Weekly Thoughts #19: The boy who cried wolf gets eaten

 

 OCTOBER 11, 2018

At press time, the price of bitcoin is just over $6300, representing a 5% move lower than yesterday at this time. We’re happy to report that the price of bitcoin is no longer flatling at the 6600 handle and that we saw a short uptick in vol yesterday. This was accompanied by a sharp movement in prices across the board. Though the entire market is awaiting “that” burst to the upside, yesterday evening’s price action saw the entire market move lower in aggressive fashion. The sheer velocity of sell pressure across exchanges coupled with the loss of liquidity in a short amount of time has led us to believe that this wasn’t just a random act or a large whale offloading some inventory. While we’re not entirely sure who or what entity had their fingers primed on the sell button, we do know that this type of move washed out a fair amount of levered long derivative positions early on. That exaggerated what should have been a 2­3% move into an almost 7% move with BTC (with little to no mean reversion). There’s a narrative that the crypto market was simply falling in lockstep with the equity markets, which are slowly entering into correction zones. We believe this move in cryptocurrencies had nothing to do with the stock market. Evidence has shown that there have been little correlation between global stock indexes and the price of bitcoin. Nor does bitcoin move on economic data (we regressed ex­post BTC performance against monthly jobless claims and found no correlation). We think that the direct catalyst for this move had something to do with Bitfinex and the fact that their banking relationships have taken another leg back. We get into this a bit more below. Here are our thoughts for the week:


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