Planting coins: Eleventh report

Management Summary

• August ended with a negative performance of -12.7%
• Both quantitative indicators and psychological factors point to a trend reversal in the near future
• Cryptocurrency holdings moved in lockstep and did not result in any rebalancing

What is the crypto investing series? 

This blog post is the twelfth report since the initiation of our crypto portfolio Planting Coins. Read more about our crypto portfolio framework here. Don't forget to sign up to our newsletter to get the next reporting straight in your mailbox! 

Is the Crypto Winter over?

Market indicators point to a possible trend reversal

The crypto market has been mainly characterized by setbacks in recent months, with the exception of January. After a long period of uncertainty, but at the same time volatility that is now also historically low, there are signs that times might be changing. In today's post, we will take a closer look at how some key indicators suggest that the crypto winter may be coming to an end and the market is repositioning itself.

Low velocity of circulation and long-term outlook

In recent months, a remarkable behavior has occurred in the crypto market: Investors are holding their cryptocurrencies longer and seem to be using them less for transactions. This could indicate a changing outlook, with investors increasingly speculating on long-term appreciation.

Velocity of Bitcoins Confirming the Crypto Winter 

Velocity is a measure of how quickly units are circulating in the network and is calculated by dividing the on-chain transaction volume (in USD) by the market cap, i.e. the inverse of the NVT ratio. (Source: Glassnode)

Low volatility and strengthened confidence:

Volatility, which often accompanies cryptocurrencies and can lead to large price swings, has increasingly decreased in recent weeks, reaching new lows. This reduced volatility could lead investors to become more confident in the market and tend to hold their cryptocurrencies longer. We will see if this increased confidence indicates a possible turnaround.

Annualized Realized 1-Month Volatility Approaching All-Time-Lows 

In the above chart the realized volatility is measured with the standard deviation of returns from the mean return of a market. High values in realized volatility indicate a phase of high risk in that market. It is measured on log returns over a fixed time horizon or over a rolling window to obtain a time-dependent observable. While implied volatility refers to the market's assessment of future volatility, realized volatility measures what happened in the past. (Source: Glassnode)

Psychological market phases in context:

The psychological phases of the market, including greed, fear, and disbelief, can be related to current market conditions. The often-cited Wall Street Cheat Sheet of the Psychology of the Market Cycle is used for this purpose. According to the current movements in the markets, the crypto winter situation is confirmed, and the Disbelief Phase seems to be confirmed at the moment. An indication that this phase is coming to an end and the first glimmers of hope are becoming visible can be interpreted, for example, from the price reaction of bitcoin after the announcement of the spot ETF filing by Blackrock.

Psychology of a Market Cycle: Are we Observing Disbelief? 

Potential implications going forward:

Despite the indicators pointing to a potential turnaround, it is important to remain aware that the crypto market remains volatile and complex. The past is no guarantee of the future, and we will repeatedly emphasize how investors should remain prudent. A broad range of information and comprehensive analysis are necessary to make informed decisions. Accordingly, we intentionally continue to invest in a diversified, equally weighted basket within our crypto backyard.

While the crypto winter may be nearing its end, it is critical to understand the nuances of the market. Current indicators suggest that the market may be repositioning, but the potential for uncertainty remains. Investors should be aware that the crypto market is unpredictable and cautious approaches are required. The future could be exciting, but informed decisions are paramount. Should you participate in a conversation.

Cryptocurrencies move in lockstep

The portfolio was launched on November 2, 2022 at 7 p.m. CET, just before the events surrounding the FTX crypto exchange. The data of this report is as per September 1st, 2023 at 7:30am CET.

Positive performance of -17.7% since last update

August was characterized by the first minor setbacks, especially in Bitcoin, which could not defend its 30k USD mark, and a subsequent larger setback in the middle of the month. Here, the whole market saw the most significant losses since the collapse of FTX, especially in terms of futures liquidations. Obviously, some investors expected the beginning of the crypto spring too early.

Understanding the dynamic flow of money in crypto

Interestingly, not least due to the strong futures exposure, the larger losses resulted in the large cap coins than in the already heavily beaten altcoins.

Staking rewards continue to contribute significantly to the overall performance of the portfolio, with Ether also now yielding more than 3% gross return.

Staking rewards continue to play an important role...

The total Staking Rewards are still held in the respective coins, which brought a return of 4.0% in the first good 9 months.

...contributing 3.8% yield in USD after 303 days

Disclaimer: This piece of information is for marketing and entertainment purposes only and should not be taken as an investment recommendation. Remember that all investments involve risk. Please read our full Marketing Disclaimer here.