2019 Q2 Review – Seventh-best quarterly gain for Bitcoin

The total cryptocurrency market cap ended Q2 up 115%, erasing all losses over the previous year. By crossing the 200-day moving average, and experiencing a 50-day and 200-day moving average cross, the prior 327-day bear market has resoundingly ended. Prices across the board have gained significant vigor and exchange volumes continue to establish new record highs.

This mammoth quarterly gain was largely led by Bitcoin’s +237% move, gaining over US$100 billion in market cap. Ethereum (ETH), Litecoin (LTC), and Binance Coin (BNB) also followed with +100% price moves. Among the top 10 coins or assets, Stellar (XLM) was the worst performer, finishing the quarter -5.55%. ChainLink (LINK), gaining a Google partnership and a Coinbase listing, was among the biggest mid-cap gainers of the quarter, finishing +489%. LINK’s US$1.33 billion market cap is now ranked 15th on BraveNewCoin’s market cap table.

Additionally, most of the high market cap coins have been highly correlated over the past month, with Bitcoin Satoshi’s Vision (BCHSV), a Bitcoin Cash (BCH) fork, showing the lowest correlation with other assets broadly (shown below). BTC and ETH have had the highest positive correlation over the past month, at 90%, and BTC and Tether (USDT) have had the highest inverse correlation at -25%.

Source: Skew

Bitcoin’s 90-day Blitz

Throughout most of its lifecycle, relative changes in BTC price have been closely related to three-month cycles. These quarterly cycles often see a dramatic expansion or contraction in price, with very few quarters ending with less than a 10% price change. Historically, Q2 and Q4 of any given year have seen the most positive periods while Q1 and Q3 have seen the most negative periods.

In total, there have been 22 positive quarters and 12 negative quarters. Bitcoin’s massive Q2 2019, at +160%, is the seventh-best quarterly gain. The highest positive period was Q2 2011 at +1941% and the highest negative period was Q3 of that year at -68%.

The average gain among all positive periods, excluding Q2 2011, is 128%, while the average loss among all negative periods is 28%. The longest period of consecutive gains occurred between Q4 2016 and Q1 2018, totaling 484%. The longest period of consecutive losses occurred between Q3 2014 and Q2 2015, totaling 80%.

Furthermore, the opening and expiration dates of the Chicago Mercantile Exchange (CME) cash-settled BTC futures contracts, launched in December 2017, have had a significant impact on price. The CME facilitates trades for the largest portion of derivatives contracts in the world. Historically, volatility has increased at each contract rollover period. On June 26th, CME BTC futures traded a record US$1.7 billion in value, surpassing the previous record by more than 30%, with record open interest of just over 6,000 contracts.

On-chain Activity Heats Up

Metrics tracking on-chain activity for the top coins and assets increased substantially throughout the quarter. In the mining realm, Hash Rates and Difficulty for many coins using Proof of Work hit new all-time, including BTC, LTC, DASH, and DOGE. Both transactions per day (line, charts below) and weekly active addresses (fill, charts below) saw sustained increases for BTC, ETH, XRP, LTC, and BCH. In mid-May, on-chain transactions per day for BTC reached over 450,000 for only the second time ever.

Bitcoin (BTC) transactions per day & weekly active addresses. Source: CoinMetrics

Ethereum (ETH) transactions per day & weekly active addresses. Source: CoinMetrics

Ripple (XRP) transactions per day & weekly active addresses. Source: CoinMetrics

Litecoin (LTC) transactions per day & weekly active addresses. Source: CoinMetrics

Bitcoin Cash (BCH) transactions per day & weekly active addresses. Source: CoinMetrics

DeFi Grows

The total value locked in Defi dapps grew substantially over the past three months. Lending dapps saw the biggest influx of money as their products began to provide a return for users. On Dharma, users can earn up to 10% APR and dYdX allows lending, borrowing, and 4x margin trading. The DEX Bancor saw the largest decline in holdings at nearly -14% after announcing, in mid-June, that US users would no longer be able to use the platform due to regulatory concerns.

Source: DeFi Pulse

Top Stories

Exchange-related headlines dominated most of the news throughout the quarter; including; coverups, legal battles, hacks, flash crashes, and record volumes.

In late April, the New York Attorney General (NYAG) filed a petition in the New York State Supreme Court in Manhattan revealing, among other things, that Tether provided Bitfinex with a US$850 million loan from iFinex shares, which owns both Bitfinex and Tether Limited. Bitfinex claimed this was necessary after funds equaling this amount were purported to have been seized while in the custody of their payment processing partner Crypto Capital. Despite a long history of accusations concerning the 1:1 backing of Tether, the company admitted this was the first time this has occurred. Over the past week, Bitfinex reportedly repaid US$100 million of that loan to Tether Limited.

The legal battle continued throughout the quarter, with the NYAG wanting further details of the matter. Bitfinex filed a motion to dismiss, claiming that the NYAG has neither the jurisdiction nor sufficient evidence to back up its claims of malfeasance. The NYAG’s office has until July 8th to file any opposition to the motion, and iFinex will be able to file their own response by July 22nd. Attorneys for both sides are due back in court on July 29th. Nevertheless, the Tether market rate continues to trade near US$1.00.

In early-May, Binance reported a theft of 7,074 BTC, worth over US$40 million at the time. CEO Changpeng Zhao later reported the BTC had been withdrawn from Binance’s hot wallets, which contained only 2% of the exchange’s total BTC holdings. Binance’s other wallets are unaffected. All funds lost in the hack were replaced with Binance emergency funds. A proposed BTC chain reorganization to recover the stolen funds was briefly floated by a few members of the community and promptly met with swift backlash.

The exchange was shuttered for several days while key system infrastructure was reset and rebuilt to mitigate future attacks, including significant changes to the API, 2FA, and withdrawal validation areas, which were areas exploited by hackers during this incident. The attack was similar to the Viacoin and Syscoin market abnormalities which occurred in March and July 2018, when the VIA/BTC pair briefly reached 0.025 BTC and the SYS/BTC pair briefly reach 96 BTC.

In late-June Binance also announced that US users would be geo-restricted from the Binance.com domain, and plans to launch a US exchange within the year, BAM Trading Services. The services will likely have a restricted trading list compared to Binance.com, and the BNB token is unlikely to be available for trading. All of this comes with growing regulatory concerns regarding trading any potential security token. This week, BAM announced Catherine Coley as CEO. Coley is the former the head of XRP Institutional Liquidity.

On May 16th, a price flash crash occurred after a sell order for around 5,000 BTC appeared on the Bitstamp orderbook. Over the course of the next 15 minutes, the BTC price on Bitstamp continuously fell – skewing the entire market and triggering hundreds of millions in long liquidations on Bitmex. The exchange was likely targeted for this market activity because Bitstamp is used as a constituent exchange in most indices. At the time of the flash crash, Bitmex’s exchange index was comprised of Coinbase and Bitstamp, each with a 50% weighting. The incident highlights the need to help disincentivize the exploitation of weaknesses in exchange infrastructure with institutional grade indices, like the BNC BLX, to protect against market manipulation.

Derivative exchange platforms Bitmex and Deribit have continued to gain in popularity among the trading community. Based both on open interest and trading volumes, both platforms had record volumes at the end of the quarter. Kraken and the peer-to-peer DEX Bisq also reported record volumes through the last week of the quarter. Bisq trading volumes have been bolstered after LocalBitcoins, another peer-to-peer exchange, banned cash trading after regulatory concerns. Coinbase also saw a multi-year high in trading volumes over the past week.

Initial Exchange Offerings Shine

Initial Coin Offerings (ICOs) have largely been replaced with Initial Exchange Offerings (IEOs) as a means for projects to raise substantial capital. These IEOs have also served as a way for exchanges to generate additional fees for the listing and guaranteed trading pairs for the projects.

The largest IEO by far has been Bitfinex’s LEO token, which raised a reported US$1 billion in May, with LEO trading on the exchange shortly thereafter. Much like BNB, LEO will be continually burned based on the profits of Bitfinex, at a minimum of 27% of the exchange’s gross revenues. Of the one billion tokens initially generated, over 1.65 million have now been burned. Additionally, up to 80% of the funds recovered from the 2016 Bitfinex hack and at least 95% of the recovered funds from Crypto Capital related losses will also be used to pay for burned tokens.

Pending Plans for Launch

Several potentially game-changing BTC services are in the works and slated for launch this year. In March, Fidelity Digital Assets announced the launch of a custody service to a select group of eligible clients with cryptocurrency trading set to launch later this year. The financial behemoth manages over US$2.45 trillion in assets.

Bakkt, which raised US$182.5 million from 12 partners and investors in 2018, is also set to launch a physically delivered BTC futures product some time this year. Bakkt is a subsidiary of the Intercontinental Exchange, which also runs the New York Stock Exchange. Starbucks also received a significant equity stake in the Bakkt BTC futures platform.

This week, TD Ameritrade-Backed ErisX announced they had received the necessary licenses from the US Commodity Futures Trading Commission (CFTC) to launch crypto futures products in the US. The exchange launched pairs for BTC, ETH, LTC, and BCH spot markets in May after raising nearly US$50 million.

Fresh applications for the Bitwise and VanEck-SolidX BTC ETFs were also submitted to the U.S. Securities and Exchange Commission (SEC) in February. All previous BTC ETF proposals have been rejected by the U.S. regulator, while several other BTC ETNs are available worldwide, and are seeing increasing volumes. Last month, the SEC delayed decisions on both ETF applications. The deadline for the final SEC decision on the pending U.S. ETFs is set for early December 2019.

Finally, Bitmain, the ASIC miner behemoth, has renewed plans for an IPO this year in the US. Bitmain’s plan to IPO through Hong Kong’s HKEX expired earlier this year while the company reported dwindling cash reserves.