Market Overview - December 2019

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Relative Returns

The end of November 2019 showed hope that we might be in for an exciting month of December, which wasn’t wrong but perhaps turned out to be exciting in a different way than initially thought. Bulls regained some comfort towards the end of November and entered December with the same mentality. Unfortunately they were immediately shut down by the Bears, who within the first day regained the upper hand and drove prices further down, continuing the trend we have seen throughout the majority of November. In the last report, the hope of a Crypto market that could go against the idea of a deflationary December was present, but unfortunately that was not necessarily the case.

Prices dropped quickly towards the middle of the month with market participants likely realizing that the holiday season is coming up much faster than expected and some of the crypto holdings had to make way for gifts for family and loved ones. Around December 17th most prices bottomed out, and what followed was a small holiday miracle. For (almost) the whole week leading up to Christmas, prices climbed, and most coins covered the loss incurred by the sharp drop a week prior; comforting the majority of the Crypto community into having an enjoyable holiday period without worry of markets falling off a cliff. Most projects were able to hold the holiday levels until the end of the month, with BTC_USDT finishing the month as the “strongest” coin in the analysis with a net change of almost zero. XLM_USDT performed the worst with a net loss of just over 20%.

It is interesting to note that the drop in prices during December 17th splits the graph in two sections. Looking at the left side, prices moved mostly in tandem and overall relative gains exhibited very similar behaviours. After the price drop around December 17th, the relative gains spread out and only four pairs remained in a similarly tight range. This could explain why most correlation coefficients have dropped overall when compared to last month's readings.

December 2019, Biggest Changes
Asset Pair Price IN USDT
(November 1st)
Price IN USDT
(December 1st)
Price IN USDT
(December 31st)
Monthly %
Change
Bi-Monthly %
Change
XLM_USDT 0.06902 0.05639 0.04511 ↓ -20.00% ↓ -34.64%
TRX_USDT 0.01946 0.01526 0.01328 ↓ -12.97% ↓ -31.76%
XRP_USDT 0.29110 0.2215 0.1936 ↓ -12.59% ↓ -33.49%
ETH_USDT 180.12 148.14 130.20 ↓ -12.11% ↓ -27.71%
LTC_USDT 57.63 46.54 41.59 ↓ -10.63% ↓ -27.83%
10-Hour Rolling Volatility

Volatility was relatively tight in the “Bear run” towards December 17th, with a spike occurring on most pairs on December 4th. The sizable spike in volatility on December 4th coincides with a relatively small price spike the pairs experienced during the same time, but then shortly after fell back to readings much lower than what the industry is generally used to. TRX had two more volatility and price spikes shortly before the markets fell, which were not experienced by the rest of the market. During that time TRX topped the 24 hour trading volume with almost one billion TRX changing hands, most of the volume coming from Bitmex with over eight million trades executed within a four hour candle. Unfortunately the good news was over quickly and TRX, just like most of the other coins, fell within the next week.

The next weeks drop can easily be seen in the center of the chart with volatility spikes across the board for a few days. However, volatility did not cool down after that, with TRX still exhibiting the most volatile market overall. It hints towards the TRX market being undecided in who will gain the upper hand between buyers and sellers, or maybe it is more the question of how much faith the market has in the fundamentals of the company.

It is clear to see that, looking past the volatility spike mid month, the overall volatility readings were tightening the closer we approached the end of December, which could hint towards a consolidation period. However, in the last report there was mention of the market entering or already being in a consolidation phase. That analysis depends on what time horizon is looked at and what granularity of charts is actually used as an analysis tool. Therefore, the classification of a consolidation phase might differ from trader to trader.

Correlations

When comparing the monthly correlation readings for December with the previous month, it becomes quickly apparent that overall correlations have once again decreased. Looking at the correlations with respect to BTC, we can see that all of them have decreased. EOS, XRP and ETH stayed close to their readings from last month, LTC and TRX moved by roughly a tenth. The correlation readings for XLM increased back to a region that is expected from the crypto markets. Recalling last month's report, the XLM readings were around the 0.5 - 0.6 range, which is low for the pool of pairs chosen.

It’s worth mentioning that the correlation readings between ETH & LTC and EOS & LTC were the only asset pairs that had readings above 0.8 throughout the month. However, when considering the divergence of relative prices towards the end of the month, redoing the correlation readings to examine the difference when splitting the month on December 17th seemed logical. Looking at EOS & LTC for example, their correlation is above 0.9 for roughly the first half of the month. Even though 0.84 is still a strong correlation, overall the 2nd half of the month definitely decreased that value for the monthly average. Correlation readings that are so close to one are often interesting for Pair-Traders or trades that leverage Convergence/Divergence trading strategies, making EOS & LTC an interesting combination to keep an eye out for. It is important to note that correlation might be a great way to start with these strategies, but most traders will incorporate the concept of cointegration into their strategy. Cointegration takes into account more than just similar price movements and looks at the degree at which two coins are sensitive to the same price over a time, making it a powerful metric for people using the above strategies or similar ones.

Notable News & Announcements

1https://cointelegraph.com/news/us-sec-approves-btc-futures-fund-to-offer-shares-to-institutional-investors

2https://cointelegraph.com/news/europes-new-regulations-force-bitcoin-service-bott le-pay-to-shut-down

3https://bitcoinist.com/total-crypto-market-cap-to-grow-to-usd-11-trillion-in-2023/


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