October 19, 2020

The TIE Weekly Insights (Oct 19)

Some highlights from this past week:

What Actually Moves the Prices of Cryptoassets?

On July 11, 2019, Donald Trump tweeted, “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.” We set out to test whether his assertion was true, or if there were a clear set of patterns that predicted price movement on individual digital assets.

Leveraging The TIE’s SigDev and sentiment data sets we set out to identify whether news moved the crypto market and what, if any, impact investor sentiment had following an important announcement.

Which significant developments move the market the most?

Significant developments are news articles referring to specific updates to blockchain protocols, teams, or and major events. Certain significant developments (or “SigDevs”) have been observed to have an effect on price. Using novel, automatic news detection systems developed by The TIE, we aim to understand exactly how SigDevs affect the price of cryptoassets.

Looking at maximum price increases within 24 hours after different SigDev announcements, we see that certain announcements tend to procure more responses than others. These are ordered from left to right in order of increasing average positive effect on price. These results are intuitive: one would expect 51% attacks — a negative assault on a blockchain — to not typically have a positive effect on price, while getting listed on a new exchange (“Listing”) increases demand on a cryptocurrency and thus should increase value.

What Events Move Crypto Prices the Most Over 24 Hours?

Events That Move Crypto Prices the most over 24 Hours

Listing and Partnership announcements have immediate, large, positive influences on price. We looked into whether those increases are sustainable. Specifically, we are looking at the maximum price 24 hours after each SigDev announcement compared to the average price in the following week. The data shows that the hype of a Listing or Partnership announcement tends to wear off within a week; however, Funding announcements and announcements about Mergers and Acquisitions have positive effects that often extend beyond a week!

What Events Have the Most Sustained Positive Impacts on Prices?

Events That Move Crypto Prices the most

What are my chances?

Considering the short- and long-term price changes after all SigDev announcements in the past year (about 10,000 data points), we are able to generate a loose expectation of price movement after a specific announcement. The tables below show both the average percent returns at the 1 hour, 1 day, and 1 week timeframes, as well as the probability of having a positive return at all.

Average Price Change Following Every Significant Development

Probability of a Price Increase For Each SigDev

Read the Q3 Quarterly Report that we put together with @eToroUS to learn more about what impact Twitter has on prices following SigDevs and dive deeper into what actually moves the prices of cryptocurrencies: <p>The State of Digital Assets Q3 2020 Report</p>

Crypto Topics Trending in the media this week

Market Overview

The crypto community faced even more drama this week as one of the largest exchanges by volume, OKEx, has suspended all withdrawals indefinitely. OKEx stated that one of their key holders has been “out of touch” with the exchange because they are currently cooperating with a public security bureau in investigations. OKEx’s utility token OKB dropped -15% following this news.

The total crypto market cap remains unchanged this week, sitting at $364B. Bitcoin currently represents 58.92% of that total. Weekly Returns were mostly positive with Bitcoin Cash standing out at 4.23%. XRP, LTC, and EOS all saw negative returns. Trading Volumes and Tweet Volumes were down for the majority of the top 10 coins. Investors currently seem to have a positive outlook on the crypto market as the Long-term Sentiment Score is high for 7 out of the 10.

Market Overview

Bitcoin's NVTweet Ratio Climbs to New Highs

Bitcoin’s NVTweet Ratio has hit a new all time high of 8.89! The NVTweet Ratio compares a cryptocurrency's social conversation relative to its Market Cap. The NVTweet Ratio looks at how many tweets a particular coin has per each $1M in Market Cap. The lower a coin's NVTweet Ratio the more tweet volume it has per $1M in market cap. An increasing NVTweet Ratio could suggest that a particular coins' market is becoming increasingly driven by institutional trading. As market cap is increasing faster than social volume, this may suggest less retail involvement in the market for a particular coin.

Bitcoin's NVTweet Ratio

Bitcoin Holds Steady Amidst More Exchange Drama

The price of Bitcoin opened at $11,371 this week, before quickly selling off to set the low at $11,190 which was followed by a breakout up to the high at $11,730. BTC then traded within this tight 4.83% range all week, well below its historical average. Price chopped around the Volume Weighted Average Price (VWAP), using it as a median like we have seen historically during choppy markets. Sentiment started high on Monday but decreased throughout the week.

Bitcoin price vs sentiment score

History Doesn't Repeat Itself, But it Often Rhymes

Bitcoin, like many top coins, saw price drops shortly after the OKEx news. But the most interesting thing to me was the way that the market reacted. It seems nearly identical to last week's news regarding BitMEX. With all the recent events such as exchange hacks, regulatory charges, and withdrawal suspensions, the crypto market seems to be focused on security & withdrawal protocols, resulting in a short term panic following any negative rumours.

Bitcoin price during BitMEX and OKEx news

The chart above compares the price changes 24 hours before the BitMEX and OKEx news as well as the 48 hours afterwards. It’s clear that these two price movements are very similar. Both had been trending higher before a swift drop after the news followed by a low volatility range with a slightly uptrend tilt. The market reacted more negatively towards the BitMEX news, which is to be expected for a few reasons. Firstly, the charges and arrests against BitMEX leaders were very serious and led to Arthur Hayes and Sam Reed stepping down from their roles. And secondly BitMEX has been the market leader for years now, but this has slowly been changing.

BitMEX Has Been Losing Open Interest Since March Sell-Off

Back in March we saw Bitcoin’s worst performing day in its history. The insanely high volatility and intense selling caused problems for many exchanges, but BitMEX seems to have gotten hit the hardest. The rapid drop caused a cascade of liquidations to go through which inevitably increased the intensity of the price drop. Many traders on BitMEX had questions and complaints following this event but they did not receive the answers they were seeking.

Bitcoin price vs open interest

This chart shows Bitcoin Open Interest across some of the top exchanges. As you can see, BitMEX saw a huge drop in OI during March and has continued to decrease since this event. This is the opposite of the other exchanges such as Binance, whose Open Interest has followed upwards with the price of Bitcoin. Binance has passed BitMEX OI and in my opinion, will continue to climb higher to finish the year as BitMEX faces the clashback from all the regulatory drama.

As the crypto market prepares for the next bull run, the interest in altcoins has once again skyrocketed. Binance seems to be at the forefront of altcoin trading, which has led to explosive growth of the exchange. Binance, as well as FTX, are very quick to list the new trending alts. This brings in a lot of retail traders and in turn increases the amount of people who end up trading BTC on those exchanges (increasing OI). BitMEX has been slow to add new products and has made minimal efforts to better the user experience on their exchange. These are a few reasons why I believe Binance will continue to grow and take the role as the leading exchange in crypto.

DeFi Ecosystem Grows Despite Market Pullback

The top DeFi tokens have taken a hit once again this week, with the median return of -8.13%. Gnosis was the only token to see positive returns over the past 7 days.

DeFi Weekly Returns

7.6% of Ethereum's Total Supply is Locked in DeFi

Despite the fact that most DeFi tokens have seen a significant pullback from their highs, users continue to lock their ETH in the DeFi ecosystem. The amount of ETH locked in DeFi has grown month over month. Since Jan 1st, 2018, a total of 28 out of 33 months have seen a positive increase. Over 250,000 ETH get locked in DeFi each month on average.

Below we take a look at a month by month comparison of how many ETH go into DeFi vs. how many ETH are created:

Month by Month comparison of New ETH supply vs New ETH locked in DeFi

Over 7.6% of ETH’s total supply is currently locked in DeFi projects. This percentage has been increasing as supply increases, basically DeFi dollars outpacing inflation. The amount of ETH locked in DeFi increased by a record high of 3.3M in September and has grown by 5.6M this year. That is 2M more than the total supply of ETH has increased this year!

Total Value Locked in DeFi

TVL in DeFi has grown at a significant rate in 2020. Aggregated TVL in the Top 10 DeFi projects has increased by 1585% YTD. These 10 combine to a total of $10.5B and make up 95% of the TVL in DeFi.

Year-to-date Growth of Total Value Locked in DeFi

When looking at TVL change per month, some interesting points come to light:

Total Value Locked Changes per Month

USDC Launching on Stellar Blockchain

XLM pumps 15% following news that the 2nd biggest stablecoin USDC will be launching on the Stellar Blockchain in 2021. This surged Stellar related conversations on Twitter as Tweet Volume increased by 355%. The TIE's SigDev picked up this news within seconds of the announcement.

Stellar Price pumps

The AmpleSense DAO Officially Launches

After the announcement of the AmpleSense DAO launch, investors sentiment started rising fast. Sentiment score increased from 35 to a high of 95 before retracing. This pushed the price of AMPL higher, reaching a 160% increase at its high.

AMPL Price movement

Notable News

OKEx Suspends Withdrawals, Says Key Holder Not Available Due to Cooperation With Investigation

Cryptocurrency ETFs: SEC Wants to Facilitate Tokenized Products"

Filecoin Mainnet Launches, $FIL Trading at $120 Billion Fully Diluted Valuation"

Contact us for a demo of our SigDev platform to view all market-moving events in real-time.

This Week's Podcast Episodes

Ep. 18 - Identifying the Next Big Altcoin with Mitchell Moos (Crypto Briefing)
In our eighteenth episode, Mitchell Moos discusses running a crypto media business, how his team parses through hundreds of altcoins to identify the next big thing, and how he values digital assets: Listen here

Ep. 19 - The Revenge of Crypto Regulators with Jorge Pesok (Crowell & Moring)
Jorge Pesok of Crowell & Moring joins The TIE's Fundamental Value Podcast for our first ever video interview. Jorge dives deep into all of the SEC, DOJ, and CFTC rulings rocking the cryptocurrency industry. Jorge discusses BitMEX: Listen here

Ep. 20 - Crypto-first Banking with Thibaut Sahaghian (Multis)
In our twentieth episode, Thibaut Sahaghian discusses the challenges of the traditional financial banking system and Neobanks, how stablecoins offer a bridge for enterprise cryptocurrency adoption, and the challenges of bad UX in crypto: Listen here