Crypto Asset Volatility

Welcome back crypto enthusiasts, to the weekly instalments of the latest news, topics and worldwide updates from Magnet Capital.

 

This week’s hot topic - Crypto Assets Volatility and HODLing

To most, it should not come as a surprise to hear that crypto assets are extremely volatile and subject to high percentage movements to the upside and downside on not much more than a whim. In fact, since the start of 2017, the crypto asset market has "crashed", experiencing a dip of over 30% five times. However, despite all of these market “crashes”, each of which has been hailed by media outlets and financial commentators as ‘the end of crypto’, the crypto asset market has grown 28 times in value, from a market cap of ~US$17.6bn to ~US$508bn.

 

So what does HODL mean? On a bitcoin forum in 2013, a user went on an alcohol fueled rant about his inability to trade Bitcoin’s volatility and the difficulty of picking highs and lows in the market. The difficulty came from the ability of large traders to manipulate the price. He went on to reveal that he had bought Bitcoin at a price that was higher than its value at the time of posting and that he had come to the realisation that if he didn’t sell his position he wouldn’t realise losses.

 

His rant continued with the assertion that he would not fall victim to trading based on fear and manipulation, but rather he would hold his coins as he believed the price would increase over time. The title of his post was meant to read “I AM HOLDING”, but in his inebriated state he typed “I AM HODLING”. For some inexplicable reason, HODL has become one of the most used acronyms within the crypto community. It has been spun to mean “Hold On for Dear Life” in reference to not becoming susceptible to large market movements if you believe in the bigger picture.

 

Magnets Take

The price of Bitcoin currently sits around US$11,000, 40% off its highs of US$19,000. Many investors would have purchased Bitcoin above US$11,000 and started to panic as they lost up to 66% of their investment in the most recent market correction. This fear and panic would not have been eased by the media outlets that for 4 weeks seemed to report nothing but articles shedding poor light on the crypto market. Many of these articles were over exaggerated and succeeded in their goal of creating fear. The reported bans to trading in Korea and India were no more than calls for increased visibility for governments that would further legitimise crypto and reported bans from major banks were only limited to purchasing crypto on credit (rather sensible given the volatility) to mention a few.

 

Whilst there are strategies that can be made to lessen the impacts of such market corrections, for the common investor history has demonstrated that riding out these market corrections (as long as you still believe in the technology and the bigger picture for crypto assets) has been a safe and rewarding strategy.

 

At Magnet Capital we aim to mitigate some of these larger corrections through providing a diversified portfolio, reweighting our assets at opportunistic times, running a global arbitrage strategy, leveraging and investing in ICOs at pre-sale discounts.

 

Bites

 

TON token - The Telegram ICO has privately raised a staggering US$850Mn from 81 institutions. This is already the biggest ICO that has ever existed. Telegram boasts 170Mn active users, 500K new users join daily, 70Bn messages a day - The TON blockchain is self sharding (a mechanism where a blockchain will split to increase capacity). This is easily the biggest project that currently exists and will take years before it’s full capability is really stress tested.

 

US$344Mn worth of Bitcoin Purchased - the Bitcoin wallet address 3Cbq7aT1tY8kMxWLbitaG7yT6bPbKChq64 purchased an additional 41,000 BTC at roughly $8,400 amassing a total of 96,000 BTC a fortune worth over US$1Bn at today’s prices.


 

Adoption

  1. Israel confirms it will tax Bitcoin as property - The notice confirms past indications that the Tax Authority will regard cryptocurrencies as "a property, not a currency", making it therefore taxable as such. The Authority's position was first detailed in a draft circular issued in January of this year.

  2. The Spanish Government is reportedly preparing new legislation that would include tax incentives for blockchain companies. The legislation would hope to lure blockchain innovators and ICO’s to Spain, with the People’s Party specifically hoping to attract industries such as finance, health and education.

  3. Lightning Network sees huge Testnet Adoption - 1831 nodes, 5363 payment channels open - these open channels allow for super fast, virtually free payment transactions.

  4. Bank of America has filed 45 cryptocurrency patents, more than any other company. This signals the extent to which large corporations are investing in understanding and innovating around blockchain and cryptocurrency.

  5. Western Union (WU) has confirmed that its trial on the Ripple blockchain will include XRP (the Ripple token) integration. This makes WU the largest firm to trial the XRP token in its internal payment flows

     


Fork Update

Bitcoin private - As mentioned last week, the Bitcoin Private fork is still set to launch 2 days after the ‘snapshot’ taken on the 28th of Feb. The snapshot of the ledger will determine token holders at a point in time to be replicated for the new Bitcoin Private blockchain.

  • How to get Bitcoin Private: Seeing as it is the merging of ZClassic technology with the Bitcoin protocol, both holders of ZClassic and Bitcoin will get 1 token for every token they hold. E.g. if an individual has 0.5 Bitcoin and 15.5 ZClassic they will receive 16 Bitcoin Private

 

Litecoin Cash - Litecoin Cash (LCC) launched yesterday at block 1,371,111 in a somewhat stealthy manner. With little publicity, a group of developers launched LCC, distributing 10 LCC for every 1 Litecoin held at the time of forking. The primary differences with Litecoin Cash are that is has launched with 10 times as many tokens, the Bitcoin mining algorithm (SHA256), real time difficulty adjustments (every block rather than every 3.5 days). Reasons for these changes are that by implementing the SHA256 mining algorithm, developers hope to increase the demand to mine Litecoin Cash and real time difficulty adjustment will prevent network attacks.


The Market

  • The overall Market Cap has increased back to the US$500B level, although this is not always the best indicator as when new coins hit exchanges, new value is added to the total crypto asset market cap.

  • After being in a deep correction over the last few weeks, we have seen a significant pick up from what seems to be the bottom for BTC at US$5,900.

  • Investments in the ICO market is still going strong, with many ICO’s achieving the majority of their token sales in private pre-placements, only leaving between 10-20% of tokens for the public.

     

Egor Sidelska