Traders Magazine Online News, February 5, 2019
So, is it time to buy into the cryptocurrency market? Has the price bottom been reached yet?
In a recent feature, Nicholas Colas, co-founder of DataTrek examined the state of the crypto markets and how far prices have fallen and whether or not it was safe to go back into crypto-water.
Colas started by ooking at the YTD performance of crypto currencies and how it reminded him of the old Wall Street interview question: How long can a stock decline by 5%/day in consecutive trading sessions before it hits zero? Anyone who answers 20 days is shown the door, of course
DataTrek noted the performance of the top 5 cryptos by market cap so far in 2019, along with their 1-year track record:
Bitcoin: $60.5 billion market cap
XRP/Ripple: $12.0 billion market cap
Ethereum: $10.9 billion market cap
Tether: $2.0 billion market cap
A stable coin tied to the US dollar, Tether has not moved more than 1-2% over the YTD or last year.
EOS: $2.0 billion market cap
Looks a bit ugly, doesnt it?
With these 5 names comprising 77% of all global crypto currency assets, those terrible performance numbers are pretty much all you need to know about the state of this (declining) corner of capital markets, Colas noted. About the nicest thing you can say is that this bubbles deflation was not as painful as the NASDAQ dot-com unwind, which took $2 trillion out of investor portfolios. At their highs, cryptos had a collective $830 billion market cap; their current total value is $113 billion.
As for whether this much-damaged asset class is ready to turn, Colas looked at the fundamentals and came up with a resounding No, not yet. Here are the data points he looked at:
Google search volume for bitcoin remains low. On a global basis, online queries just set a new 1-year low during the week ending January 26th 2019. Also, current search volumes are 85% lower than their 1-year highs. Looking at just searches in the US, volumes are 88% lower than their 1-year highs.
Growth in the total number of bitcoin wallets continues to decline. January 2019 will likely end the month with 2.6% more wallets than the end of December 2018. Thats only inline with Decembers growth rate (2.5%) and lower than either October 2018 (3.0%) or November (4.6%). History shows it takes +10% wallet growth (as was the case in December 2017) to spark a meaningful rally.
Why we use these metrics: bitcoin/crypto currency is a technology, and therefore lives and dies with adoption rates. Google searches tell us how much interest there is in the asset class. Wallet growth shows when that curiosity turns into new users and fresh capital.
The bottom line here is the same as our prior commentary on the topic: crypto currencies (especially bitcoin) do have their uses but if you are interested in playing we recommend limiting position sizes to lunch money amounts, Colas said. Think about the most expensive lunch youve ever bought personally; thats how much to invest, and no more. If/when this space rebounds, youll be able to buy another great lunch or two. If it never does, it wont make too much of a difference.
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