are we in the altcoin season?

The latest crypto market overview

Despite significant volatility and uncertainty in the global markets, the crypto space has been uncharacteristically calm over the last month. Bitcoin price rallied in anticipation of its halving event in May, touching $10,000 on 7 May. It has since traded mostly in a narrow channel between $9,200 and $9,900 over the past 30 days. 

Over recent years, developer activity, innovation and number of start-ups created in the industry has grown considerably. In the absence of the breakout above $10,000 in BTC, market attention has shifted to other projects. 

There’s excitement around the forthcoming upgrade of Ethereum to the Proof-of-Stake protocol. We have also seen innovation in decentralised finance applications built on the Ethereum blockchain with projects like MakerDAO, Kyber and Aave. In a further boost to alternative coins, or altcoins, Coinbase has recently added Maker to its platform and announced that it is looking to support 18 new crypto assets, including Aave and VeChain. 

As excitement and social media attention shifts to altcoins, market participants increasingly talk about a new “altcoin season” or a period of altcoin outperformance.

Most traded crypto in June: proof-of-Stake coins gain momentum

The political unrest in Hong Kong has been driving the adoption and trading volume in Tether (USDT), a USD-pegged stablecoin. The market capitalisation of Tether grew by almost 50 per cent, or $3bn, since the end of March.

There has also been increased trading in Proof-of-Stake coins, as Ethereum approaches its own PoS upgrade. Multiple projects, including EOS, Zilliqa, Harmony and Qtum already operate viable PoS or delegated PoS networks. 

Below, we review the most actively traded cryptocurrencies and what might be driving the price action.

  1. Ethereum (ETH)

Ethereum is up 35 per cent in the last three months and, so far, has been one of the most traded cryptocurrencies in June. Its planned upgrade to the PoS protocol later this year is behind the recent spike in excitement. The transition is scheduled to proceed in three phases. Phase 0 will introduce a new Ethereum chain, called the Beacon chain, which will run in parallel with the main Ethereum blockchain. During this phase, a new token, ETH 2.0, will be created. 

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ETH 2.0 holders will be able to stake their tokens and run a network validator node on the Beacon chain. Staking will only be available to wallets with 32 ETH, and there has been an increase in the number of wallets accumulating 32 ETH. In Phase 1, developers will introduce sharding, breaking the Beacon chain into 64 shards. Phase 2 will then merge the main Ethereum chain with the Beacon chain, finalising the transition to PoS consensus. Due to the complexity of this process, Phase 2 is not expected for a couple of years.

Most traded crypto in June 2020

Activity on the Ethereum blockchain continues to grow as decentralised applications (dApps) achieve scale. dApps use ETH or gas to process transactions. In June, total daily gas usage on the Ethereum network reached an all-time high and remains at elevated levels. 

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Most traded crypto in June 2020

  1. Cardano (ADA)

Cardano is up almost 140 per cent over the last three months as it, like Ethereum, gets ready for an upgrade to PoS. 

Cardano is a multilayer network, allowing peer-to-peer transactions and smart contracts on separate layers. Its smart contract functionality, however, is not currently supported. Its recent rally has been driven by a critical upgrade to its network, scheduled to go live in July. 

Cardano is presently somewhat centralised, but the Shelley upgrade will make it “50-100 times more decentralised than other large blockchain networks.” According to the project’s roadmap, the release is scheduled for 7 July, and full staking should be available by 18 August.

  1. Quantum (QTUM)

Quantum, a Singapore-based open-source platform, has also seen increased interest recently. It combines some elements of the bitcoin protocol and, at the same time, supports Ethereum’s smart contract functionality. The network has its native token, QTUM, which is used to pay for transactions and fees. Quantum is a PoS network and is currently working on an offline staking concept, allowing users to keep their crypto in a cold wallet while still generating staking rewards. Quantum might also be benefiting from the success of VeChain in supply chain applications as the two networks share some similarities. 

  1. Stellar (XLM)

Stellar, an early fork of Ripple’s XRP, has rallied nearly 65 per cent in the last three months. In a recent piece of news, a secure messaging service, Keybase, was acquired by Zoom Video (ZM). Keybase was funded by the Stellar Development Foundation (SDF) and used the Stellar blockchain to verify and publish specific announcements. This acquisition led many to speculate that blockchain technology is likely to underpin future communications.

  1. Maker (MKR)

Maker is the governance token for the MakerDAO and its stablecoin, Dai, pegged to the USD. The peg is maintained through a combination of economic incentives influencing supply and demand for Dai. After being added to Coinbase, MKR rallied nearly 100 per cent before giving back some of the gains. 

Recently, the MKR community voted to support using tokenised real-world assets as collateral for Dai loans. In June, the World Economic Forum named MakerDAO as one of the technology pioneers and innovators, lending further credibility to the project.

Short-term crypto market outlook

Over the recent weeks, BTC and ETH have been trading in a narrowing channel. Both are poised for a breakout this summer. There is a downside risk, but the inflationary monetary policy around the world should provide fundamental support for the crypto assets. Furthermore, Grayscale, a publicly quoted trust for BTC and ETH, has been removing supply from circulation. It has been buying more than 100 per cent of the new bitcoin supply post the halving and its Ethereum trust is trading at a substantial premium to the spot price. Market dynamics indicate a bullish backdrop for cryptocurrencies. However, when considering what crypto to trade, investors should consider some rotation from bitcoin to altcoins.

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