77bn.

To put it into perspective, Litecoin’s market cap stood at just $180.75m at that time, with a single Litecoin costing just $4.37. As of 30th September 2019, Litecoin’s market cap stood at $3.5bn, with a single Litecoin fetching $55.26.

If Litecoin’s halving event is anything to go by, Bitcoin’s halving event next May could give the majors an even bigger boost in the months ahead…

ICOs

The Initial Coin Offering market continued to be lackluster in size and number in the quarter. The lack of ICOs provided little support to the likes of Ethereum.

According to ICOData, total ICO funds raised through the 3rd quarter were just $20.62m contributing little to the year-to-date $366.71 raised. There were just 96 ICOs year-to-date.

Market volatility and regulatory uncertainty and classifications of coins and tokens under various asset classes continued to impact the market.

There were no ICOs or funds raised in July and September. The 3rd quarter was, in fact, the worst since the 3rd quarter of 2016. In the 3rd quarter of 2016, a nascent ICO market had raised just $26m.

That’s quite a contrast to the 3rd quarter of 2017, where the ICO market raised a whopping $1,745.44bn.

Regulators and Market Impact

In stark contrast to 2018, the news wires were relatively silent in terms of crypto market regulation through the quarter.

For Bitcoin and the broader crypto market, the pending SEC decision on the Bitcoin ETF applications was the greatest area of interest.

Both VanEck and SolidX pulled their applications in late September, however.

Both decided to withdraw with just 1-month remaining until the SEC’s 18th October deadline.

VanEck’s decision to withdraw was of greatest significance for Bitcoin and the broader market. The crypto market viewed the VanEck ETF as the most likely to succeed.

While the actual withdrawal was not directly linked to Bitcoin’s late September demise, the decision will have influenced investors holding on in hope of an inflow of institutional monies.

In spite of the withdrawals, both VanEck and SolidX rolled out Bitcoin ETFs for institutional investors. Under SEC rules, the sale of privately placed securities is permitted to qualified institutional buyers, with at least $100m in assets.

A lack of institutional investor interest in VanEck’s Bitcoin investment vehicle may well have contributed to the decision to withdraw, rather than any expectation of the application being dismissed by the SEC.

Other Major Events

Facebook

Facebook grabbed the crypto headlines in the 3rd quarter. The social media giant announced plans to roll out its very own cryptocurrency called Libra.

Facebook Inc. plans to roll out Libra in 2020. The platform is similar to the platforms that have been developed by Telegram and WeChat. Facebook Messenger and WhatsApp will enable users to send and receive Libra. In addition, Facebook Inc. will introduce a standalone platform named Calibra. Calibra will target the non-Facebook Inc. market.

Facebook has not been free from scandal, however. The Cambridge scandal of 2018 was a major one from a regulatory standpoint. So it wasn’t surprising that the announcement raised plenty of eyebrows, including those of the U.S government.

In September, the U.S House Committee and the SEC held hearings on how to handle Facebook’s Libra.

Neither the U.S House Committee or the SEC announced any major changes in regulations in response, however.

In October, Facebook Inc. CEO Mark Zuckerberg will testify before Congress on Libra. The planned testimony comes as Congress continues to call on Facebook.Inc to delay Libra’s development and rollout.

If Libra gets the green light, which is a very big IF, the pressure would certainly build on other cryptocurrencies. The likes of Bitcoin and other true cryptocurrencies will have to resolve current issues. Transaction fees and speeds, stemming from scalability issues, have remained the key hurdle.

RIFT Protocol

From the Blockchain word, there were strong advancements made in addressing scalability issues. In the quarter, the ILCoin team announced the development of the RIFT protocol.

With the incorporation of the RIFT protocol over 30,000 transactions per second is possible. That is far greater than Bitcoin’s current capacity of 400,000 transactions per day.

The latest development gives the crypto world a far better chance of overpowering fiat money than ever before. Adoption in the coming quarters will now be key.

With Libra on the horizon, RIFT couldn’t have come at a better time for the likes of Bitcoin.

In Summary

When considering the advancements in blockchain tech and the desire for the likes of Facebook to get in on the act, it goes without saying that regulators and the crypto world will need to work more closely together. The broader market needs investor confidence in both stability and longevity in the crypto space.

The rising use of cryptocurrencies and blockchain technology implies the need for a more rigid regulatory landscape. This does not mean, however, one that is onerous and ultimately one that impedes the evolution of the crypto world.

Through the months ahead, with the SEC having dismissed the latest Bitcoin ETF submission, more work will likely go into meeting SEC requirements.

SEC concerns include inappropriate custodial services, market manipulation, and fraudulent activity. The latter two may prove to be somewhat of a challenge, however, as transparency issues also plague the broader market.

How Facebook Inc. progresses with Libra will also have a far-reaching impact on the broader market.

Exness Q&A

We spoke to Michael Stark on the 3rd quarter, an analyst at Exness, and that what he had to say.

Why do you think the Litecoin sell-off commenced well in advance of the actual halving event?

Ultimately, the prices of cryptocurrencies change because people think they’ll change. If nearly everybody thinks Litecoin is a bad buy then it’s going to tank. It usually does that regardless of what else is going on.

This isn’t to say that halving isn’t important, though. Of course, many small miners will probably have wanted to get out even a couple of months before the halving when the selloff started.

Nevertheless, it’s the herd mentality common in crypto markets that was really the catalyst.

Will Bitcoin follow a similar trend in the lead into its halving event next year? Momentum trades are popular in the crypto world after all.

Probably not, but we don’t have a crystal ball, do we? Given that bitcoin is the main and original cryptocurrency, it doesn’t seem likely that the next halving will lead to a fully-fledged downward trend for bitcoin.

For some years now, fewer and fewer small miners have been seriously interested in bitcoin (except to hold it) because of the increasing difficulty of mining. Relatively speaking, though, it was still quite easy to mine Litecoin at the start of the year. Large miners probably won’t be put off mining the biggest coin out there anytime soon – after all, we all knew this was coming.

With Facebook and Telegram facing stern resistance with their respective rollout plans, does that open the door open for the likes of Visa and Mastercard to attempt to grab the unbanked?

Yes and no. Yes because in various developing countries people are unbanked for a wide range of different reasons. These include the impact of minimum fees to a simple lack of education on how the system works in some regions. Mastercard and Visa are a big part of the drive-in North Africa. For example, both are looking to deliver banking services of some sort to more people. Their main focus is on automation and simplification of existing systems, and it seems to be working.

At the same time, for developed countries, the answer’s probably no. Most commonly, people there are unbanked due to learning difficulties or other disabilities. Some people, however, do have an intense distrust of banks and corporations. In either case, it’s difficult to see these people being able/willing, in the near future, to start banking.

Would any developed world government really allow a social media platform to roll out a remittance platform to compete with banks and exciting remitting companies?

We don’t see why not. The concept isn’t radically different from systems like PayPal, Ripple, Revolut and so on. The first of these has been running for decades and offers basically the same thing through mobile apps: it hasn’t really done anything to disrupt major national banks. Equally, many national banks offer instant transfers through apps, so there’s the question of what a social media company could do differently or better. Instead, new banks are generally the ones who actively compete with established banks in most parts of the world.

For most people, it’s just easier to keep savings accounts of various kinds in one or two banks and pay some of their salaries into them every month. While you can obviously do this with other systems, such other methods still aren’t commonly used for regular larger payments. This doesn’t look likely to change anytime soon.

There was a lot of talk last year of a G7 set of rules and regs for the crypto world. What happened and what catalyst is going to be needed to bring the crypto world back into the purview of the G7?

We suppose the cynic’s answer to the second part would be ‘bitcoin goes back above $15,000. If that happens, people will start mortgaging their houses to buy it again’.

A more controversial idea might be that there simply isn’t that much popular demand for higher regulation of cryptocurrencies in many jurisdictions, so the G7 has just looked at the top priorities instead. Retail traders and investors are increasingly wise to scams and – if the overall trend in Telegram groups is anything to go by – scams are getting ever more ridiculous and obvious. If scammers suddenly switch their brains on-again, quite possibly the G7’s going to look back at cracking down.

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