The Hard Fork – Weekly Market Commentary

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This Week’s Topics:
1) Bitcoin network hash rate declines more than 20% from its peak
2) Digital currency volatility roars back to near term high
3) Bakkt delays bitcoin futures until January 24, 2019

 

Indices Round-up

TradeBlock Index Asset1 Price ($) 7d∆2
LTX Litecoin 27.86 -24.82%
XBX Bitcoin 3708.13 -28.67%
ETX Ethereum 107.28 -28.68%
XRX XRP 0.34 -28.84%
ECX Ethereum Classic 4.31 -31.63%
BCX Bitcoin Cash 162.78 -33.15%
ZCX Zcash 62.99 -33.70%
1. Underlying Asset sorted in descending order by 7-Day Price Change.
2. 7-Day Price Change monitored from 11/18/2018 17:00 UTC thru 11/25/2018 17:00 UTC.

7 day price movers

Digital assets bounced back modestly this morning after extending their rout this past week as the market continued its broad sell-off. This has been one of the largest weekly price declines for digital assets since 2013, as the leading currency by market cap, bitcoin, shed nearly 30% on the week. By mid-week, bitcoin prices were down to levels seen in September of 2017.

While there was not one clear catalyst for the recent crash, November saw a series of events take place that may have put pressure on prices:

  • November 8: Popular decentralized exchange, EtherDelta, settles with SEC
  • November 15: Contentious BCH hard fork spotlights community conflict
  • November 16: Two ICOs settle with SEC; agree to return capital to investors
  • November 20: Bakkt announces postponement of bitcoin futures until 2019
  • November 20: News breaks that the DOJ is looking into price manipulation by Bitfinex

Among our indexed assets, Zcash saw the largest price decline, falling 33.7%. Litecoin saw the smallest decline but still lost a considerable amount, trading down 24.8% on the week.

 

Bitcoin network hash rate declines more than 20% from its peak

The Bitcoin network hash rate peaked at more than 60 exahashes per second in August of this year before beginning a steady decline. The network hash rate reached a near term low of just under 35 exahashes per second (more than 40% decline) early last week before rising to around 47 exahashes per second the past few days. The declining network hash rate was likely influenced by miners transitioning resources away from the Bitcoin network and towards two competing Bitcoin Cash networks, Bitcoin SV and Bitcoin ABC, amidst a “hash war” that began earlier this month and resulted in a hard fork on November 15, 2018.

Figure 1: Bitcoin Network Hash Rate YTD

Data for chart sourced from the TradeBlock mining page

Additionally, while the network hash rate had increased to record levels in August, bitcoin prices had fallen significantly, which likely put pressure on bitcoin mining margins, and may have forced operators to turn off rigs. Mining operators have been under pressure lately as concerns around profitability have surfaced. This past week, Giga Watt Mining filed for chapter 11 bankruptcy protection in Washington State. Giga Watt Mining provided facilities, technicians, and infrastructure to miners who paid monthly fees for the company’s services.

 

Digital currency volatility roars back to near term high

The past several months saw unprecedented low levels of volatility as digital currencies traded in a tight range. Of significance, XBT volatility had fallen below that of traditional financial assets, such as US equities, in October. This, however, proved to be short lived as the past several weeks saw a rapid pick-up in volatility with digital currencies experiencing sudden price drops. In the chart below, we diagram 20 day historical price volatility among our largest digital currency indices in comparison with popular US equity indices.

Figure 2: Volatility Comparison between Digital Currencies and US Equities

Data for chart sourced from TradeBlock Professional and Yahoo Finance

 

Bakkt delays bitcoin futures until January 24, 2019

One of the most anticipated events for digital assets in 2018 was postponed this past week when Bakkt announced in a Medium blog post that the firm would launch its futures product beginning in 2019 instead of December 12, 2018, as previously expected. The underlying reasons for the delay may read bullish for the sector, however, as Bakkt CEO Kelly Loeffler explained that the significant volume of interest in the platform and the workload required to put everything in place was a contributing factor in the delay.

Bakkt’s bitcoin futures product will be one of the first physically settled contracts on the currency. Physically settled futures contracts are whereby clients who are long the product, will receive bitcoin rather than the cash equivalent upon the settlement date.

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