Following a few days of strong, persistent price declines, which saw Bitcoin lose ~30% of its value in a span of 7 days, the markets posted mildly positive returns today in what looks like a modest relief rally after a heavy beating. We are clearly not out of the woods yet and the downturn may still continue. When you are investing in a highly experimental technology that scales up at a slower pace than the previous technologies, you must desensitize yourself to the short-term market fluctuations and take a longer term view. As we have repeatedly mentioned, price movements in cryptocurrencies such as BTC are no indication of underlying technical progress or developer/user adoption, except in the long term.
If it is any (dark) consolation, everyone is bleeding and everything is falling in what can only be described as an across-the-board ‘risk-off’ trade. Close to a trillion dollars in market capitalisation have been wiped out from the US equity markets in the last four weeks. Apple is down 25% from its trillion dollar milestone, Facebook is down 40% since July, Bitcoin is down 80% from its December highs, Ethereum 90%, Amazon another 25% - the list is endless. Sometimes you just need to wait it out, and start testing the waters again slowly, but calling a bottom is a fool’s errand; as Keynesians will remind us - the market can stay irrational longer than you can stay solvent.
BTC price movement in 2018 compared to that in 2017 seems to be one that adheres to the old maxim - buy the rumour, sell the news. 2017 was all hype and expectation, and $20k/BTC was definitely a result of the market being overbought. In 2018, we have much more widespread acceptance, institutional toeholds and technological advancements in areas like scaling. This should actually justify a price far higher than the 4-6k that BTC has been trading in the past few months.
From a price transparency standpoint, we have a new price index for Bitcoin’s price that takes into account the prices from three top OTC trading firms in the US (Cumberland, Genesis Trading and Circle Trade) and is managed by MV Index Solutions. As regulators continue to clamour for more transparency into crypto trading and price reporting, the arrival of a new price index that captures the pricing in OTC markets (which is usually very much a zero-transparency black box type arbitrage business) adds more credibility to the price standardisation process and is very welcome. OTC market trading volumes in cryptocurrencies are reportedly as big as the exchange trading volumes.Therefore, having a publicly accessible OTC markets price feed bridges the information gap between exchanges and dark pools, and paints a clearer picture of overall market activity. To learn more about the price index, click here.
Remember that a lack of market transparency was cited as one of the biggest reasons behind SEC’s rejection of ETF applications. With the MVIS BTC price index we are clearly seeinf positive strides in the right direction to address the critical issue of issue.