The Month in Review: Analyzing the Cryptocurrency Markets for September
What happened to the 2019 cryptocurrency bull market? The crypto community basked in the glow of a substantial rally during the first six months of the year. However, the powerful bull market came to an abrupt end in July. Over the course of the past 90 days, the entire cryptocurrency universe has reversed course and surrendered a substantial portion of its gains from the first half of the year. Will this trend continue for the remainder of 2019?
What Happened to the Cryptocurrency Bull Market in September?
In regard to the month of September, all of the major cryptocurrencies (with the exception of ETH) generated a loss. The biggest loser was Bitcoin Cash, which recorded a decline of 20.5%. Why have cryptocurrencies struggled during the past 60 days? Let’s examine the details and why the cryptocurrency bull market seems to have come to an end.
Is Bakkt Bullish or Bearish for the Crypto Universe?
Finally on 23 September, Bakkt opened its doors for trading on the Intercontinental Exchange. Bakkt has been a much-anticipated addition to the cryptocurrency ecosystem. Why? Because it is the first company to offer a physically-delivered Bitcoin futures contract on a regulated exchange.
According to most crypto experts, institutional investors would not enter the Bitcoin arena until there was a regulated exchange offering physically-delivered BTC futures contracts. Thanks to the launching of Bakkt, institutional money can now flow into digital assets, specifically Bitcoin.
Why are institutional investors so important to the long-term success of Bitcoin? Because they control the vast majority of global investment dollars. For example, according to data provided by the Federal Reserve Bank of St Louis, there is currently $2.14 trillion dollars parked in institutional money funds.
Essentially, these are institutional dollars sitting on the sidelines waiting to make an investment in a major asset class. The launching of Bakkt on 23 September has given institutional investors the “green light” to invest in Bitcoin. Please review the following table.
This table displays the number of institutional dollars parked in money funds for the past 29 years. As you can see, money funds reached its peak in 2009, following the global financial crisis. The balance slowly declined from 2010 through 2017. However, during the past two years, money fund balances have been on the rise. As we mentioned, the current balance is $2.14 trillion.
Bakkt picked a perfect time to launch the exchange. Institutional dollars are overflowing, searching for an investment vehicle. If institutional investors decide to invest just a small portion of the money funds in Bitcoin, the price could explode dramatically higher. Obviously, this is definitely bullish for BTC.
On the bearish side, many crypto investors are worried that the arrival of Bakkt will bring about the rehypothecation of Bitcoin. What is rehypothecation? It occurs when a brokerage firm uses assets that have been posted as collateral by their own clients. The brokerage firm uses these pledged assets to cover its own transactions and trades. Consequently, the assets are “double pledged,” which artificially increases the supply of the asset.
Of course, increasing the supply of an asset has a tendency to suppress the price. This explains why many crypto investors are concerned that Bakkt could actually be bearish for the price of Bitcoin. Bakkt has a custodial relationship with its account holders along with providing warehousing services for its physically-delivered Bitcoin futures contract. These are the necessary ingredients for engaging in rehypothecation.
In the long run, will Bakkt be bullish or bearish for cryptocurrencies? Most likely, Bakkt will be extremely bullish for Bitcoin and other cryptos. As we discussed, there is an incredible amount of institutional dollars waiting to enter the cryptocurrency universe. Bakkt is the perfect vehicle for allowing institutions to invest in Bitcoin. Why?
Because Bakkt is regulated and it offers physically-delivered futures contracts. In regard to rehypothecation, it is definitely a concern to the crypto community because it creates an artificial supply of bitcoins. However, the benefit of institutional dollars far outweigh any problems that may occur because of rehypothecation.
Why is Bitcoin Experiencing a Mini Meltdown?
It’s deja vu all over again! When the Chicago Mercantile Exchange (CME) launched its BTC futures contract in December 2017, it coincided with a major top. In fact, Bitcoin recorded its all-time high on the exact day of the CME launch on 18 December 2017. So far, BTC has been unable to penetrate the high from December 2017 @ 19,862.
Bakkt launched on 23 September. In a strange twist of fate, it appears that the Bakkt launch is exerting the exact same downward pressure on Bitcoin just like the CME launch forcing the cryptocurrency bull market to a halt.
BTC was trading at 10,146 when trading activity began on Bakkt. Four days later on 26 September, the price of Bitcoin had plummeted to 7,783. This represents a massive decline of 23.2%. What happened? Why did BTC experience such a brutal decline immediately following the CME launch and the Bakkt launch? The most logical reason is that traders were concerned with rehypothecation. As you know, rehypothecation creates an artificial supply of the underlying asset. As a result, prices are suppressed. This probably explains the brutal decline during the past week.
Please review Chart #1.
In a recent article, we discussed the probability that BTC had formed an important top on 26 June @ 13,844. So far, this appears to be the most likely scenario. Bitcoin enjoyed a dramatic rally during the first six months of 2019, rising 276%. However, BTC has struggled during the past three months, losing 40% of its value. As we discussed in previous articles, the important numbers to watch are 4,440 – 5,704 – 6,568 – 8,485 – 9,966.
Most likely, BTC is on its way to 6,568.
Please review Chart #2.
Digitex Continues to Push Forward
30 November is just around the corner! The Digitex Futures exchange will launch on the public testnet. During the past few months, it has become very apparent that Adam Todd made an excellent decision to use SmartDec for developing and programming the Digitex Futures exchange and trading platform. SmartDec and Digitex are on the verge of creating a truly disruptive product within the futures industry. Digitex has tremendous upside potential.
Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.