US, Korea, China Stock Markets Plummet: is Crypto Correlated?

The crypto market is continuing to lose its value as the U.S., South Korea, and China demonstrate record high losses in their respective stock markets.

As an alternative store of value, cryptocurrencies are considered as viable long-term investments, especially by millennials, in a period of global financial market instability and volatility. However, recent weeks have shown that cryptocurrencies are still vulnerable to the weakening global economy and the asset class is not able to perform as a hedge against uncertainties in the market.

Global Markets Crash

A lack of correlation is not equivalent to an inverse correlation. Merely because an asset is not affected by a certain catalyst, which in the case of crypto could be the instability of the global market, it does not mean that the asset increases in value as a result.

Historically, the crypto market has demonstrated a lack of correlation with the global stock market and traditional markets like equities. It has consistently recorded independent price movements regardless of how the financial market performs.

Over the past several weeks, as investors began to head towards the exit of stock markets fearing a further drop in U.S. stocks, the price of major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) plunged by more than 35 percent.

The U.S. stock market is experiencing one of its worst sell-offs in history and the trade war between the U.S. and China has led to a decline in the valuation of the Chinese stock market. Overnight, Shenzhen Composite fell 3.3 percent and Shanghai Composite dropped 2.5 percent.

The weakening U.S. and Chinese markets directly affected the economy of South Korea, which was already in decline due to the country’s struggling growth rate. The Kospi fell by 1.2 percent in the past two days and investors generally expect the instability of U.S. and Chinese markets to be sustained.

Alvin Cheung, associate director for Prudential Brokerage, told SCMP:

“There is a lot of negative news about the US criticising China before Trump and Xi meet next week, and that has dented sentiment. The mixed messages could be the US trying to win some bargaining chips for the upcoming meeting. Investors are on the sidelines, closely watching to see if the meeting will yield any concrete results.”

The trend of the global market is gearing towards the elimination of high-risk stocks, equities, bonds, and assets, which includes crypto. The short-term price drop of the market was triggered by the in-fighting of Bitcoin Cash and Bitcoin Cash SV, but the crippling global economy is said to be one of the major catalysts of the declining momentum of cryptocurrencies.

When Will Crypto Demonstrate Inverse Correlation?

Crypto could become a store of value, like gold, that is used by investors to hedge against the global economy. However, due to a lack of liquidity and infrastructure for retail traders, cryptocurrencies are not capable of operating as a hedging tool for large-scale investors.

As the market develops and the industry grows, better liquidity products will become available for both institutional and retail investors. Only then, crypto could potentially work as an inversely correlated asset to the global financial market.

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Novogratz: Trying to Start a Bitcoin Business in This Market Climate Sucks

mike novogratz crypto

Crypto investor Mike Novogratz has expressed dissatisfaction with the level of difficulty involved in trying to build a cryptocurrency business amidst a persistent bear market, even as he remains bullish on the prospects of his company and the wider crypto space in the long term.

Speaking to the Financial Timesthe former Goldman Sachs partner and founder of Galaxy Digital revealed that the company, which was set up to act as a crypto merchant bank has to contend with a unique set of challenges when compared to traditional merchant banking.

“Existential Threat”

Launched in 2017, Galaxy Digital received some $302 million in investment from Novogratz and it currently manages about $460 million in assets across three offices in London, Hong Kong and Tokyo. After setting up a trading arm recently, the company is also looking to raise funding and improve its profile with a dual listing in Frankfurt.

A look below the surface, however, reveals an altogether different reality, with the company’s shares having dropped a massive 37 percent since its August debut on the Toronto Venture Exchange in a listing that raised $242 million. It also recorded losses of $134 million in Q1 2018 due to unrealised losses of $85 million on digital assets and trading losses of $13.5 million.

Q2 did, however, produce better results, with $35 million in net income driven by $44.8 million in unrealised gains from principal investments. It also managed to cut its trading losses down to $1.4 million.

Speaking to FT about his thoughts on the situation, Novogratz said:

“2017 was just fun, it was almost stupid. [But] this year has been challenging. It sucks to build a business in a bear market…[Staff] anxiety levels go up when crypto goes down…In most traditional business, [such as] Goldman Sachs, you don’t worry. There’s not an existential threat out there.””

Trouble for Novogratz and Galaxy Digital

Known for making consistently bullish predictions about the price of bitcoin, Novogratz is reportedly navigating a mini-crisis at Galaxy Digital which earlier this month announced the departure of company president Richard Tavoso and co-head of trading David Namdar., citing a pivot away from consulting for smaller startups to working with large institutional clients.

FT sources claim that the company’s advisory business has received a subpoena from U.S. regulators, but this has not been confirmed by Galaxy.

On his part, Novogratz continues to make bold predictions about the future of cryptocurrencies, predicting that 2019 will see institutional investors move away from investing in crypto funds to crypto assets directly before the end of Q1.

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Milestone: Bitcoin on Track to Transfer More Value Than Mastercard Daily

With a daily transaction volume of over $8 billion, Bitcoin (BTC) is on track to overtake Mastercard, the second largest credit card network in the world, in volume.

On October 30, Mastercard released its financial results of the third quarter of 2018. Year-to-date, the credit card company has processed around $4.4 trillion. On a daily basis, Mastercard has settled nearly $12 billion per day.

Bitcoin, the most valuable cryptocurrency in the global market, has been processing just over $8 billion every day. According to a chart published by Trustnodes, BTC has been able to clear 272,000 transactions per day valued at $8.14 billion.

Inaccurate Comparison?

Mastercard and other credit card networks like Visa primarily handle payments made to merchants in both online and offline ecosystems. Hence, comparing the entire transaction volume of BTC to Mastercard’s volume can be considered as inaccurate.

A more accurate comparison of Bitcoin’s volume would be against the volume of the offshore banking sector as both target individual and institutional investors that process large cross-border payments.

Simply put, the $8 billion daily volume of BTC is a combination of exchange transfers, cross-border payments, and merchant transactions, while Mastercard only represents the transfer of cash to and from merchants.

However, as a minor currency with a total market capitalization of less than $100 billion, nearing the volume of a leading credit card network is a major milestone for Bitcoin.

Previously, the volume of top cryptocurrencies was often compared with remittance outlets like Western Union as Visa, Mastercard, and large-scale financial institutions were out of reach.

The data shows that currently, cryptocurrencies are mainly used as a store of value and as a means to transfer large sums of money. In fact, large cross-border payments rremainas the only advantageous feature of cryptocurrencies over legacy systems in terms of efficiency and practicality.

Earlier this week, Binance, the world’s largest cryptocurrency exchange, sent $600 million with a $7 fee. To send a $1 million through a bank in an international wire transfer, it could cost institutions nearly $10,000 in fees. To send $600 million, a rigorous verification phase, approval period, and significant paperwork is required.

Merchant Adoption Will Materialize

Eventually, as cryptocurrencies like Bitcoin become adopted as a legitimate alternative to fiat currencies, more merchants will adopt the digital asset. Then, it would be possible to compare merchant transactions through crypto with the volume of major credit card networks.

In late 2017, the awareness of cryptocurrencies increased exponentially as BTC achieved an all-time high at around $19,500. Still, merchant adoption remains relatively low and it is difficult to utilize cryptocurrencies at offline shops.

In the long-term, strictly regulated organizations like Bakkt that are supported by leading financial institutions in the likes of ICE, Microsoft, and Starbucks could drastically improve merchant adoption by providing an easy method for merchants to deal with cryptocurrency payments with sufficient liquidity.

In consideration of the fact that the total volume of Mastercard addresses the volume of every local currency the credit card network supports and the comparison between BTC and Mastercard only takes the volume of BTC into account, BTC nearing the volume of Mastercard is still an important achievement for the asset class.

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Crypto Market Crash Takes Pressure off Us: UK Regulators

London bitcoin crypto regulation

Britain’s financial regulatory body has had some pressure taken off its shoulders as the downturn in the value of bitcoin and other digital assets signaled a reduction in the threat cryptos could pose to the British financial system, per a Reuters report.

Last year, the world witnessed a crypto explosion, as digital assets like bitcoin and ethereum saw astronomical increases in their value. Bitcoin particularly had a good year in 2017, reaching a record high just under $20,000 the week before Christmas. This increase in value sparked a worldwide debate, with different countries coming out with varying cryptocurrency regulations, in a bid to stem the craze.

bitcoin price crypto crash
BTC/USD | Coinbase

However, 2018 has been something of a different song entirely. Cryptoassets have been trading below their 2017 values, setting new lows throughout the past week. At press time, bitcoin is currently trading around the $4,500 level while ethereum is valued near $135. The fall in prices seems to have been aided by a reduction in daily volume as investors are not really incentivized to buy, and it seems to have also eased the pressure on the British regulatory body to take any further action to stem the once-hot crypto craze.

Speaking at a City & Financial conference, Gillian Dorner, Deputy Director for Financial Services at the British Ministry of Finance, was quoted by Reuters saying:

“We want to take the time to look at that in a bit more depth and make sure we take a proportionate approach.”

That statement marks a notable shift in tone from previous comments that regulators had made on the state of the crypto market. Earlier this year, the Bank of England issued a warning of an imminent crackdown on bitcoin and other cryptocurrencies, citing that these “inherently risky” currencies failed to fulfill their basic obligations as money and alternative forms of legal tender.

Just last month, a task force formed with representatives from the Ministry of Finance, the Bank of England, and the Financial Conduct Authority (FCA), recommended a ban on the retail sale of derivative products linked to cryptocurrencies.

However, things seem to have eased up a bit, and promise to remain that way unless the market takes an unexpectedly feverish turn. In the meantime, Christopher Woolard, the Executive Director for Strategy and Competition at the FCA, said the agency would by the end of the year examine the “grey edges” around the current regulatory framework.

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Crypto Exchanges Begin to Disregard Bitcoin Cash SV After Block Reorg

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Bitcoin Cash SV, the hard forked chain of Bitcoin Cash created by a camp composed of CoinGeek, Calvin Ayre, and Craig Steven Wright, suffered a block reorganization.

However, as reported by Bitcoin Unlimited chief scientist Peter Rizun, CoinGeek allegedly reorganized its own blocks.

Emin Gun Sirer, a professor at the prestigious Cornell University, stated that in a decentralized blockchain protocol, a self-block reorganization should not be possible.

Heavy Criticism Against Reorg

The motivation behind the self-reorganization of SV blocks initiated by CoinGeek remains unclear, especially given that major cryptocurrency exchanges like Kraken had already signaled that SV was on a short leash.

Cornell professor Emin Gun Sirer stated that the ability to invalidate one’s own block suggests the system employed by SV is both centralized and poorly designed.

“More The miner who overwrote block 557301 was the same miner who overwrote it in the first place. BSV have no idea what they are doing. You all knew this. Don’t invest with a conman. Not much else needs to be said on this front. This should not be possible in a decentralized system. You can only invalidate your own block and create a new tail if you’re the majority miner. BSV is a centralized coin.”

He further emphasized that the development team behind SV does not understand the consequence of its actions and the indication of a highly centralized move to self-reorganize a block.

“Their blockchain’s tail just got rewritten, as if someone ripped out the last few pages and wrote over them. This is an indication that their system parameters are outside the safety envelope of their network. In short, they don’t know what they’re doing.”

Since the hard fork on November 15, the price of Bitcoin Cash SV has dropped from $170 to $66, by more than 61 percent. The cryptocurrency exchange market as a whole dropped substantially in value, but, in contrast, Bitcoin dropped by around 30 percent, and Bitcoin Cash (ABC) dropped by 33 percent.

Risk of Delisting

As a consequence of the controversial decision to reorganize two blocks without solid reasoning to justify the action, Bitcoin Cash SV now faces delisting on several exchanges that fear network instability.

The Kraken team stated prior to the SV block reorganization that investors should be concerned about various red flags surrounding SV.

“Bitcoin SV does not meet Kraken’s usual listing requirements. It should be seen as an extremely high risk investment. There are many red flags that traders should be aware of,” the Kraken team said, citing the lack of support from wallets, miners, block explorers, and representatives threatening other communities.

“Custodial losses taken on due to attacks originating from nChain or its affiliates will be socialized among all BSV holders on Kraken. Given the volatile state of the network and threats that have been made, Kraken cannot guarantee perfect custody of BSV,” the team added.

Many exchanges have already expressed concern towards SV due to miners mining the asset with millions of dollars in losses. Controversial activities on the SV chain could trigger other major exchanges to consider delisting the asset in the near future.

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Stablecoin Wars: Crypto Merchant Service BitPay Lists Paxos Standard

bitpay stablecoin paxos standard

BitPay today expanded its stable of stablecoin offerings for merchant settlement to include the new Paxos Standard, the most heavily traded of the recently-launched group of “regulated stablecoins.”

As CCN reported in October, BitPay has already added support for Circle’s USD Coin and Gemini’s GUSD. It has apparently decided not to support USDT — or Tether –which was the world’s first major “stablecoin” and has the backing of giant fiat-crypto margin-supporting exchange Bitfinex.

In a press release, BitPay CEO Stephen Pair said:

“BitPay is fully committed to transforming the financial industry through blockchain technology. We are furthering this mission by allowing our customers around the world to receive fast and low cost settlement using the USD backed Paxos Standard token. Paxos shares our vision to empower businesses across the globe to secure payments that are fast and stable.”

Merchants Empowered Through Stablecoins

tether cryptocurrency stablecoin

BitPay has from its inception operated on the simple principle that merchants may want to accept crypto tokens, but they don’t necessarily want to engage in the volatile markets that underpin them. They and Coinbase enable merchants to accept payments in Bitcoin, and now other cryptocurrencies as well, and then settle payments in US dollars. They have provided these services since the days when Bitcoin’s total market capitalization was smaller than a large majority of publicly traded and even private companies.

The introduction of stablecoins essentially gives merchants more flexibility in how they realize the gains from their business. While stablecoins are technically a security token, they also are pegged/stabilized to the US Dollar, meaning that merchants can settle the transactions made in cryptos on the backend in these stablecoins and forgo the built-in costs of getting to fiat, and time their moves with more precision. A merchant holding a significant amount of USDC on the BitPay platform today, for instance, might choose to go ahead and buy the now-cheaper Bitcoin.

Merchants have always had the option of keeping their coin, as well.

Backed by itBit, Paxos Standard bills itself as the first regulated stablecoin, as well as the fastest-growing.

“Launched on September 10, 2018, Paxos Standard is the fastest growing stablecoin and has the highest trading volume of any U.S. dollar-backed stablecoin. PAX can always be purchased or redeemed 1:1 with USD by verified customers at or can be traded via global markets against other currencies such as Tether, Binance Coin, Bitcoin, Ethereum, among others. PAX has achieved the fastest and largest global adoption as the first regulated stablecoin, with daily trading volume upwards of $70,000,000 USD.”

The value of the stablecoins goes beyond the flexibility and tangibility they possess, as well. In several cases, they will present themselves as the superior way to move veritable US Dollars in and out of markets with little friction, fees, or duties. Paxos and its peers, for this reason, are unlikely to be the last offerings of this kind, and it will be interesting to see just how many options BitPay eventually offers.

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