Oct 19, 2020
Exchange Dramas Continue
Market Recap
Bitcoin remained strong above the $11,000 level and ended the week relatively unchanged after meeting strong resistance at $11,700. Bitcoin exchange reserves continue to plummet after hitting a one-year low last week. There is also increasing volume stored in “accumulation addresses” [Figure 1], hinting a potential shortage of supply. On the other hand, Bakkt recorded an all-time high Bitcoin delivery in October, demonstrating a clear spike in institutional demand. ETH and LINK followed BTC’s trend, ending the week flat. Other alts see mixed performance over the week with XRP, DOT, LTC and BSV down between 4% to 7% while BCH and BNB up 3.5% and 7% respectively.
Over the past week, the most volatile cryptocurrency goes to the newly released Filecoin (FIL). FIL is one of the biggest ICO initiated three years ago focusing on decentralized file storage and content distribution. After pivoting to the mainnet and distribution started on 15-Oct, the token spiked 4 folds on the day with several major exchanges (incl. FTX, Binance, Gemini) listing the token swiftly. FIL also made history by being the fastest newly live blockchain to reach a market capitalization of $1B. However, the hype was short-lived. FIL plunged 80% from its peak and last trading at $35, about the same level of its listing price.
Another week, another ‘exchange drama’. OKEx, the second largest cryptocurrency exchange in the world halted withdrawals on Friday as the founder and one of its private key holders — Mingxing Xu was missing from work because he is “currently cooperating with a public security bureau of investigation” in China. BTC price dropped 3% immediately after the news and the platform’s digital coin OKB fell nearly 11%. The exact charge is still unclear although rumors have surfaced that the investigation has to do with the backdoor listing of OK Group in Hong Kong back in 2019. OKEx CEO Jay Hao twitted multiple times after the announcement ensuring clients that their funds are safe and the investigation concerns Mingxing Xu’s personal issue and will not affect OKEx business. As reported by Glassnode, there are currently over 200,000 BTCs held in OKEx ($2.3 billion worth) wallet, which is 1.1% of the total circulation.
What is Happening?
U.S. stocks had mixed performances this week as the market awaited Senate’s stimulus votes next Tuesday. S&P 500 remained on the 3400 level. Banks, including JPMorgan, Citi Group, Bank of America, Goldman Sachs, and Morgan Stanley released their Q3 earnings. All of them beat estimates with surging sales and trading revenues. Goldman’s net income increased by 89% YoY, and Morgan Stanley’s went up by 25%. More companies are expected to report their Q3 results next week. On Friday, the U.S. reported the highest daily coronavirus case since July, topping 70,000. As for the election, the final debate will be held on next Thursday. Trump is still trailing Biden by almost 10% in most polls.
UK Prime Minister Boris Johnson said it’s time to prepare for a no-deal Brexit on Friday. However, FTSE 100 went up by 1.5%, recouping losses earlier this week. In New Zealand, Jacinda Arden was re-elected as Prime Minister. Her liberal Labour Party also won 49% of the vote. Elsewhere, Chinese stocks had a good week, with CSI 300 advancing by 1.9%. Chinese president Xi Jinping visited Shenzhen on the 40th anniversary of the special economic zone, calling the city to create “another miracle” in the next stage of reform. China’s economy grew by 4.9% in Q3, showing continuous economic recovery from Covid-19. But the GDP growth was lower than the projected gain of 5.5%, reflecting slowing infrastructure investment growth and lingering softness in corporate investment and consumption.
Conclusion
Recent exchange dramas expose ironic single point of failure in cryptocurrency industry which is well-known for its decentralized technology. Most popular exchanges out there are still centralized exchanges with little or no regulatory oversight. Although as time goes by, crypto prices may become more resilient to exchange hackings or crackdowns, the drama last week once again reminds crypto traders a different level of counterparty risk that they need to manage in the crypto world. Good Luck!
