OCC “Legitimizes” Crypto and a Fundamental Market Analysis Happy Thursday.
In the event you missed the news which appears to have been the catalyst for the large moves in the market yesterday, Coindesk reports the Office of the Comptroller of the Currency released guidance yesterday affirming the authority of Chartered National Banks in the United States to provide Cryptocurrency Custody Services for their customers in both a fiduciary and non-fiduciary manner.
Banks in US Can Now Offer Crypto Custody Services, Regulator Says
Wednesday’s letter also “reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”
The Ripple Foundation have long sought to replace the current SWIFT system with the Ripple Protocol and Ripple Cryptocurrency (XRP) to settle inter-bank transactions, and this move by the Office of the Comptroller of the Currency may have provided a key win to that effort.
Neo & Bee the First Attempt at Bank-Like Cryptocurrency Services
Seems the space has come a long way since the failed attempt in 2014 of Neo & Bee in Cyprus – a brick and mortar Bitcoin business with bank-like services.
Bank-like Bitcoin Portal Neo Opens First Branch in Cyprus
Neo & Bee had intended to raise 24,600 BTC for its operations at a time when the currency was worth roughly $120. Shares then were publicly traded via Panama-based Havelock Investments, a platform for the trading of bitcoin-denominated shares in companies before being halted amid company turmoil.
According to Coindesk, the CEO Danny Brewster fled the Cyprus and a warrant for his arrest was issued by the Criminal Investigation Department of the Cypriot Police amid allegations of fraud by early Neo & Bee investors.
Seems the Bitcoin/Cryptocurrency bank experiment moves into a new phase in the United States, with nationally chartered banks offering custody services. I’m curious to see if and when crypto accounts become available to depositors at banks and credit unions. Perhaps crypto has finally reached the stage of acceptance.
Total Cryptocurrency Market Capitalization Breaks Trendline Resistance
The Total Market Capitalization for the entirety of the crypto marketplace (as calculated by Tradingview) has steadily declined 42.94 percent from a high of $459.12 Billion as of February 18, 2018, to $261.959 Billion as of July 5, 2020. However, on July 20 things changed significantly with a Market Cap spiking $7 Billion over a two-day period.
The $7 Billion USD value of the spike is not in and of itself significant. However, the spike decisively broke declining trend line resistance which was established in February 2018, and that is very significant.
Within 24 hours after the decisive break of the MCap trend line, news from the Office of the Comptroller of the Currency broke and PA spiked hard. However, in my opinion, the PA remains subdued given a 5.2% increase in Total Market Capitalization within a 48-hour period poured into the market. Currently MCap remains flat, but it absolutely deserves a close eye over the coming days and weeks given nationally chartered banks and their depositors now have the potential to enter the cryptocurrency marketplace.
Declining Bitcoin Dominance
Bitcoin Dominance as a percent of Total Market Capitalization has declined from a high of 72.79 percent as of September 5, 2019 to 65.43 percent as of July 5, 2020. Since that time Bitcoin Dominance has largely been trending down and currently rests at 62.97 percent.
During the ICO heyday on 2017, Bitcoin Dominance fell from 95.79 percent on January 1, 2017 to a low of 36.62 percent on January 13, 2018 – just over one full year. These facts would seem to suggest a couple of things:
The increase of MCap combined with material decline in Bitcoin Dominance suggests new capital is choosing Altcoins over Bitcoins. Based upon comments by Jeremy Allaire of Circle earlier this year regarding the explosive growth in stablecoins , I suspect a vast majority of this capital is parked in USD pegged stablecoins (such as USDC and USDT). His comments suggest those stablecoin investors are not focused on deploying that capital into Bitcoin and other cryptocurrencies. Rather, they seek to use stablecoins as a solution to dollar shortages worldwide and provide alternative payment methods to SWIFT and credit cards. This could potentially signal static and/or lower Bitcoin prices over the near term as Altcoin season peaks, should stablecoins dominate the MCap of the Altcoin Market.
The prior trend during 2017 suggests “Altcoin Season” (represented as a material decline of Bitcoin Dominance) peaks approximately one year before reversing. The current material decline started September 5, 2019, which would suggest “Altcoin Season” should peak in September 2020 if the prior trend from 2017 is a viable reference.
The prior material decline of Bitcoin Dominance during the 2017 Altcoin Season reversed at 36.62 percent of Total Cryptocurrency MCap, which would imply Bitcoin could see a potential MCap decrease of 20 percent before the current trend reverses. Unless material capital inflows enter the market and significantly boost Total Cryptocurrency MCap, it would suggest BTC price should decline lockstep over the near term as capital flows out from Bitcoin into Altcoins over the near term.
The guidance issued by the Office of the Comptroller of the Currency has legitimized cryptocurrency in a fundamental way crypto advocates have long dreamed and hoped for - even if traditional banking institutions do not rapidly embrace development of products and services for retail depositors. More importantly, this signals a fundamental change in banking is potentially on the horizon, providing an opportunity for a more mainstream adoption crypto advocates have long dreamt about. Where that potential future capital flows in the Crypto Marketplace will say much about what the future of cryptocurrency will be.
Always remember this is not trading advice.
Outside of that, Happy Trading.
