'Mystery Sell-Offs' Are Common In Crypto

Single factor with limited care for price impact could weigh on the market
Low volume and liquidity season
Can't prove causation between the on-chain activity and price declines
Crytpo and Bitcoin Market Cap Story of Day

Crytpo and Bitcoin Market Cap Story of Day





On Monday, Crypto Security & Research Firm Chainalysis Released A Report On The Unwind Of PlusToken, Which Is Described As A Scam - The Paper's Hypothesis Is That The Sales From The Alleged Crooks Are Weighing On Crypto Markets - While The Paper Is Well Researched, The Author's Are Not Traders - While We Do Not Outright Agree With The Paper's Implied Conclusions Around Price Impact We Would Describe The Points Highlighted As 'Good To Know'

Monday, around 1:15 PM EST crypto markets began to weaken with bitcoin (BTC) dropping below USD 7,000 and alt-coins underperforming. Four hours prior to the move crypto security analytics firm Chainalysis released a comprehensive report outlining the Chinese-based PlusToken, what Chinese media has described as a scam attracting USD 3B equivalent of cryptocurrency (the platform appears to have been shut in June 2019 but the perpetrators remain at large). Chainalysis claims to have tracked 180k of BTC (USD ~1.3B) and 6.4M ETH (USD ~865M) and some small balances of other coins that were sent to the PlusToken wallets. Chainalysis has continued to track these balances. Over a period of about 6-months and plenty of obfuscation using thousands of coin wallets, about half of the tracked coins have been liquidated. The peak in on-chain activity from the tracked coins occurred in late September 2019, the most significant drawdown of the year. While the paper concludes that ultimately one cannot prove causation between the on-chain activity and price declines, the authors believe that, given about half of the coins remain outstanding, caution is warranted.

Crypto Takeaway: During Monday's weakness, at first glance, we had assumed the activity was a low-volume, 'mystery sell-off' which are common in crypto. That said, with the markets as thin as they have been this fall it is plausible that a single factor with limited care for price impact could weigh on the market.

There are two elements, however, which we feel downplay the importance of the PlusToken unwind on the price of BTC/crypto. First, while the scammers primarily hold BTC, BTC dominance has continued to be on the rise throughout 2019 and this fall. During yesterday's sell-off, for example, BTC was down less than 3% while alt-coins were down in the range of -10%. This is inconsistent with what one would expect from a liquidation of a single (or two) coin(s). Second, the market activity since September does not look particularly unusual. BTC has gradually traded down to the mid-term uptrend above USD 6,000 and has seen mostly consolidative flows over the period.

Bouts of volatility, such as those seen in late September and yesterday, have come after prolonged declines in realized and implied vol levels which is also typical for BTC. Ultimately, while the paper is well researched and such items are, 'good to know' this analysis is unlikely to play a major role in our short or mid-term price-models.

About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets.