The Hard Fork – Weekly Market Commentary

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This Week’s Topics:
1) Deribit bitcoin futures experience invalid liquidations
2) Genesis sees surge in loan originations
3) Binance set to open Beijing office as China warms to digital currencies

 

Indices Round-Up
TradeBlock Index Asset1 Price ($) 7d∆2
BCX Bitcoin Cash 288.61 9.59%
XMRX Monero 62.62 5.55%
XLMX Stellar Lumens 0.07 4.84%
ECX Ethereum Classic 4.90 1.39%
LTX Litecoin 58.90 -0.57%
ETX Ethereum 181.99 -0.85%
XRX XRP 0.29 -2.06%
EOSX EOS 3.28 -2.68%
XBX Bitcoin 9,170.56 -2.68%
ZCX Zcash 36.82 -7.37%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 10/28/2019 06:00 ET thru 11/04/2019 06:00 ET.

7 day price movers

Digital currencies traded flat on the week while US stocks advanced. US equities traded higher on Friday after a stronger than expected jobs report. Among our indexed assets, BCX saw the largest price raise, gaining 9.59% on the week. Conversely, ZCX traded down the most, losing 7.37%.

 

Deribit futures experience invalid liquidations

On Thursday, October 31, 2019, at 5:00 p.m. ET bitcoin futures prices on the Deribit exchange suddenly crashed from above $9,173 to just over $7,250 — a fall of nearly 20%. Just 4 minutes after the crash, the price rose back to around $9,100 per contract. The sudden decline in prices triggered Deribit’s liquidation engine to liquidate some customer positions. To compensate traders for their losses, Deribit re-instated traders’ liquidated positions on Friday to just prior to the incident at a total cost to the exchange of 150 bitcoin (~$1.3 million).

Bitcoin contracts on Deribit are priced off the exchange’s proprietary index calculation algorithm which retrieves prices from spot exchanges. According to the Deribit incident report, posted following the crash, one platform was providing incorrect prices that were used for the index calculation. While Derebit’s algorithm intends to remove prices from outliers, it failed to do so on this occasion. This resulted in bitcoin prices that diverged considerably from the broader market. In the figure below we compare Deribit’s BTC Index to TradeBlock’s XBX Bitcoin Index over a several hour window which includes the incident period.

Figure 1: Deribit Bitcoin Index vs TradeBlock XBX Bitcoin Index

Data for chart sourced from the TradeBlock Professional Platform

Additionally, on the same day around the same time as the Deribit liquidations, several spot exchanges exhibited anomalous behavior (see Figure 2 below). As shown, beginning at ~4:45 p.m. ET, Bittrex executed a cluster of outlier trades above the broader market. Just 20 minutes later, as the price of bitcoin began to decline, itBit experienced a flash crash with executions occurring down around $8,850 per coin, well below the prices in the broader market. Lastly, at 5:17 p.m. and again at 5:43 p.m. ET, Coinbase saw several outlier trades executed considerably higher than the market average. During this period of divergent price behavior, TradeBlock’s XBX Bitcoin Index, as designed, maintained a steady reference rate.

Figure 2: Exchanges experience divergent price action

Data for chart sourced from the TradeBlock Professional Platform

 

Genesis sees surge in loan originations

Genesis saw a record third quarter for digital currency loan originations. In Q3 2019, Genesis added $870 million in new originations, its highest volume quarter yet, besting the $746 million in originations the firm added in Q2 2019. The growth of loan originations in 2019 has been buoyed by a rising bitcoin price. In the figure below, we diagram Genesis’ loan originations overlaid with the TradeBlock XBX Bitcoin Index.

Figure 3: Genesis loan originations over time

Data for chart sourced from Genesis and the TradeBlock Professional Platform

Since launching its lending business in March of 2018, Genesis has seen a total origination volume of more than $3 billion. Bitcoin loans remain the largest concentration of the firm’s lending asset portfolio, but the rise in demand for stablecoin loans is notable. As of September 30, 2019, USD and USD equivalent loans, which includes stablecoins, reached 31% of the firm’s outstanding loans.

 

Binance set to open Beijing office as China warms to digital currencies

This past week, it has been reported that Binance will increase its mainland China operations with a new office in Beijing. While details of the office’s operations remain unclear, the news comes as Chinese officials embrace blockchain technology. Last week, we highlighted comments from Chinese President Xi Jinping, who emphasized the country should seize the opportunities presented by blockchain technology. Following release of his comments, the price of bitcoin rose more than 20% in one day, for one of its strongest daily price moves in months.

China based exchanges, which once maintained some of the highest bitcoin trading volumes, have seen their share of the market decline considerably as the Chinese government and regulators restricted the space in 2018. Over the past two weeks, comments from Chinese leaders and actions by government agencies, including the central bank’s plans for a digital currency yuan, appear to show the country is warming back up to the space.

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