Bitcoin price weakness has similarities to the Nasdaq in 2000, just occurring at 15x the speed. Bear markets see rising trading volumes and recently USD tether, a cryptocurrency token, has taken increasing trading share. Companies are raising record amounts issuing new coins (ICOs).
Bitcoin bear markets are nothing new: Since the coin’s creation in 2009 there have been four prior bear markets, with price falls ranging from 28% to 92%, so the recent fall of 70% was nothing out of the ordinary. In the current bear market, prices have fallen 45-50% in each bearish wave, similar to the pattern in the Nasdaq from 2000. BTCUSD prices varying by more than 3% across exchanges would signify a return to the bear market. Recently, bitcoin:alt-coin correlations have picked up, while USD prices vary increasingly across exchanges when markets tended to bottom.
What currency trades versus bitcoin? Since 2013 there have been three major funding currencies for bitcoin: USD, CNY and JPY. 49% of recent tradinghas been versus JPY as the Japanese retail community have traded FX on margin for a long time. There has been a small move away from fiat. The largest bitcoin exchanges only trade versus other coins/tokens so US dollar tether (USDT)has seen an increase in trading share from 1% in November to 13% today.
Blockchain startups prefer ICOs over VC funding: Since the start of 2017, blockchain-related startups have raised US$1.3 billion via venture capital. Over three times that value was raised via ICOs. ICOs tend to ask for ethereum or bitcoin so cryptocurrencies could be becoming funding currencies. Beyond regulation, the ICO market is changing, with 60% now done via private investor rounds.
There are many open questions in relation to cryptocurrencies: The back of this documenthas a short comparison between bitcoin and the US dollar and definitions of new words. In future reports we will explore trading dynamics, the potential macroeconomic impact and the evolution of a growing blockchain industry and its impact on fiat currencies.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
