Making Sense Of Crypto Slides

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It indeed has been a bearish trajectory for cryptocurrencies ever since Bitcoin (BTC) touched a fresh-high about a week ago. The market capitalization of crypto assets as a whole has declined to $2.57 trillion, from the recent $2.7 trillion peak.

From among the top-100 crypto assets by market capitalization, only 28 have gained in prices, both on a daily basis and a weekly basis.

A rising crypto cynosure trend warrants a comparative perspective on how the recent price correction in cryptocurrencies has played out and how it contrasts with post-peak price behavior in related and non-related asset classes. Before we plunge into an inter-asset and intra-asset contrast, let us quickly scan through the competition and spotlight the leaders and laggards since our previous review.

Market leader Bitcoin (BTC) is currently trading at $61,013.80, down around 9 percent from the all-time high of $66,930 on October 20. Closest contender Ethereum (ETH) is trading at $4,155.91, down around 5 percent from the all-time high of $4,366.09 touched on October 21. In-the-money holders of Bitcoin account for 92 percent whereas in the case of Ethereum it is 97 percent.

In the top-100 category in terms of market capitalization, 77th ranked Secret (SCRT), with a weekly price surge of 93 percent has recorded the best price performance among coins. Secret is the native coin of Secret Network, a blockchain with data privacy for smart contracts by default, that allows to build and use applications that are both permissionless and privacy-preserving.

Within the same space, 8th ranked SHIBA INU (SHIB) is the best performing token with a weekly gain of more than 175 percent. SHIB, created in August 2020, is an ERC-20 token based on Ethereum, a proof-of-work blockchain.

Reasons cited for the canine-themed token's rally include its listing on multiple exchanges like BitKan exchange, AOFEX, StealthEx and CoinFlex, the launch of its own line of Shiboshi non-fungible tokens (NFTs), partnership with the crypto payment provider NOWPayments, as well as SHIB's swelling open interest on the derivative exchanges.

A recent study conducted by Bacancy Technology also placed the meme-inspired cryptocurrency aiming for the "Dogecoin killer" role as the third-most Googled cryptocurrency so far this year, after Bitcoin and Ethereum.

59th ranked Stacks (STX) coin, a layer-1 blockchain that brings smart contracts and decentralized apps to Bitcoin, continues as the greatest laggard in the top-100 segment with a weekly price-dip of more than 15 percent.

Six stablecoin tokens viz Tether (USDT), USD Coin (USDC), Binance USD (BUSD), Dai (DAI), TerraUSD (USDT), and TrueUSD (TUSD) continue to be ranked among the top-100 crypto assets amidst an anxious wait for a U.S. Government Working Group report on regulatory framework for stablecoins.

We find that Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Cardano (ADA), Solana (SOL), XRP (XRP), Polkadot (DOT), Dogecoin (DOGE), Terra (LUNA), Avalanche (AVAX), Litecoin (LTC), Polygon (MATIC), Algorand (ALGO), Bitcoin Cash (BCH) and Cosmos (ATOM) are the top-15 coins in terms of market capitalization.

Polygon (MATIC), a full-stack scaling solution for the Ethereum network, surged around 21 percent in the past week to jump up two notches in rankings, pushing both Algorand (ALGO) and Bitcoin Cash (BCH) one rank down.

Polygon is also the best performer among the top-15 coins. Polygon, a protocol and framework for building and connecting Ethereum-compatible blockchain networks is involved with some of the hottest areas in cryptocurrencies, such as DeFi (Decentralized Finance), DApp (Decentralized Application), DAO's (Decentralized Autonomous Organizations) and NFT's (Non-Fungible Tokens).

Investor profile reveals that 88 percent of the digital asset is held by large holders, 97 percent of all holders are in-the-money and 77 percent have been holding on for less than a year.

Proof-of-stake coin Cosmos (ATOM), that aims to create a network of blockchains that can communicate with each other in a decentralized way, returned to the top-15 league, relegating Stellar (XLM) further down in rankings.

Top tokens (excluding stablecoins) based on market capitalization are SHIBA INU (SHIB), Uniswap (UNI), Chainlink (LINK), Wrapped Bitcoin (WBTC), and Axie Infinity (AXS). Meme-coin SHIBU INU (SHIB) unseated Uniswap (UNI) from the top ranking with a price surge of close to 175 percent in the past week.

While various crypto assets lodge a fierce battle for market cap dominance, crypto watchers are simultaneously reconciling with the dip in crypto prices since the recent peak.

What does the slide in prices portend?

How have Bitcoin-linked trusts and ETFs, that contributed to a lot of frenzy in the Bitcoin market, fared after Bitcoin scaled record peaks?

In order to allow a like-for-like period comparison, let us analyze the price change between the opening price of October 22, the day the Valkyrie Bitcoin Strategy ETF (BTF) debuted and closing price of October 27, in respect of three products viz Valkyrie Bitcoin Strategy ETF (BTF), ProShares Bitcoin Strategy ETF (BITO) Grayscale Bitcoin Trust (GBTC).

BTF, the most recent addition to the bitcoin-based ETF market, closed trading on Wednesday at $23.44, down 8.08 percent from its opening price of $25.50 on 22nd October. BITO that debuted on October 20, closed trading on Wednesday at $38.06, down 7.76 percent from the open price of $41.26 on October 22. GBTC, which unlike the other two is not a futures-based ETF, closed trading on Wednesday at $46.70, down 6 percent from the open price of $49.68 on October 22. During the same comparable period, Bitcoin (BTC) shed 6.03 percent.

Markets would wait and watch whether wealth manager VanEck's SEC-approved Bitcoin Futures ETF (XBTF) or Volt Equity's bitcoin-focused stock ETF, lined up for launch, can offer a better price correlation to the spot prices of Bitcoin.

As market participants gain skills in pricing downside risks into trading and investing strategies, an assessment of the price sensitivity of other dissimilar asset classes too can provide proper perspective and appropriate persistence.

Gold Futures are currently trading at $1804.95 per troy ounce, down around 15 percent from the record high of $2120 touched on August 7 2020.

Brent Crude Oil Futures are currently trading at $82.24 per barrel, down around 44 percent from the record high of $147.50 scaled in July, 2008.

The Dow Jones Industrial Average was at 35490.7 on Wednesday, down 1 percent from the record high of 35,893.8 reached on October 26,2021.

Dollar Index is currently at 93.81, down 43 percent from the record high of 164.72 touched in February,1985.

From its earlier peak of $64,863.10 touched on April 14, 2021, Bitcoin had dipped by almost 54 percent to a low of $29,807.35 on July 20, before commencing its rally to the current peak.

The extreme volatility observed in the prices of cryptocurrencies warrants a risk-appropriate behavior and a conscious risk-return trade-off decision. No asset price can remain unidirectional in the interplay of bullish and bearish forces. An impulsive herd behavior, without bothering about market signals that portend frothiness or excess speculation can precipitate losses beyond the acceptable risk threshold. This applies to all kinds of assets. And digital assets are no exception.

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