After so much optimism earlier in the year, the cryptocurrency markets are bleeding again. But while many hold out hope that the Bitcoin halving will drive up prices, SFOX is not so optimistic.
The institutional crypto-assets dealer and data aggregator has moved its index from ‘mildly bullish’ to ‘neutral’ as of December 9.
SFOX cites decreasing crypto volatility as main case for bears
SFOX takes into account various factors to compile a monthly cryptocurrency volatility report. These include market sentiment, volatility, price momentum, and continued growth of the sector.
While there have been a few positive developments in the space over the last month, the main cause for the downgrade in optimism is the decreased volatility over the last few weeks.
The plateauing of prices is more concerning to SFOX than the previous steady price decline. Trading volumes appear to be low across the board despite the rollout of new Bitcoin options products.
Bitcoin trading volumes since November 1, for example, average 21,459 BTC per day until December 9. This is substantially down from the average daily trade volume of 26,544 BTC throughout 2019 thus far.
It appears that while mayor players like Bakkt, CME, and OKEx are dangling the carrot to institutions, there’s still no clear view on when they’ll bite. This leads SFOX to conclude:
“In light of these factors, the current setting of the Multi-Factor Market Index at ‘neutral’ may be at least partly due to uncertainty regarding how Bitcoin and other crypto-assets may react to upcoming investment product launches.”
Other key takeaways from the report
Equities thrive as cryptos bleed
If you partake in the theory that cryptocurrency and equities are positively correlated, you have evidence to fuel your claim.
As all major cryptocurrencies yield negative month-over-month returns as of December 9, equities are positively thriving.
BTC is down some 15% while the S&P 500 and gold both posted encouraging gains of 1.86% and 5.06% respectively.
Institutional hesitance drives uncertainty
As the floodgates have opened and we wait for the water, other more concerning signs are appearing. Not only is there reticence on the part of institutions, there’s actual pullback.
Some 70 crypto hedge funds have closed this year, suggesting a lack of willingness to enter the space despite the growing infrastructure.
Crypto-assets are more correlated than usual
SFOX found another curious development in the month of November. With the exception of Bitcoin SV, all major crypto-assets (BTC, ETH, LTC, and BCH) are more correlated with each other than usual, suggesting blanket negativity in the space.
Germany’s positive regulation may help crypto’s struggling case
On November 29, Germany’s parliament, the Bundestag, approved regulations to allow banks to custody crypto-assets from January 1 2020. This could be a positive sign for the further legitimisation of the space. SFOX points out:
“This kind of regulatory clarity is a prerequisite for many larger funds and institutional investors being able to invest in crypto and, as such, is a good thing for the overall health, growth, and maturation of the industry.”
However, as with all things crypto, we’ll have to wait and see whether this will serve as a precedent for regulatory clarity or it’s just another isolated incident.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.