Markets Continue To Fall With Stagnating Volume

Key Support Levels At $6,200

The market fell another 10 Billion down past support levels today as expected. With a lack of demand at key levels, we seemed primed for a continued dive to the 6,200 BTC level.

Without anything screaming out at us, there isn’t much driving demand right now. That could continue as there isn’t much on the radar for October, but crypto always has a way of surprising us.

With rising shorts, we can expect any spike upwards would be short-lived due to a short squeeze.

Overall, it might not be a terrible idea to ride out the mild storm in some stablecoins and wait for the market to find some true volatility again, but be ready to go long should we start climbing back towards $6,700 BTC.

The big news today is that the CBOE, TD Ameritrade, DRW and other large financial firms are backing the launch of ErisX.

The project itself was developed by a former Citigroup executive, Thomas Chippas, and looks to be a full service cryptocurrency derivatives exchange like Bakkt.

What’s important is that ErisX plans to launch physically backed futures for not only Bitcoin (like Bakkt), but also be the first ETH, BCH, and LTC futures markets, ushering in a new age for crypto derivatives.

“In our opinion there is no lack of interest in building out markets for people wishing to trade digital assets and there is plenty of space for people to come in with a regulated exchange and clearing house,” Chippas said in a phone interview.

What’s evident to me is that major financial institutions are starting to move into the cryptocurrency space, and are subsequently picking horses to back. Today’s news solidifies the trend of regulated exchanges that will pop up backed by traditional players. Unregulated exchanges are now under intense scrutiny, and will likely face major regulatory issues moving forward. 2019 will show the tide start to shift towards these new, regulated platforms as the need for them grows.

ErisX expects spot trading of cryptos to begin in Q2 of 2019. Trading of its planned derivatives products is pending regulatory approval. The firm holds a DCM, or designated market contracts, which could give it a leg-up over other crypto trading platforms.

The big question here is how much Bakkt will be affected by this, as ErisX is shaping up to be their biggest competition. It’s a smart team and they’ve been working on this since the beginning of the year.

Still, Bakkt is working alongside two of the largest retailers in the world, Starbucks and Microsoft, and it could have a first-mover advantage.

The competition will ultimately be good for this space, especially as more Wall St. interests become involved. We certainly don’t want to see another Mt.Gox situation where one exchange controls the market. As I pointed out in my video on Bakkt, there are very real security concerns with their offchain settlement layer, and so having real competition will force them to not get complacent.  

Speaking of complacency, CFTC Chair Chris Giancarlo explained in his keynote address why there are Bitcoin futures trading on regulated exchanges in the U.S. but not Bitcoin exchange-traded funds (ETFs).

After all, we covered how many leaders in the crypto space voiced their concerns to the US Government about how innovation is being held back by slow regulation, and how this will kneecap the US position in the upcoming global economy.

“We are old agencies, our statutes are written in the 1930s,” Giancarlo explained, adding that the two agencies are trying to work with statutes that were written when there were no innovations that exist today. He then elaborated:

“More broadly, the SEC, their oversight is over capital formation markets with a big retail focus. Ours, at the CFTC, our focus is on risk transfer markets and we are always focused on derivatives and a lot of that is institutional trading. So we are focused on institutional investments, they are focused on retail.”

Sharing the regulatory focus of his agency, Giancarlo said, “We are very focused on the fraud and manipulation aspects of cryptocurrency markets right now.”

He argued that his agency is striking a balance between regulation and innovations, saying:

“It’s the United States that’s gone forward with the very first bitcoin derivatives, with bitcoin futures trading on the CME and also bitcoin options and bitcoin clearing – we are ahead of the world in that. There is no question that the United States is leading in a number of areas.”

He also pointed out that there are other areas of innovation which he believes the US should “take a little bit more of a thoughtful and intelligent approach, just as the US Congress did 20 years ago in the early days of the internet.”

What was most interesting to me is his personal opinion on where he sees the future of cryptocurrencies, especially two years from now.

“I personally think that cryptocurrencies are here to stay,” he said.

He went on to acknowledge that “there is a future for them [cryptocurrencies].”

“I’m not sure they will ever come to rival the dollar or other hard currencies but there is a whole section of the world that really is hungry for functional currencies that they can’t find in their local currencies.”

Giancarlo concluded that “there are 140 countries in the world, every one of them has a currency. Probably two-thirds of them are not worth the polymer of the paper they are written on. Those parts of the world rely on hard currencies. Bitcoin may solve some of the problems, whether it’s bitcoin or another cryptocurrency.”

I think the future of this space is bright in the capable hands of someone who understands the regulatory issues this space presents, and yet works to push the envelope further than what exists today.

We’ll see just how his comments come to pass in the coming years. Nonetheless, it’s an exciting time with so much uncertainty.

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Defensive Actions for the next trading day: 

• None.