Part of our activity includes performing extensive market research to assist and support our group’s decisions in making our investments and managing our assets.
In our quarterly newsletter, we wish to expose our readers to some of our internal work. Our aim is to hopefully provide useful and interesting information which might assist you, our readers, in your own research. This current issue of the Alef Bit newsletter consists of two parts: the first part provides a short market overview of Q3 2018, while the second attempts to draw some insights into the current bear market by looking into similar historical trends.
Q3 2018 Market Overview
Q3 saw us in the midst of the 2018 bear market, with total market capitalization dropping by as much as 33%, from $334B to $222B.
Although Bitcoin managed to maintain much of its strength, as can be seen in below, we did observe irrational panic selling of alts. Alts’ total market capitalization dropped by 47%, from $203B to $108B, while Bitcoin dominance increased to over 51%.
The 2018 bear market was definitely not an optimal time to list new tokens on exchanges, as they tended to be more vulnerable to these market conditions and likely were devalued regardless of the merits of the project. In our latest research, presented in Table 1, we can see that indeed most new tokens were not able to withstand selling pressure during this period.
Apart from a few exceptions, most tokens showed substantial losses, in some cases mounting to a staggering 90% decrease from the original token listing price.
Bitcoin Trend Reversal
Two indicators that may suggest a trend reversal in the Bitcoin price are the 25 and 50-week moving averages (“MA”)*. Looking back at the 2014-2015 bear market (Figure 5), we can see that a series of closing bars above the 25 MA indicated a trend reversal in Bitcoin’s price. This was further confirmed once the price crossed over the 50-week MA. Moreover, the price continued to stay above the 25 MA until reaching its all-time high at the end of 2017.
In the current situation, as can be seen in Figure 6, a convincing move above the 25 MA (which, based on TA, may yet be some months away), would be an indicator of a possible trend reversal. A further move above the 50 MA would provide further confirmation of upward momentum. At the time this newsletter was written, Bitcoin’s price was approximately 10% and 30% from the 25 MA and 50 MA respectively. Of course, actual trends are subject to all variables affecting the market and no individual indicator can predict results.
On July 23, the price did cross over the 25 MA with volume, which at the time looked like a strong move upwards. However, it was in fact a bull trap, as the price did not hold above the 25 MA. Other indicators, such as the shorts contracts on BTC, provided a sign that this move would not be sustainable, which was indeed confirmed by the following week’s close back below the 25 MA.
Looking for Bitcoin’s bottom: “Buy The Dip”
In another study, presented in the chart below, we compared 15-day MA charts for the 2014 & 2018 bear markets. Surprisingly enough, approximately nine months into each bear market, the relative drop in BTC price was very similar. Any analyst comparing the two bear markets will be expecting further headwind to the BTC price.
In addition, if the current bear market behaves in a similar manner to the previous one, it would be logical to expect another drop, or even multiple drops, in BTC price. Furthermore, the 2015 market cycle ended with a clear capitulation of an almost 40% drop in price (shown in Figure 8). So far we have not seen such a capitulation event in the current bear market. The occurrence of such an event might signal the start of the next market cycle.
This communication is provided for informational purposes only and does not constitute, and should not be construed as, financial, legal, investment, tax or any other advice. Hexa Solutions Ltd. or its affiliates and/or subsidiaries (collectively, the “Hexa Group”) normally hold as principal bitcoin, Ethereum, blockchain tokens and other cryptocurrencies or asset classes that may be discussed in this communication.
This communication has been prepared based upon information, including market prices, data and other information, from sources believed to be reliable, but the Hexa Group does not warrant its completeness or accuracy except with respect to any disclosures relative to Hexa Group and/or its affiliates. Any opinions and estimates constitute our opinion as of the date of this material and are subject to change without notice. Hexa Group may have relied upon certain quantitative and qualitative assumptions when preparing the analyses herein which may not be articulated as part of such analyses. The realization of the assumptions on which such analyses were based is subject to significant uncertainties, variabilities and contingencies and may change materially in response to small changes in the elements that comprise the assumptions, including the interaction of such elements. Furthermore, the assumptions on which the analyses were based may be necessarily arbitrary, may be made as of the date of the analyses, do not necessarily reflect historical experience with respect to blockchain tokens, cryptocurrencies or other asset classes similar to those that may be contained in the analyses, and do not constitute a precise prediction as to future events. Past performance is not indicative of future results.
Hexa Group does not assume responsibility for investment decisions. This communication is not intended as investment advice or an offer or solicitation for the purchase or sale of any blockchain token, cryptocurrency, security, financial instrument or other asset class. Hexa Finance provides this newsletter for research and discussion purposes only and does not provide general or individually tailored investment advice of any kind. Any opinions and recommendations contained herein do not take into account individual readers’ circumstances, objectives, or needs and are not intended as recommendations of particular cryptocurrencies, other assets or strategies to particular persons. You must make your own independent decisions regarding any cryptocurrencies, blockchain tokens, asset classes, financial instruments or strategies mentioned or related to the information herein. Readers should consult with their own advisors before making any investment or other financial decision. You ultimately must rely upon your own examination and that of your professional advisors, including legal counsel, financial advisors and accountants as to the legal, economic, tax, regulatory, or accounting treatment, suitability, and other aspects of the analyses contained herein. Hexa Group shall not be liable for either (i) any errors or omissions made in the data or analyses contained herein or (ii) damages (incidental, consequential or otherwise) which may arise from your or any other party’s use of the data or analyses contained herein.
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