Data-driven commentary and charts on the biggest events in cryptocurrency markets this month.
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The final month of this tumultuous year best encapsulates both the triumphs and setbacks that the cryptocurrency industry is known for. Bitcoin shot to record highs above $28k, thrusting anyone who has ever purchased the asset well into profitability, and Coinbase announced they had filed with the SEC in preparation for a public offering, the first time a cryptocurrency company of such size and influence has done so.
Yet in the midst of the euphoria, the SEC filed a lawsuit against Ripple for failing to register XRP as a security, promptly triggering a wave of de-listings from exchanges and a price crash for the third biggest crypto-asset by market cap and traded volume. Security or not, XRP’s spectacular downfall has harmed countless investors and should serve as a reminder that cryptocurrency markets are not invincible and that regulation is coming (which is not necessarily a bad thing if done properly). Despite some industry setbacks, 2020’s economic uncertainty had the effect of spurring a monumental shift in sentiment for digital assets among traditional investors that appears to be more than just a passing investment trend.
A Tale of Two Bull Runs
Bitcoin now trades in (literally) uncharted territory, more than $8k higher than its 2017 All Time High, breaking price level after price level with no clear end in sight. What is different about this bull run compared with 2017’s? By looking at price discrepancies across exchanges, we can observe that Bitcoin markets are far more efficient today than they were three years ago. Information asymmetries have lessened and markets are increasingly integrated, which indicates that traders are overall more informed and rational, a sign that the industry has matured.
Institutions Are Here
Institutions have largely been credited with initiating Bitcoin’s current bull run. We created a timeline of the biggest institutional events in cryptocurrency markets, which are notably concentrated during the last three months of the year. With every new announcement that a company was adding Bitcoin to their balance sheet, momentum gained increasingly quickly, resulting in YTD returns greater than 460%, with traditional financial assets paling in comparison.
Volume Reveals Heavy U.S. Presence
Average trading volume over the past 6 months peaks during New York trading hours, highlighted in blue. Overall, the most activity occurs during the overlap between U.K. and New York trading hours, between 13:00 and 16:00 UTC (8am and 11am EST). During Asia and Australia hours, volumes are approximately half, which could indicate that the majority of Bitcoin-Dollar traders are concentrated in the U.S.
Ethereum’s Record Setting Year
Ethereum and the DeFi tokens operating on the network had a year for the books, with record levels of interest and capital inflow for the nascent ecosystem (and with it, record high transaction fees). Although the DeFi bubble burst hard this Fall, Bitcoin’s rally has injected renewed enthusiasm, enabling most tokens to end the year well in the green compared with the start of the summer. Unfortunately, most tokens have not yet returned close to previous ATH’s, and a new round of exploits hit the industry this month.
Bitcoin’s Correlation with Traditional Assets is Now Negative
Part of why Bitcoin has become more attractive to institutional investors over the past three months is because of its lack of correlation with traditional markets. When the stock market falls, investors search for uncorrelated or inversely-correlated hedges, qualities that Bitcoin currently holds. This wasn’t always the case, though, and for most of the year since the March crash, Bitcoin was highly correlated with equities markets and gold.
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