Update on Cryptoassets as of December 15th, 2019 By Van K. Tharp, PhD

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Market Summary

Cryptoassets started 2019 with three flat months followed by a strong uptrend until the end of June when the Bloomberg Galaxy Crypto Index (BGCI) peaked. The peak in the index this year was on June 26th at 668.61. You can see the clear decline since the Peak in June. Last month the index was at 366.20 and now it’s at 280.27 – down 23%.

The following table below tracks the price of five major cryptoassets across three generations of the technology now along with Bloomberg’s index:

  • Bitcoin, a 1st generation crypto asset,
  • ETH and NEO, 2nd generation cryptos, and
  • Iota, a 3rd generation crypto
  • Holo (HOT) – I replaced Skycoin because it is pretty dead and there probably won’t ever be a market in it for US Investors.
  • BGCI Index – I’ve also started including BGCI prices in the table.

Date of the All-Time High Closes:
*Dec 16, 2017 ** Jan 13, 2018 ***Jan 15, 2018 **** Dec 8, 2017 ***** May 29, 2019 # Jan 5, 2017

Most of the Altcoins have not done nearly as well as BTC on the year. Effective Sept 12th Binance closed its current operations to US Investors so 25% of the world’s volume for crypto trade lost access to the market for many crypto symbols. That is a huge blow to most cryptos, especially those that won’t be available to the US Market any longer. I replaced SKY with HOT for our table because SKY had dropped tremendously, didn’t have a great market behind it, and was delisted from US ownership. IOTA and NEO are also unavailable to US investors, but I plan to keep them in the table.

The US Exchange, Poloniex, was transferred to foreign interest and is also now closed to US investors so they could have access to many altcoins and not just a few that the SEC will admit are not securities. New cryptos in the US have to go through the RegA+ process so that they are under the control of the SEC.

The following table tracks the amount of money in stable coins in the top 100 or which have a market cap of over $100 million. The percentage of the total crypto market cap indicates one measure of health for the crypto market.

Cryptos might be in a bear market, but all of the coins listed in our model are significantly higher than they were last December. I’m now running a regular Market SQN program on BTC to keep track.

* Bitcoin was as high as 90% of the market cap of all cryptos at the beginning of 2017 to as low as 32% at the top of the market. Part of the difference is that there are now nearly 2000 cryptocurrencies. So the number keeps going up even though the market cap goes down.

** This was the peak of the crypto market in terms of market cap. Data via Tama Churchouse, Asia West Investor email on 4/11/18

CoinMarketCap.com lists 2372 total coins, however, after #2011, the remaining coins are highlighted gray. There is a clearer meaning for the grayed coins now – they have an unknown market cap. Right now, 849 coins have a market cap of over $1 million and only 115 have a market cap of more than $25 million.

The next graph shows the price of BTC over the last year. While it’s clearly down from June, from November of last year, it is up. You could describe the pattern as sideways right now.

This month we are following 118 cryptos. Those include all but 18 of the top 75 cryptoassets in terms of market cap for which we cannot get data or there are not yet 100 data points. Those include 1) CRO 2) SXP (3) FTT, (4) LEO, (5) NEM, (6) Blovkv (7) HEDG; (8) CENNZ; (9) VSYS; (10) ZB, (11) ABBC; (12) SNX; (13) ALGO; (14) LUNA; (15) SLV; (16) EKT; (17) SEELE; and (18) DX).

No crypto is in strong bull and only 8 are bullish, however, five of them are above a Market SQN® score of 1.0.

Think about that. 6.8% of the cryptos we follow are bullish. The rest are either sideways or bearish. And almost 36% of them are strong bear.
The following chart shows the 15 top and bottom cryptoassets.

Two months ago BTC was the last bull coin on the top 15 list but now it’s strong bear and is nowhere close to the top 15.

CRPT (10) is the only altcoin I ever bought as an ICO. I should be happy that it’s in a strong bull market, but it’s currently close to the price I paid for it at the ICO.

  • Update for Super Trader Crypto System

We are currently in a bear market for BTC and so the crypto account should be 100% cash. If you have cryptos now, you are not following the rules of our system(s) and you are trading something that you made up. It’s been over 170 days since the most recent high in BTC.

  • The Big Picture with Cryptoassets
Institutions want to own BTC because they see it as a totally uncorrelated asset. So when it’s possible, I expect them to put 2-4% of their assets into cryptoassets which could give cryptos a market cap of $3-5 trillion. That translates into at least one more very big move in cryptos.

As I have mentioned, the BTC protocol will only allow half as many new coins produced in each cycle in May of 2020. The average block generation time is about 9 min and 20 seconds. Right now, 12.5 BTC are mined in each cycle, but on May 27, 2020, that will drop to 6.25 coins per cycle. This means the supply of new coins will drop at the time when institutions will be wanting them more. BTC usually rises about 200% in the year prior to a halving, however, I would expect the rise to be much greater in a possible roaring bull market in 2020.

  • My Beliefs About Cryptoassets

1) Cryptocurrencies are an uncorrelated asset class and institutions really want to get involved. Thus, if about 2% of the money currently in stocks and bonds (i.e., about $160 trillion worldwide) flows into the crypto market, then this asset class will move from a market cap of $285 billion currently to about $3.2 trillion. These are very conservative estimates, remember the performance chart with 3% BTC!

2) If BTC continues to be at least 40% of the total crypto market cap, then its price will go up to more than $100,000 – but perhaps $500,000 is more realistic. The Winklevoss Twins who own more than a billion dollars’ worth of BTC say they wouldn’t sell even if it were to hit $350,000 per coin.

3) On its way to that level, however, BTC will continue to have drawdowns in the range of 75%. You want to participate in the upside, but you also want to avoid the worst part of the drawdowns. For example, BTC hit $14,000 in the last bull market but is now just above $8500 – and it went as low as $7500 which is almost a 50% decline.

4) You would risk only an amount you can comfortably afford to lose completely. You also need to be able to tolerate large volatility swings in your holdings.

5) If these assumptions/beliefs are not valid for the future, then the system may show very poor results and could even lose money. You need to know the context for which these beliefs are useful (see below).

6) But let’s also look at the context. The crypto market is a wild west market that is mostly unregulated. Huge manipulation is going on. For example, one day this year, someone dumped 25,000 BTC on Coinbase. They immediately drove the price down at least $1000. However, they also managed to buy back their entire 2500 BTC without driving the price back up. That means they still owned their position but now had $25 million in cash to boot. That’s manipulation.

7) The big institutions want to get involved, but they know that if they just bought, they’d drive the price sky high. For example, I know of at least two funds designed for pensions that plan to specialize in crypto currencies. They are both about $250,000,000. But if they just bought cryptos the price would go sky high. So they are probably joining the manipulations. Having futures contracts, for example, is one way they can keep prices down.

8) The big financial institutions, more than anyone, know how to manipulate prices. And I expect that is what is going on. They want to scare you out of your positions so they can take them over.

9) The altcoins as a whole are crashing. But remember that they have just lost 25% of their market – US Citizens.

10) Any investment in cryptos should be limited low single digit percentages unless your objectives allow for huge equity swings for the chance to make big money. For a $100,000 portfolio, a $5,000 BTC position could grow to be worth more than $50,000. If the rest of the portfolio was relatively static, then the BTC position would then be 33% of the total portfolio. A long-term volatile position with a 33% size is a bad position sizing strategy (poor risk management), and it’s also a way to make a huge amount of money. But, assuming BTC’s very volatile nature continues you could assume that you would have to tolerate very large daily swings in your entire portfolio value because of your BTC position.

11) The context in which these beliefs are true could change dramatically and then all bets would be off, i.e. you could lose most or all the money in your crypto position. For example, the development of a quantum computer would change everything about cryptocurrencies because 1) a single quantum computer could basically dominate all BTC production and 2) most cryptos would be subject to a 51% attack on their network by a quantum computer. Right now, that kind of threat is way too expensive for anyone to consider pursuing, but Google claims to have a Quantum computer. If they do, it’s still a long way off from being able to hack BTC and there are many other financial areas that it could dominate which would make a lot more money than hacking BTC. (Binance’s departure from the US is a good example of this belief.)

12) Right now, the power struggle regarding Libra and those in power and the one between the SEC and those who do not wish for the SEC to regulate their coins does not make a favorable climate for most altcoins. Mark Zuckerberg, based upon his Congressional testimony, has pretty much given up on fighting the government in order to have Libra.

Remember that the purpose of this report is not meant to give investment recommendations or to be predictive in any way. It is meant only to give you a status quo of the cryptoassets markets.
Until January 15th, 2020, this is Van Tharp.

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