Partner, Business Development & Head of Trading
There is one flaw with crypto markets remaining open 24/7/52 compared to traditional markets that only allow trading 5 days per week. Without a natural break, it’s difficult for investors to properly digest news. Most veteran market participants will admit that they need to take time away from their screens once in a while to fully absorb all of the inputs coming at them from a variety of directions, which allows them to process and look for viable outputs.
Take for example September’s price action thus far.
Had you traded every day, you undoubtedly would have been caught up in the vortex. Had you picked entry points and exit points upfront, you probably had a pretty good week/month.
Price chart of the Bloomberg Galaxy Crypto Index — September 2018
We mentioned in last week’s Two Satoshis that almost ALL of the news two weeks ago was undeniable positive, and yet prices barely budged in crypto-land. Looking back however, all of the news was “non-security specific” — meaning, it was good for the overall crypto market but there was no one or two identifiable tokens for the market to latch on to and send higher. The tone was positive, but prices didn’t reflect the tone.
Last week that changed. Like a marathon runner coming out of the pack, Ripple (XRP) became the market darling following one announcement after another. Coupled with strength in more traditional markets, XRP was able to break the downward pricing spiral in crypto, setting the tone for a rally across the board not seen since June.
Breaking down week 3, day-by-day, you can see how a positive macro backdrop coupled with XRP’s news translated this pent-up positivity into higher prices:
It’s possible that crypto just needed a shot in the arm from Asian and EM equities, followed by Futures expiration that unwound in bullish fashion, to get the wheels in motion — but make no mistake about it, the rally was led by positive news.
It’s been rumored that retail investors are now chasing cannabis stocks and forgetting about Bitcoin, given the 9-month old crypto bear market compared to relative strength in “pot stocks”. This “long cannabis/short BTC” strategy is hard to really quantify, but on Wednesday last week it was also hard to ignore. At 2:50 EST Wednesday, Tilray (TLRY) stock was halted after a run to $300 (+75 on the day), and the pop in BTC/USD happened right as TLRY reopened when the stock traded down $130 from the highs. This spurious, negative correlation strengthened the narrative, and can be seen in the charts.
Let’s forget about the correlation for a second, and focus on something more important. With the volatility and violent whipsaws experienced in crypto prices, many argue that crypto can never truly earn respect as an asset class until regulators steps in to monitor these violent price moves. While we concur that regulation is necessary, the rationale is faulty. Regulation alone does not prevent market manipulation nor does it protect investors from their own misbehavior. Just ask any retail investor who sold TLRY stock near the lows or bought near the highs. The stock was halted 5 times in one day, but that didn’t help anyone.
The Nasdaq is a regulated and respected Exchange in the US — but people are still people, and when they latch onto a stock that they think can make them rich overnight, bad things will happen. TRLY didn’t deserve a temporary $20 bn market cap any more than Tesla (TSLA) deserves its current $50 bn market cap. And a $20 bn market cap stock shouldn’t go up/down 50% in a day, but it did.
Regulation is important, but it’s not the most critical component of market health. There will always be traders who make bad decisions. And there will always be bad actors looking to trade on technicals rather than fundamentals. That doesn’t mean an entire asset class is bunk.
Peter Thiel is known as a very smart investor — his fund is the largest holder of TLRY stock. Thiel doesn’t trade it; he simply owns 76% of the shares. I don’t recall hearing anyone bashing him for having a stake in a volatile security. In fact, he’s applauded. It’s possible to have a long-term bullish view on an asset without being influenced by the market gyrations caused by others. Fundamental long-term holders of crypto should be offered the same respect without assuming that everyone is a day trader.
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Just about every token and coin rose last week, with new leaders emerging each day from top alt-coins. While most remain a long-way away from their all-time highs, there were encouraging signs especially amidst the top 50 tokens (as measured by market cap).
What We’re Reading this Week
— Ownership & control
— Basic operation and fees
— Trading policies and procedures
— Outages and other suspensions of trading
— Internal controls
— Money laundering surveillance
— Protection against customer fraud
We caught up with Steven McClurg Chief Investment Officer of Arca Funds, on his thoughts on a potential approval.
“The biggest issue the SEC has with a Bitcoin ETF is the low volume and lack of transparency around trading, which opens it up to market manipulation. We have seen manipulation occur not just in Bitcoin, but other cryptocurrencies. This is not a special case, as there is a precedent of the SEC limiting certain OTC-traded and micro-cap equities from inclusion in ETFs. It is unlikely that the SEC will approve an exchange-listed product such as an ETF to hold crypto currencies until the issue with market manipulation is solved.”
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 — Portfolio Manager / Head Trader
Katie Talati — Head of Research
Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca Funds disclaims any obligation to update or revise any statements or views expressed herein.
In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. Arca Funds and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca Funds and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
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