Key Factors Influencing Bitcoin and Crypto Markets – A Look Back at 2019 for the Year Ahead

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Summary

• Bitcoin beat major asset classes in 2019 despite the fluctuations.

• Ex-BTC market cap ended flat, but smaller altcoins outperformed.

• Key themes to watch: Halving, DeFi, CBDC, and more.

Bitcoin outperformed major asset classes massively in 2019 despite a volatile market condition. The performance highlights bitcoin’s character as an effective hedge of global risks and stagnation, as well as a high return risk-on asset.

With a simple buy-and-hold strategy, Bitcoin was able to give investors a 90% yearly return in 2019. In comparison, the Nasdaq, one of the best performing market indexes globally, surged 38%, while the SPX rose about 30% annually. However, despite the outstanding performances, those numbers look small when compared to Bitcoin’s return.

We also see a similar story in the commodities space. WTI and gold both performed well in 2019, especially in the first half of 2019. The two leading commodities generated 38% and 21% yearly returns, respectively. Still, the numbers are way below Bitcoin.

Bonds did not even come close. The 10Y yield closed at around 1.9% at the year-end, after touching the historic low of 1.4% in September.

Rising geopolitical tensions, global trade frictions, political unrest and uncertainy are some of the major themes that dominated the global market in 2019. We’ve seen the US-China trade negotiations have driven investors’ expectations in between having a deal and a full-blown trade war.

The Brexit saga has created skepticism on the future growth of the UK. In addition to the unrest around the world, investors may have struggled to find decent returns in such a challenging investment landscape. These circumstances were likely catalysts for Bitcoin’s price action in 2019.

Moreover, the dovish shift of global central banks could be another piece of the puzzle here. Data shows that there were over 20 central banks around the world that cut their benchmark interest rates in 2019, affected by the slowing economic expansions and lower inflation expectations.

The Fed, the RBA and the RBNZ each delivered a 75 bp-cut in 2019. While the ECB only cut 10bps, it restarted its asset purchase program.

Less volatile but still…

Price volatility remains one of the focuses for crypto investors, and our data suggested that BTC has been less unstable on a monthly average basis, although it has still fluctuated.

BTCUSD Index produced a monthly range of 1342.61 in December, which brings the 2019 monthly range average to 2653.183.

The number is somewhat lower than the 2018 average but higher than in 2017. From that aspect, BTC prices fluctuated less in 2019; however, BTC largely remained highly speculative.

Despite demand from speculators, we think the predictability of BTC prices somewhat improved in 2019, thanks to the rapid expansion of BTC derivatives trading. The swift development of futures, options, and perpetual swap markets has significantly enhanced the price discovery process in Bitcoin, especially with the increasing participation of institutional investors.

We expect institutions’ involvement will continue to drive the crypto derivatives markets in 2020. At the same time, retail investors also benefited from the improving availability and transparency of trading data and market information.

Altcoins back to where they started

It’s a very different story in the altcoin space in 2019. The total crypto market cap excluding BTC started at  $52.66 billion at the beginning of 2019. It reached over $140 billion in mid-June, and that’s when BTC hit its yearly high of $13,330 levels. However, as BTC retreated, the ex-BTC market cap gave up most of its gains in the first half of 2019 and finished the year at $55.90 billion.

Despite the flat yearly performance, mid/small-cap altcoins stole the spotlight as some of the smaller tokens have outperformed their bigger peers, and this became noticeable in the second half of 2019.

In our previous publication 2019: “Alt-Season” has come…and gone, OKEx Perspectives pointed out that the shift of speculation demand, changes in investment appetite, and lacking institutional interest may have contributed to this altcoin divergence.

Looking ahead, leading altcoins could set to make a turn at the beginning of 2020. Value-driven traders and investors could refocus on this segment as a lot of them were already at/near recent lows.

Additionally, the potential sentiment shift led by the positive expectation of halving could also reverse part of the negativity in large-cap altcoins.

Moreover, the swift expansion of DeFi is set to be a game-changer for tokens such as ETH. No doubt that MakerDAO was the cornerstone of the whole DeFi development in 2019. It takes up half of the entire DeFi world in terms of total locked value. However, markets expect that other players such as Synthetix and Compound will continue to catch up in the DeFi game. Regardless of who will be catching up faster, the continuing growth of DeFi could further shrink the circulating supply of ETH, which is considered to be an underlying bullish factor for ETH prices in the long-term.

Conclusion

There was quite a lot of exciting development in the crypto space in 2019. Decentralized finance, central bank digital currencies, China, Libra, Bitcoin ETF proposals, and regulatory challenges – these are some of the key themes that shaped the cryptocurrency space in 2019.

We believe all these factors will continue to influence the markets. We could see the DeFi system becoming more diversified. The first CBDC could be born in 2020. China could play a more proactive role in blockchain applications. Libra could still be launched despite global regulatory challenges. Markets may inch closer to a real Bitcoin ETF. Aside from Bitcoin’s halving event, the increasingly crowded derivatives markets and the growing institutional interest in crypto is setting up 2020 to be an exciting year for crypto watchers and investors.

This post originally appeared on Medium. Read more.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

About OKEx

OKEx is a world-leading digital asset exchange headquartered in Malta, offering comprehensive digital assets trading services including token trading, futures trading, perpetual swap trading and index tracker to global traders with blockchain technology. Currently, the exchange offers over 400 token and futures trading pairs enabling users to optimize their strategies.

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