Last week was the end of the third quarter, and capital was allocated across the board in many of the major asset classes. The Digital Asset sector rose five percent, while US equity indexes traded to record highs yet again.
As mentioned in my proposal, this quarter end market commentary will be more detailed and cover a wider variety of asset classes than the regular weekly pieces.
Starting with digital assets, the market saw small capital inflows as coinmarketcap.com reported that the total blockchain market capitalization increased to 222 billion dollars. Another positive for the digital asset class was the decrease in Bitcoin’s percentage of the total valuation. BTC “Dominance” decreased from 53.5% to 51.2% over the past seven days. For a broad based sustainable rally to occur, Bitcoin’s percentage of the total market share will need to continue to decrease dramatically.
Below are a three charts of the total market cap for the block chain sector from coinmarketcap.com
Digital Asset Market Cap for the past week
Digital Asset Total Market Cap for 3rd Quarter 2018
Four Month Digital Asset Total Market Capitalization
I show these three different time horizons to highlight different perspectives. The rally last week was a positive and moved from lower left to upper right slowly. The next image shows that the blockchain index was only down slightly in the third quarter and the sector may be poised for a recovery in the 4th quarter of 2018. The third chart starts with memorial day weekend, and shows a series of lower lows and lower highs from the week of Memorial Day to the week after Labor Day. The lows set in September will serve as major support for the market moving forward.
The next theme is the correlations across various asset classes since the beginning of 2018. I have a plethora of charts, and want to highlight how Bitcoin, Blockchain, Gold, Emerging Markets, the US Dollar and US equities have all been a very similar trading this year.
The next four charts illustrate how the passive longs have done in different asset classes. In terms of risk, you can see they have a high correlation. The major difference is the implied volatility. These images are courtesy of barchart.com
S&P Futures YTD
NASDAQ Futures YTD
Dollar Index Futures YTD
Brent Futures (Global Oil benchmark)
Now to the assets that have under performed the first nine months of the year. Note the variety of asset classes, and the direction of movement, but the velocity of the movement is what sets them apart. Images courtesy of coinmarketcap.com and barchart.com.
Total Digital Asset Market Cap YTD
Total Digital Asset Market Cap less BTC
Gold Futures YTD
EM Debt ETF YTD
EM Currency ETF YTD
Emerging Markets ETF YTD
Asian Emerging Markets ETF YTD
Emerging Markets Small Cap ETF YTD
Note how each of these different investments had huge rallies in the first few weeks of January as investor allocations and redemption historically are the highest at the beginning and end of the year.
Since January, each one has been under varying degrees of selling pressure, but note the year lows just after Labor Day in everything but Gold, which had its low two weeks prior.
Then in the last weeks of September, each staged a comeback and are looking for the area of major investor support.
In closing, I have watched the digital asset markets mature tremendously in the past few years. Moving from relative obscurity to now being talked about daily on many major media outlets. In my opinion, the blockchain industry has moved from a commodity style of mining, owning, and selling or transferring wealth a la Bitcoin, to a venture capital means of investment. Now many of the entities that have publicly traded “coins” have more similarities to business.
Whether one mines, Gold, Crude, Bitcoin or Dogecoin, one must expend time, capital and have the market price be in excess of their cost to sustain a profitable business venture. I have owned all four at various points in my life, and there are two possible outcomes.