What happened this week in the Crypto markets? Don’t Believe the “Lower Volatility” Hype The overall crypto market ended the week flat to slightly lower, and for the month, the various crypto indices closed +/- 5%. But as , it hasn’t been a smooth journey, and this week was no exception. Closing the books on September, we noticed that each of the 4 calendar weeks last month saw peak-to-trough price moves of over 10%, and in some cases, the intra-week ranges surpassed 20%. This past week alone, after a muted start to the week, the crypto market declined rapidly on Tuesday, only to see prices rally back throughout the rest of week, ending the week largely unchanged. we mentioned last week Meanwhile, the public narrative is shifting towards a “ ” by studying technical charts that indicate BTC and other cryptoassets are trading in more narrow price channels. We’ll leave the chart reading for those who are trading every minute of every day, but when we look at these intra-week moves, it suggests something else may be afoot. lack of volatility So Let’s Start at the Top — Macro View and Consumer Confidence Viewing the world through a myopic lens is never advisable. While our in-house research team focuses exclusively on crypto markets, our macro viewpoints are shaped by what is occurring in traditional markets. And while many crypto enthusiasts continue to speak out about crypto’s lack of correlation with traditional markets, there are some recent patterns worth exploring further. We highlighted over the summer that , citing a strong correlation between Asian equities and prices. This relationship, while not perfect, continues to hold- and can even be tested with the naked eye simply by watching crypto price direction in early US market hours following a particular strong / weak Asian overnight session. Bitcoin may no longer be an uncorrelated asset Bitcoin Furthermore, many believe that Bitcoin will ultimately become “digital gold”. This in turn will make Bitcoin negatively correlated to risk assets. This thinking suggests that other risk assets will be a leading indicator of Bitcoin. However, over the past month, BTC has actually been a LEADING indicator, as measured by the VIX. There were 3 significant BTC corrections in September, and each one was followed by a spike in the VIX. Graph of BTC Prices vs VIX from Sept 1 — Sept 30, 2018 Source: TradingView And finally, given our propensity for spotting cross-asset relationships, we admit that this next one has us particularly confused. Since crypto prices follow Asian and emerging market equities, we assume that there must be some relationship between crypto and US / Europe. Then what is the takeaway when two of the largest economic powerhouses are at odds with each other? Such is the case with consumer confidence with US and Europe sentiment heading in opposite directions. This area will requires further analysis. Notable Movers and Shakers Historically, correlations have been very high between digital assets, but that may be starting to dissipate. This past week, ⅔ of the Top 25 by market cap moved lower, while ⅓ moved higher week-over-week. Bitcoin cash (BCH), the 2017 fork of Bitcoin, gained 10% week-over-week . The large spike followed news that Bitmain had officially filed for its IPO on the Hong Kong Exchange, potentially alleviating some of the liquidity issues at Bitmain and thus, BCH (with which a sizeable position sits on Bitmain’s balance sheet). following a 27% jump on Thursday 0x (ZRX) only finished the week up 1%, despite a 15% gain on Monday following the . 0x was unable to hold onto these gains following Tuesday’s broad selloff. launch of protocol v 2.0 What We’re Reading this Week Open Savings Initiative Allows Bitcoin Users to Lock Funds Until a Specific Time This is a cool idea. There is a new platform that allows people to save BCH and BTC in a time-locked address making the funds unspendable until a specific time. So essentially a user who wants to give 1,000 BCH to their son on his tenth birthday but wants to lock up the funds until he turns 21 can do so using the OSI platform. AirBNB Wants to Give Its Hosts Equity AirBNB wants to give hosts equity in its business. Hmm… a community needing an incentive structure for important participants to continue to operate & evangelize within the community. This is a novel-concept; where have we heard that before? (HINT: cryptoassets) JP Morgan Launches DLT Payment System, Pushing Ripple Slightly Aside JP Morgan’s reps state that their system is a response to major crypto startups, like Ripple or Stellar, that are now spreading their arms around the global system of banks, offering their products to make overseas payments fast and low-cost using their tokens. Compound Launches Easy Way to Short Cryptocurrencies There will always be a debate as to whether or not short-sellers help or hurt markets, but we’re in the camp that short-selling helps markets achieve equilibrium. The First Tokenized Song Still looking for real life useful applications of ? This song from Taryn Southern marks the world’s first ever experiment in mass music collaboration and backend ownership via smart contracts. blockchain Arca in the Press and on the Streets Arca’s CIO Steven McClurg and Arca’s Head of Research, Katie Talati, teamed up this week to . to discuss custody in crypto McClurg also spoke on a panel discussing at the in Las Vegas. Arca’s bottom up research process Inside Alternatives and Asset Allocation Conference And That’s Our Two Satoshis! Thanks for reading everyone! Questions or comments, just let us know. - The Arca Portfolio Management Team Steven McClurg — Chief Investment Officer Jeff Dorman — Head Trader Katie Talati — Head of Research

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