In May 2018, Bloomberg announced that they had formed a cryptocurrency index called the Bloomberg Galaxy Crypto Index. Since Bloomberg only caters to institutional clients, an index of this nature was one of the first steps toward widespread institutional involvement. The index tracks five major crypto assets: Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Litecoin (LTC), and EOS (EOS). The index started in May 2018 at 1,000. It reached a new peak in March 2021 of 3,765, dropped significantly until July 19th, then set a new high on November 9th of 3,870 and has since dropped about 1,000 points.
Bitwise has also opened the Bitwise 10 Crypto Index Fund that you can actually invest in. The biggest difference between this index and the Bloomberg Index is that the Bloomberg Index holds only five cryptoassets, whereas the Bitwise Index Fund holds ten, as follows; Bitcoin, Ethereum, Solana, Cardano, Litecoin, Chainlink, Bitcoin Cash, Polygon, Algorand, and Uniswap. And what’s crazy about any index is that the maker of the index always manipulates it in some way by adding or subtracting components. For example, GE was the last remaining stock from the original DOW 30 list. Now, that index doesn’t have any remaining components. I don’t plan to follow changes to the composition of the indices over time. However, if you want to tell me about changes, then I’d be happy to update what’s on the list.
Market Summary
BTC hit a new all-time high of $68,789.63 on November 10th, 2021 but has had a sharp downturn since then. On the 15th I talked about market manipulation in the crypto market which often consists of a drop in the price of BTC of 20% or more in a few hours while US investors are sleeping (and during the weekend). Then, all cryptos seem to follow as they are, for some reason, highly correlated during down markets. Then, the media comes out with a reason for the new price (i.e., BTC dropped because investors don’t like the idea of the Fed making at least three interest rate adjustments next year). It’s all manipulation and propaganda.
We got a new buy signal in the Super Trader Bitcoin system on July 30th, getting in at $42,243.93. On November 26th, we were up 28% and got a sell signal at $53,825.55 on the position, having been in it for 119 days. That system is profitable in 13 of our 16 trades with an average gain of 169% with a win rate of 81.25%.
Right now, I see no reason to trade any cryptos as this is now at least a mini-bear market.
Right now, we are much closer to an exit position than we are to a new entry. It would require about a 30% gain to get a new entry and most other crypto assets have followed suit.
In late 2017, I said that cryptoassets were the biggest institutional revolution since the Industrial Revolution and that they represented the investment of a lifetime. Institutions were not ready or capable of participating in that revolution, so they “pooh-poohed” cryptos. What that really meant was that they needed the price to crash until they were ready to capitalize on it from all sorts of fee-based products. So, it crashed big time in 2018 (down 85%) and they called it all sorts of nasty names. The SEC cooperated nicely with the big banks by saying that most cryptos were securities and subject to their regulation. But today, you can trade most of the major cryptos on US exchanges. Many of the investment bank CEOs who have said negative things about it in the past now have major positions or services for their clients.
Right now, big money is doing the following with crypto:
- They have ways for their major clients to invest in major currencies like BTC and ETH, but they are all based on derivatives (and leveraged, of course). Hmm, and before that they said it was too risky?
- They are investing in whole new areas of crypto development such as the Metaverse, Decentralized Finance (DeFi), and Non-Fungible Tokens (NFTs):
The Metaverse is actually another level of reality beyond the illusion that now exists where we only trade our beliefs, and they are only true in a specific context. Now you have online casinos, games, shopping malls, avatars that you can buy clothes for, etc. Perhaps it’s quite possible that there will be a virtual “Van Tharp Institute” by the end of 2022.
Decentralized Finance has created a financial world that is controlled by many, not just big banks or externalized exchanges owned by large corporations.
NFTs are things in the metaverse that you own – such as a shopping mall, a casino, a unique work of art. In fact, NFTs are the new thing in the entertainment industry.
- Many billionaires are actually cashing out of their long-term stock holdings and investing in these new opportunities. For example, Mark Zuckerberg is turning Facebook into a Metaverse experience. The Winklevoss Twins, who own the Gemini Exchange (because they turned their Facebook profits into billions worth of BTC), are now also turning Gemini into a Metaverse Experience.
The following table shows the BTC change per year since January 2010. It’s had three losing years but that includes this year which I would expect to be at least a 50%-up-year, if not stronger.
The 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 cryptoasset,
- ETH and NEO, 2nd generation cryptos,
- Iota, a 3rd generation crypto,
- Holo (HOT), and
- BGCI Index. I’ve also started including BGCI prices in the table.
Date of the All-Time High Closes
*Nov 10th, 2021 ** Nov 10th, 2021 ***Feb 12, 2021 **** Jan 15, 2017 ***** Apr 5, 2021 # May 7, 2021
Notice the huge gains in everything in the last year. Although, everything is down in 2022 so far.
The following table tracks the amount of money in stablecoins in the top 100 of 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.
Thus, about 10% of the total market cap is in stablecoins (perhaps as much as 12-13% with lower market cap stable coins).
Recently, there has been a lot of government crackdown and regulation of cryptoassets. For example, the US Government wants to know about anyone in the US who trades crypto. This is now a required box to fill out on your tax form and they even want to know how much money you made from illegal activity (another box on the tax form). Despite this recent regulatory crackdown, what everyone should remember is that the current market cap of AAPL is about $3 trillion (or 1.5 times the total assets of all cryptocurrencies). Therefore, the government is wasting its time focusing on crypto except for the possibility that actual fiat currencies such as the US Dollar could become obsolete.
The following table includes the total crypto market cap, along with the percentage of the market cap that belongs to Bitcoin, as well as the percent market cap of the top five cryptos. The percentage of total market cap for Bitcoin and the top five can give an indication of the overall health of the crypto market.
Bitcoin went 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 from 2017 is that there are now over 16,000 cryptocurrencies (but more than half are not on exchanges and don’t have a market cap) and the number keeps going up. BTC is up to 40% dominance and ETH is now up to 19.0%.
You can see the pattern here. Market cap for crypto has increased 21-fold since December 2019. Doesn’t that seem significant to you? BTC has gone from 55% market dominance down to 40%; however, the top five coins, not including Tether, are still more than 67% of the market cap.
I used to say that I only trusted those coins in the top 50-100; however, from June 2020 to the present, many coins fell out of the top 100. Some of them didn’t fall far but some of them even fell out of the top 500.
The table below shows the best and worst cryptos in terms of the SQN 100. Of the 100 that we track, it shows the top 15 and the bottom 15.
Notice there are five strong bull and 27 strong bear (although our chart only shows 15 of the 27).
The last chart shows the top coins in the following categories: Market Cap (not listed in other areas and no stablecoins); DeFi; NFTs not listed in the Metaverse; and the Metaverse. I’m doing this now so that we can see what’s moving in each of those categories. And, of course, there is overlap.
Overall Commentary
This is a free newsletter to the VTI community. It’s not about making any recommendations for what to buy or sell. Instead, it’s about understanding how money is made in cryptoassets. Just for full disclosure, I personally own about 100 different cryptocurrencies, including many of those mentioned in this letter. Those are long-term investments that I plan to keep and treat like a second retirement plan.
Until next month,
This is Van Tharp