| 1Monthly Review: January 2020

CoinDesk Monthly Review

January 2020

| 2Monthly Review: January 2020

In our Quarterly Review at the end of 2019, we looked for metrics that signal two things:

1. institutional participation in crypto assets

2. a handful of fundamental user narratives that justify the long-term case for crypto asset appreciation

January 2020 saw some metrics that are positive for both. First, the market for regulated bitcoin derivatives expanded rapidly, to levels near its July 2019 peak. Second, the case for bitcoin as “digital gold” got a brief boost after events in Iran appeared to spark a rally. Conclusive evidence of bitcoin’s safe-haven viability remains elusive.

Beyond digital gold, crypto assets continue to impress as assets offering global access to speculative instruments. However, exchange operators, among the largest beneficiaries of that use case, have failed to capture it with exchange tokens. We revisit speculative metrics from 2019 and add exchange token returns and correlations as potential new metrics for measuring this use case. Finally, from our Q4 2019 look ahead to the key issues of 2020, we examine SEC enforcement actions at the start of the year to see how regulatory battle lines are being drawn.

Introductorynote

| 3Monthly Review: January 2020

Regulated bitcoin futures open interest & BTC-USD price vs. time

Bitcoin Price (USD)Weekly Open Interest (BTC)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Jan ’19 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan ’20 Feb

Price

Open Interest

We base our measure of financial institutions’ crypto asset the size of the regulated crypto derivatives markets. That metric was lukewarm in the latter half of 2019, but in the first month of 2020 it surged to levels near its July 2019 peak.

Institutional activity surges

Source: CFTC and skew.com

| 4Monthly Review: January 2020

BTC & gold, January correlations of daily returns

BTC & gold, July-January correlations of daily returnsThere’s some evidence that events in Iran motivated bitcoin buyers, but that’s far from establishing consistent treatment of bitcoin as a safe haven, as some analysts have sought to do. Evidence of that remains vaporous: Even short-term positive correlations between bitcoin and gold daily returns, coinciding with events in Iraq and Iran, have been exceeded by similar swings in the past seven months. And there is zero evidence to support mounting safe-haven sentiment around bitcoin related to an outbreak of coronavirus in China.

1/311/301/291/281/271/261/251/241/231/221/211/201/191/181/171/161/151/141/131/121/111/101/91/81/71/61/51/41/31/2

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%Correlation (%)

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%Correlation (%)

Jul Aug Sep Oct Nov Dec Jan ‘20 Feb

7-day

7-day

120-day

120-day

60-day

60-day

20-day

20-day

1/311/301/291/281/271/261/251/241/231/221/211/201/191/181/171/161/151/141/131/121/111/101/91/81/71/61/51/41/31/2

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%Correlation (%)

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%Correlation (%)

Jul Aug Sep Oct Nov Dec Jan ‘20 Feb

7-day

7-day

120-day

120-day

60-day

60-day

20-day

20-day

Source: London Bullion Market pm gold fixing price via Bloomberg & CoinDesk Bitcoin Price Index

Bitcoin’s Iran story is short-lived and inconclusive

| 5Monthly Review: January 2020

Exchange tokens & BTC monthly avg correlation (30d) of daily returns

Exchange token prices & exchanges’ reported daily volumes, monthly avg correlation (30d)

“Digital gold” isn’t bitcoin’s only user story. Contrary to popular belief, exposure to volatility is a legitimate use case for crypto assets. In the Quarterly Review, we looked at tether volumes and returns on crypto assets as measures of crypto’s speculative use. In this section, we look at

“exchange tokens,” issued by crypto exchanges, as potential bellwethers for this use case—and find them disappointingly more correlated with bitcoin, and less correlated with exchange volumes. See our research note on exchange tokens for a more in-depth treatment.

Exchange tokens tell us little about speculative activity...

Correlation (%)

BNB

BNB

HT

HT

LEO

LEO

OKB

OKB

-40%

-20%

0%

20%

40%

60%

80%

100%

-40%

-20%

0%

20%

40%

60%

80%

100%

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan ‘20 Feb

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan ‘20 Feb

Correlation (%)

Correlation (%)

BNB

BNB

HT

HT

LEO

LEO

OKB

OKB

-40%

-20%

0%

20%

40%

60%

80%

100%

-40%

-20%

0%

20%

40%

60%

80%

100%

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan ‘20 Feb

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan ‘20 Feb

Correlation (%)

Source: Nomics prices & volumes; FTX list of exchange tokens

| 6Monthly Review: January 2020

1-month returns 3-month returns 6-month returns 9-month returns 12-month returns

Vs BTC Vs USD Vs BTC Vs USD Vs BTC Vs USD Vs BTC Vs USD Vs BTC Vs USD

BNB 2.20% 29.00% -11.50% -12.50% -31.20% -32.70% -52.50% -15.80% 8.70% 196.50%

HT -3.00% 22.50% -9.10% -15.60% -26.10% -27.70% -15.20% 50.50% 38.10% 276.70%

LEO -56.90% -44.10% -59.00% -55.20% -92.20% -92.50% -98.20% -96.70% -98.70% -98.70%

OKB -4.60% 20.50% 6.90% 5.60% 20.10% 17.50% 13.70% 101.80% 98.80% 442.50%

Exchanges are reportedly among the top revenue producers in crypto. Investing in an exchange token is nothing like an equity investment in Wall Street’s top-earning firms, but investors might at least expect returns commensurate with exchange profits. Returns, however, have been mixed, as our table shows. More on this in our research note on exchange tokens.

...and exchange tokens often haven’t performed well

BitMEX total daily liquidations vs. time

Source: Nomics

| 7Monthly Review: January 2020

Performance of top crypto assets,* January 2020 (percentage change month-to-date)Bitcoin SV and bitcoin cash outperformed bitcoin in the first month of 2020. There were 20 crypto assets (excluding stablecoins and assets that launched intra-year) with over $5 million in verified daily trade volume (per Messari, whose “real” volume metric is among the most conservative). All except one cryptocurrency, waves, saw positive returns in the month of January.

Best and worst performing coins of the month -15.4%

14.4%

20.2%

28.7%

29.0%

29.3%

34.4%

34.5%

37.1%

42.2%

44.7%

50.0%

53.7%

66.8%

87.2%

108.9%

171.7%

176.9%

192.6%

7.0%

Waves

VeChain

Tezos

Beam

NEO

Bitcoin

Qtum

Stellar

Ethereum

Ontology

TRON

Litecoin

Monero

EOS

Cardano

Bitcoin Cash

Zcash

Ethereum Classic

Dash

Bitcoin SV

Source: Messari Pro

* Real 24-hour volume > USD $5 million; excluding stablecoins and assets that launched less than one year ago. Data as of Jan. 31, 2020.

| 8Monthly Review: January 2020

Number of SEC actions against token offerings by year

2020 YTD 20192018201720161 1

1

6

8

21

3

4Total: 1 Total: 1

Total: 7

Total: 16

Total YTD: 2

2014 2015 2016 2017 2018 2019Year Token Sale Ended:

Looking ahead to the issues that will shape 2020, we are watching regulatory battle lines closely. The pace of fines by the SEC against token offerings is growing. The SEC began the 2020 with two new actions, both against offerings completed in 2018. It’s early, but that puts the regulator on pace to exceed the number (16) of actions in 2019.

Source: Hunter Taubman Fischer & LI LLC, SEC.gov, and PACER.gov

SEC action against token offerings in January 2020

| 9Monthly Review: January 2020

Thank youCoinDesk Research is an investor-focused team of crypto data analysts, engineers and writers. Our aim is to build products, innovate metrics and create editorial content that serve all types of cryptocurrency investors. For more reports on the crypto investing landscape, visit coindesk.com/crypto-investment-research. You can get in touch with us to learn more at:

E: research@coindesk.comT: @coindeskdata

Special thank you to all the data providers who generously provided data for this report, some of which was not explicitly featured. We thank: Bloomberg, CFTC, FTX, Hunter Taubman Fischer & LI LLC, Messari, Nomics, PACER.gov, SEC.gov and Skew.

This report has been prepared by CoinDesk solely for informative purposes. It should not be taken as the basis for making investment decisions, nor for the formation of an investment strategy. It should not be construed as investment advice or as a recommendation to engage in investment transactions. The information contained in this report may include or incorporate by reference forward-looking statements, which would include any statements that are not statements of historical fact. No representations or warranties are made as to the accuracy of these forward-looking statements. Any data, charts or analysis herein should not be taken as an indication or guarantee of any future performance.

Information is based on sources considered to be reliable, but is not guaranteed to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of the date of publication and are subject to change without notice. Trading and investing in digital assets involves significant risks including price volatility and illiquidity and may not be suitable for all investors. The authors may hold positions in digital assets, and this should be seen as a disclosure of potential conflicts of interest. CoinDesk will not be liable whatsoever for any direct or consequential loss arising from the use of this information.