Coinshares 2019 Encryption Report for the First Half of the Year: Institutional Investors Are Pushing Bitcoin Bull Market (Full Text)

On July 15, digital asset management company Coinshares released a research report on digital assets in the past six months. In this report, Coinshares made a detailed analysis of the market situation in the first half of 2019. The report not only mentions the recovery of the entire market compared with 2018, but also interprets the large institutions such as Fidelity, Bakkt, and Facebook this year. Layout and impact, and focused on the four cryptocurrencies of BTC, ETH, XRP, and LTC.

The following is the full text of the Encryption Report:

Behind the hype, speculation, and public imagination of this emerging asset class, there are some fundamental factors: these indicators provide critical insights into market dynamics, investment patterns, and the overall development of these exciting new technologies. At CoinShares Research, we strive to refine this information for readers; separate signals from noise and provide clear, understandable and relevant insights to keep up with one of the fastest growing industries in our time.

The Encryption Report is designed to educate, inform, and inspire new ideas for readers because we cover the world's largest, fastest growing, and most technically interesting four encryption assets.


It's hard to imagine that this year's start will be more difficult than last year.

With the resale in November 2018 in a wide range of markets, the encryption market is in a downturn, not only causing panic among novices, but even experienced veterans of encryption are calling for further market bottoming.

Many experts speculate that this is not only the beginning of a long-term bear market, but also that the encryption market cycle is also prolonged. This recession will be the longest and most brutal one ever.

But they are all wrong, and their mistakes perfectly illustrate the immaturity of our collective knowledge in this field. It also reminds people that forecasting based on price data is a daunting task.

However, not everyone is caught in despair and frustration. Delphi Digital has released an impressive (and bullish) bitcoin analysis report in the research focus that is about to emerge from the panic phase. The report uses UTXO's empirical data, which correctly predicted the bottom of Bitcoin in the first quarter of 2019, based on the historical accumulation and distribution patterns of Bitcoin holders.

In short, their data shows that bitcoin buyers in the previous bull market did not transfer their bitcoins to the exchange, but held them in a cruel price environment. This type of analysis is unique to cryptocurrencies, especially those that use the UTXO model to track balances. In the CoinShares study, we continue to track the development of these new methods with great interest.

In our portfolio of reports, Liteco was the first to lead the recovery in the middle of the first quarter. Affected by the halving of the Litecoin award in August 2019 (half now), Liteco broke the price decline in early February, rising sharply by 281% in the first half.

As Delphi predicted, just after the end of the first quarter, the bitcoin market quickly entered a positive recovery mode, and the altcoin also experienced a collective increase, but the increase was much smaller.

The Bitcoin market has mercilessly rejected the traditional “alt season” call, and the rise in bitcoin prices has grabbed everyone’s attention, at least so far this year. Although many altcoins have risen sharply from their respective bottoms, the opportunity cost of encryption is measured in bitcoin. So far, almost all of the altcoins in 2019 have been devalued by bitcoin.

There is no shortage of speculation about the reasons for the strong recovery of Bitcoin. As usual, we are not sure what it really is driving the rally, but there are some interesting data points that might explain this trend.

The four factors that existed in the bull market in 2017 were clearly missing in the current bull market: widespread media attention; the surge in “bitcoin” searches on Google; the surge in bitcoin tweets; and the rise in the aforementioned altcoins.

This suggests that compared to 2017, retail investors' interest in Bitcoin is relatively tepid, and suggests that the rise in Bitcoin in the first half of the year was largely driven by the long-awaited institutional funding . Some anecdotal evidence from the Coinshares sales department further supports this assumption.

In terms of legalizing the industry, the agency once again took the lead. To name a few: Fidelity announces its intention to launch an institutional-level Bitcoin hosting service and acknowledges that bitcoin mining has been tried since 2015; Intercontinental Exchange, Microsoft, Starbucks and Boston Consulting The Boston Consulting Group is teaming up to launch Bakkt, a cryptocurrency platform that supports physical settlement of Bitcoin futures and other products.

At the same time, Facebook has also entered the field of cryptocurrency, announcing its intention to launch a "stable currency" app called Libra. This Facebook-powered app is fully integrated with popular Facebook apps like Messenger, WhatsApp and Instagram. Libra’s consortium reads like Silicon Valley’s “Celebrity Tournament”, which includes paying giants PayPal, Visa and MasterCard.

Although Libra is centrally centralized, licensed, based on trust, not resistant to censorship, not scarce, or even a cryptocurrency at all. But it does offer potential benefits to people who don't have a bank account in the world. These people are currently unable to get the services we take for granted in the West, such as online shopping.

As Libra has been resolutely resisted by global legislators, observers are aware of the drawbacks of centralized digital currency. US lawmakers even sent an official letter to Facebook’s office in California calling for an immediate suspension of Libra’s development

However, there is no doubt that Libra's launch marks a watershed in the history of cryptocurrency. The fact that so many well-known corporate names use cryptocurrency as a legitimate technology immediately offsets the negative and ignorant coverage of cryptocurrencies over the years. It further reduces the threshold for countless ordinary people to participate in this space.

In summary, the first half of 2019 should be considered a completely positive period for the development of this emerging industry. The continued professionalism of agreements, services and related technologies is impressive, with most assets rebounding sharply from last year's cruel bear market. Nothing is certain in this area. Things often feel like they are moving at a dangerous speed, but we are very excited about the speed of the industry and look forward to seeing what will come in the next half year.


Aside from the high price volatility, the development of the Bitcoin software stack is still moving at full speed. At the base level, the biggest improvement suggestion is Peter Wuille's Taproot proposal. Specifically, BIP introduces a new SegWit version 1 output type based on Taproot, Schnorr signatures, and Merkle branches.

This is a basic upgrade based on SegWit. Among its components, Taproot has enabled new privacy features that are increasingly important to keep Bitcoin in the face of intrusion chain analysis tools and the government's ability to "blacklist".

The Schnorr signature is designed to completely replace the current ECDSA signature scheme. Among a number of new advantages, Schnorr supports a variety of scalability improvements, especially in the area of ​​multi-signature transactions.

Finally, the proposal includes Merkelised Abstract Syntax Trees (MAST), which adds smart contract functionality to the Bitcoin base layer. Although the proposal is still in a very early stage of review, and Wuille has expressed his desire for a slow and comprehensive community feedback process before discussing any specific implementation methods, it is well known that BIP can be implemented as a soft branch.

The second layer of Bitcoin is also growing rapidly. The three major lightning technologies, lnd, Eclair and c-Lightning, have made significant improvements to their projects in the first half of 2019, and Matt Corallo's Rust-Lightning is also growing rapidly.

Statistics on lightning networks show that in the first half of 2019, the number of lightning network channels continued to increase, from 16217 to 31273 (93%); the number of nodes increased from 2322 to 4495 (94%); total network capacity From 526 BTC to 942 BTC (79%).

In the first half of 2019, especially in the second quarter, Bitcoin mining basically returned to a high-margin state. After the sharp fall in prices at the end of 2018, as high-cost miners were driven out of the network, the difficulty of the mining network has shown its first decline since the advent of industrial mining. With the sharp rebound in prices, profitable miners have once again expanded their business, and the bitcoin hash rate reached a record high at the end of the second quarter, which is a very positive sign.


The first half of 2019 was another six months of development of Litecoin. During this period, the development of Litecoin seemed to focus more on partnership than on agreement.

The Litecoin GitHub repository is still a relatively "ghost town" in the cryptocurrency development community, and the excitement and involvement surrounding the agreement is only lukewarm. Since the beginning of the year, Litecoin GitHub repo has received only 13 submissions, which is incredibly small, less than one-third of the average weekly submission rate for Bitcoin repo.

The most exciting recent Litecoin news is mainly around partnerships.

For example, the Litecoin Foundation announced in June this year that it has partnered with Bibox and Ternio to develop a special version of a physical cryptocurrency debit card. This card will allow users to use Litecoin online and offline, and can be "any place in the world that accepts mainstream credit cards."

Moreover, Litecoin has other positive signs. The price of Litecoin has increased by 281% this year, which is the biggest increase among the four encryption assets discussed in this report. In addition, the online transaction of Litecoin has increased from 20,000 per day at the beginning of the year to the end of June. 30,000 pens. Although this is undoubtedly a positive development, the daily trading volume is still only a small fraction of the peak of late 2017/early 2018, when Litecoin handled more than 100,000 online transactions per day.

In addition, more positive signs can be found in the Litecoin mining network. After the price decline at the end of 2018, the Hach rate continued to decline. Since then, the network has recovered strongly and hit a record high in the Hash rate in the second quarter of 2019.

Litecoin is rapidly approaching its second mining award halved, which will reduce the block reward from the current 25 LTC to 12.5 LTC. Although this may pose a short-term challenge for high-cost Litecoin miners, its inflation rate will fall by half, which may have a positive impact on prices as miners can reduce the number of coins available for sale, thereby reducing continued supply pressure.

(Note: On August 5th, Litecoin was halved. Prior to this, Litecoin once rose more than $100. After the halving, the Litecoin began to fall, and now it is near $90.

Today, according to Tokenvie data, the transaction volume of the Litecoin chain in the past 24 hours was 5682579.71 LTC, up 74.59% from the previous day, and the number of transactions on the chain was 34,001, down 0.84% ​​from the previous day. The number of active and new addresses decreased by 9.96% and 1.29% respectively from the previous day. The real-time computing power of the whole network is 387.99 TH/s, which has been falling for 5 consecutive days. )


The development of the Ethereum protocol is continuing, although the goals and roadmap are changing rapidly. Although there are still significant internal differences between the developers in terms of means and objectives, it seems that Ethereum developers are now planning to completely abandon the current agreement (considered to be Ethereum 1.0) and choose to completely redesign (considered to be Ethereum 2.0 or Serenity) ).

The redesign has a four-stage roadmap that is currently staged “pre-zero”: this phase is intended to include all the “common doubts” of upgrading Ethereum, including POS, sharding, plasma and zk-snarks.

The timeline for this redesign is not fully understood, but we are keeping a close eye on the latest updates. In terms of price recovery, Ether's rebound in 2019 (103%) is more cautious than Bitcoin (188%) and Litecoin (281%), but stronger than XRP (6%).

At the same time, its current status seems to be relatively weak in the historical context, as it has a large decline from the highest historical price (94% vs. 84% of Bitcoin).

In February last year, as part of the hard fork of Constantinople, the Ethereum developer decided to cut the block reward from 3eth by 33% to 2eth. After that, the Ethereine’s hash rate dropped by another six months, which is the second consecutive six-month hash rate of Ethereum – which is undoubtedly a worrying sign, especially with Bitcoin. In stark contrast to the network, despite the severe downturn in bitcoin prices, the bitcoin rate of bitcoin networks has been rising throughout the bear market.

XRP / Ripple


In discussing the development of XRP/Ripple, we re-emphasize that in assessing positive and negative news, keep in mind their separate but intertwined lives.

Ripple's product suite consists of trippleet, xCurrent, xRapid, and xvia—all of which are quickly developed by a large, centralized, centralized management software team and actively marketed by Ripple's strong funding.

Among them, xCurrent is at different stages of the introduction of some leading banks; however, it does not need to use XRP and supports legal tender. The xRapid solution does use XRP, but it's unclear to what extent XRP is being adopted.

The largest XRP holding company, which is much larger than the next XRP holding company, is still centrally controlled by Ripple, who continue to sell as much XRP as possible to meet their own imposed hosting contracts and dump them monthly. Requirements.

Of the four tokens in our portfolio, XRP is by far the worst performer in the first half of 2019. Compared to the rest of the encryption market, only 6% of price increases are extremely weak, especially when you use Bitcoin performance as a market benchmark.

Global policymakers have a positive reference to XRP – such as Christine lagar, president of the International Monetary Fund (IMF) – although it is not entirely clear that these positive views apply to digital assets. XRP, or just for Ripple, their rippleet product suite, or all of the above factors.

The following are 4 cryptocurrency graphic reports for the first half of 2019:

Fig1 : Figure 1 is a simple price chart with trading volume coverage. Price and volume are indicators of investor confidence and market liquidity, respectively. Due to the characteristic shape of the graphic segment, this type of chart is called a candlestick chart. The body of the candlestick represents the price movement between opening and closing, and the "wick" represents the high and low points in the cycle. The market price is shown on the left axis. A single candle can represent the length of any period, but in this report they represent a week. Because the cryptocurrency market is never closed, the open and close times are set to midnight UTC. The bar chart below represents the total market volume and the reading on the right axis.

Fig2 : Figure 2 shows the annual return from the asset's first reliable price signal to the release date. This is designed to give readers an idea of ​​the long-term performance of assets.

Fig3 : In Figure 3, we look at the top 5 geographic markets ranked by dollar-denominated trading volume*. This chart gives us an idea of ​​the relative popularity of certain cryptographic assets in different parts of the world. It can also be interpreted as an indicator that there are legal, regulatory or other government-imposed risks in jurisdictions with large volumes of transactions.

Fig4 : Figure 4 shows the monthly cumulative volume of transactions by the largest legal currency pair. Although there are more legal currency transactions on the market, most transactions are done through the top seven legal tenders (including Tether), with all remaining currency pairs accounting for only a small portion of total global trade. Here, the reader can observe the cyclical changes in the total transaction volume and which pair of fiat currencies dominate the transaction in the encryption market. The total trading volume is an indicator of market liquidity.

Fig5 : Figure 5 shows the percentage of total monthly trading volume by the jurisdiction of the exchange. Similar to Figure 3, the diagram is intended to give people an idea of ​​the relative geographic location of an asset transaction and the exposure of the transaction to legal, regulatory or other government-imposed risks in the jurisdiction. (The Coinshares here only select a number of exchanges that are whitelisted, and their reports only reflect real transactions)

Fig6 : Figure 6 shows the average annual volatility from the first reliable price signal for an asset to the release date. Observing fluctuations over time can help readers understand the changes in the risk profile of their cryptographic assets.

Fig7 : In Figure 7, we use Pearsons Correlation Coefficient to see the correlation of encrypted assets with a basket of commonly investable assets. The basic portfolio theory tells us that a portfolio of diverse and uncorrected baskets of assets is not susceptible to volatility. A score of 1 indicates that the two assets move completely in unison, a score of 0 indicates that they move completely independently of each other, and a score of -1 indicates that they are completely opposite.

Fig . 8: Figure 8 shows the different multi-year, monthly average Sharpe ratio, which is an indicator of the rate of return. The higher the score, the better the investor will be compensated for the increased risk level of the asset.

Fig9 : Figure 9 shows the growth rate measured by the change in hash rate.

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Author: Coinshares

Compile: Sharing Finance Neo