Cryptocurrencies Poised to Resume Bear Market
Earlier this year, the Cryptocurrency Sector was on the verge of experiencing two “Crash” type events in a very short period of time: something we referred to as a possible “Double Crash” (http://markonomics101.com/2018/03/27/cryptocurrencies-poised-for-historic-double-crash/). While this “Double Crash” did not materialize, the Cryptocurrency Sector’s rally off the Spring lows has been subdued and once again price levels are barely above major support levels.
The total Market Capitalization of the Cryptocurrency Sector, as measured by the website Coin Market Cap (http://www.coinmarketcap.com), hovered just above support at $285 Billion in Tuesday evening’s trading. This puts the sector only about 18% above its 2018 Bear Market Lows of $242 Billion, reached in late March and early April.
The large chart, of the Total Market Capitalization for the Sector, immediately below, illustrates the importance of the $242 Billion to $285 Billion range which has contained prices since February. The upper RED LINE, at $285 Billion, has only been breached briefly during the Bear Market lows in early Spring. The violation of the LOWER support line at $242 Billion would usher in a new leg in the 2018 Cryptocurrency Bear Market.
Below the larger Sector Graph are 8 of the higher market capitalization issues including Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), Monero (XMR), Digital Cash (DASH) and IOTA (IOT). Not one of the 8 is rated BULLISH, while 7 of the 8 are either Turning BEARISH or BEARISH.
Cryptocurrencies are extremely highly correlated. The 8 issues charted above have traced out eerily similar type triangle patterns, 5 of which have ready broken down, 2 are on the verge of breaking down and only one, Ethereum, is still neutral. The weakness among these individual issues suggests that the entire sector is ready to move lower in concert and reach lower lows in the second half of 2018. A very interesting and informative site called Sifr Data (http://www.sifrdata.com), measures the correlations between the most active individual issues as well as that with other asset classes. The chart below presents 90-day correlation matrix numbers for Cryptocurrenciess and four other asset classes.
These correlations between the individual Cryptocurrencies are not only EXTREMELY high, they are among the highest ever recorded within an asset class. Using Bitcoin as an example, and moving left to right across the top row, it’s correlation with Ethereum (ETH) is an almost unheard of .88, with Ripple it is .86 and so on. In stark contrast, BTC’s correlations with stocks other assets, as measured by the S and P 500, stock volatility (VIX), Gold (GLD) and Ten Year Treasuries (TNX) are all very low. Why is this important? This matrix suggests and actually mathematically demonstrates that Cryptocurrencies cannot be well diversified. In a BEAR MARKET scenario, the only way to mitigate risk is to hedge using Bitcoin futures.