Crypto Winter Continues: Is a Thaw Coming?

November was a rough month for cryptocurrencies, as the bear market - which has lasted for most of this year - continued.

The broader cryptocurrency market lost close to 40% of its value during the period, as measured by the MVIS CryptoCompare Digital Assets 100 Index (MVDA), a key benchmark based on the value of the top 100 largest digital assets.

Bitcoin 

This widespread decline was led by major digital currencies like bitcoin, which fell roughly 37% that month, according to CryptoCompare data. The world’s largest cryptocurrency by market value dropped to as little as $3,550.04 in November, down 44% from its starting price of $6,347.39.

Bitcoin made plenty of headlines in November, generating visibility after falling to its lowest price in more than a year. At this level, the cryptocurrency was down more than 80% from its all-time high of nearly $20,000.

Bitcoin Cash 

Bitcoin cash, a fork of the original bitcoin protocol, also had a very interesting month. Bitcoin cash underwent a hard fork on November 15, at which point it split into two camps - bitcoin ABC and bitcoin SV, which stands for Satoshi’s vision.

Although there were threats that the bitcoin SV camp would mount a 51% attack on bitcoin ABC, this never came to pass. At any rate, the value of both bitcoin cash chains declined, as bitcoin cash ABC finished the month down roughly 60% at $167.41 and bitcoin cash SV fell nearly 80% in November.

Ether 

Ethereum, which has at many times been the world’s second-largest digital asset, also suffered notable losses, losing approximately 49% between the start of November and the end. During that stretch, it fell from $197.63 to below $100.

The cryptoasset, which has been a staple of initial coin offerings (ICOs), finished November down more than 90% from its all-time high of more than $1,400, a level reached in January.

EOS

EOS, a digital token that powers a decentralized application platform, lost a significant amount of value during the month, falling roughly 43% in November. In this time, the token dropped from $5.25 to $2.97.

This performance contrasted with the relative stability that EOS enjoyed in October.

XRP

XRP, the digital token created by Ripple’s founders, fared better than many other major digital assets, losing only 20% during the month. After starting out November at $0.4519, XRP finished the period at $0.3615.

Technical Selling 

The cryptocurrency market experienced some notable events in November, for example the bitcoin cash hard fork and comments made by U.S. Securities Exchange Commission (SEC) chairman Jay Clayton that the market needs to make some key improvements before the government agency can approve a bitcoin exchange-traded fund (ETF).

Individually, these developments did not have enough strength to cause significant price movements, but together, they triggered “one clear technical move,” said Mati Greenspan, senior market analyst at social trading platform eToro.

“We can conclude that the only real reason for the drop in prices was a technical breakout” below $6,000 per coin, he stated.

Jon Pearlstone, publisher of the newsletter CryptoPatterns, offered a similar take on the matter.

“Losing a support level that has held for nearly a year is a major event for Bitcoin, and this was confirmed when Bitcoin broke key support in $6000 range during November and proceeded to fall nearly 50%.”

Joe DiPasquale, CEO of cryptocurrency fund of hedge funds BitBull Capital, also spoke to this key price level.

“At BitBull, we repeatedly said that the more the $6K support line was tested, the more likely it would be to break. After being tested over 10 times in the last year, it broke.”

Sentiment’s Key Role

While some analysts pointed to technical analysis when explaining the crypto market’s sharp drop in November, others emphasized that the feelings of traders can drive these price movements.

Ken Kavanaugh, a crypto entrepreneur and advisor, summed it up nicely:

“You'll hear a lot about support levels and fibonacci sequences. But sentiment is still the primary driver of price swings with an asset class that doesn't offer much visibility into the fundamentals, i.e. usage figures and other traditional leading indicators of value creation.”

He emphasized the prevalence of negative articles, which in some cases predict that crypto markets will suffer additional pain. While many digital currency enthusiasts will be undeterred by this, the investors who helped fuel the ICO boom may have a completely different reaction, believing “their best move is to cut their losses.”

Joshua Frank, co-founder of cryptocurrency analytics platform TheTIE.io, provided some data that helped shed some insight into market sentiment. He stated that:

“November was the first month where the average unnormalized sentiment score per tweet for a particular cryptocurrency was actually negative.”

He continued, emphasizing that “There is a strong positive crypto bias on Twitter, so when computing sentiment scores on TheTIE.io we have to normalize the data.”

The chart below display unnormalized sentiment values:

Cryptocurrency sentiment analysis

 

Frank added that:

“the average tweet on Bitcoin Cash was negative in November, this is not something that we have ever seen before. While we saw close correlation between the average sentiment of the top 5 coins in October, we saw a clear divergence in November as BCH dropped negative. The overall average sentiment score per tweet for the universe also dropped and the average sentiment per tweet of Ethereum is now at its lowest point of 2018.”

He further emphasized that bitcoin’s long-term sentiment has been negative since November 6 and extremely negative since November 18. The chart below displays these developments:

Bitcoin cryptocurrency sentiment

Is Spring Coming?

While the crypto market seems to have entered a deep freeze, this situation will probably not thaw out soon, said Matthew Unger, CEO and Founder of iComply Investor Services. He noted that “The markets need certainty and many ICO issuers and crypto funds are facing pressures from multiple angles.”

The sharp drop in the value of digital currencies “leaves projects with very little gas in the tank,” he stated, as many startups raised funding by accepting ether, which has plunged over the last several months. Unfortunately, the market might get better before it gets worse, predicted Unger.

“We are aware of over 400 regulatory actions underway, unfortunately the crypto-winter is likely heading into a deep freeze until these tokens are rehabilitated to meet the existing regulations.”