The digital asset landscape in 2020 is poised for transformative growth, driven by institutional interest, derivatives innovation, and structural shifts in market dynamics. Despite a turbulent 2019 marked by bearish trends and fund closures, key indicators point to a resilient and maturing ecosystem. This analysis explores the evolving role of Bitcoin, the rise of derivatives, institutional inflows, exchange competition, and forward-looking market trends—all shaping the next chapter of crypto trading.
Bitcoin Dominance in the Spot Market
Bitcoin remains the cornerstone of the digital asset market. As of December 31, 2019, there were 5,017 cryptocurrencies and 20,328 exchanges globally, with a total market capitalization of $206.9 billion and a 24-hour trading volume of $76.1 billion. Bitcoin (BTC) accounted for 68.5% of total market share, underscoring its dominance.
The top five cryptocurrencies by market cap were Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Tether (USDT), and Bitcoin Cash (BCH). BTC led not only in market value—reaching $141.7 billion—but also in price, trading at $7,811. While USDT slightly surpassed BTC in trading volume ($27.5 billion vs. $23.5 billion), BTC remained the most influential asset in terms of price leadership and market sentiment.
Liquidity and Market Efficiency
When measuring liquidity using the trading volume to circulating supply ratio, USDT emerged as the most liquid asset at 5.85, followed by ETH (0.51), BCH (0.42), BTC (0.17), and XRP (0.16). This highlights USDT’s critical role as a stable trading pair, while BTC maintains strong but relatively lower turnover due to its large market cap.
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Price Trends and Market Correlation
BTC, ETH, XRP, and BCH exhibited similar price movements throughout 2019—rising sharply in the first half before declining. Bitcoin peaked at $13,000** on July 10, 2019, with a market cap of $233.1 billion, but fell to around $6,700** by year-end. Similarly, Ethereum reached a high of **$309.65 on the same date before dropping to $165**, nearly halving its value.
In contrast, USDT maintained price stability near $1, reinforcing its function as a reliable store of value during volatility.
Bitcoin’s Maturing Market Indicators
Several on-chain and economic metrics suggest Bitcoin was neither overvalued nor undervalued by the end of 2019.
MVRV Ratio: Fair Valuation
The Market Value to Realized Value (MVRV) ratio stood at 1.31 on December 30, 2019—above 1, indicating fair valuation without significant overpricing. Earlier in the year, it had dipped to 0.75 (undervalued), then rose to 2.57 at the peak, still below historical bubble levels.
Scarcity and S2F Model
Bitcoin’s Stock-to-Flow (S2F) ratio stabilized around 30 in 2019—higher than silver (22) but below gold (62). With the 2020 halving expected to cut new supply in half, the S2F model predicts a potential rise to 45, bringing Bitcoin closer to gold in scarcity and potentially driving price appreciation.
NVT Ratio: No Bubble Signs
The Network Value to Transaction (NVT) ratio did not spike during price increases in 2019, suggesting no excessive speculation or bubble formation—similar to trends observed in 2016–2017.
On-Chain Activity
Bitcoin’s network activity mirrored price trends—rising in the first half of 2019 and declining later—indicating strong correlation between user engagement and market sentiment.
Derivatives Take Center Stage
One of the most significant shifts in 2019 was the surge in Bitcoin derivatives trading, which surpassed spot volumes for the first time.
CME vs. CBOE: A Tale of Two Futures
The Chicago Mercantile Exchange (CME) solidified its leadership in regulated Bitcoin futures. Its BTC futures peaked at $13,480 in July 2019 and remained active despite price drops. In contrast, the Chicago Board Options Exchange (CBOE) exited the market in June 2019 due to low adoption.
CBOE’s failure stemmed from structural disadvantages: a 1 BTC contract size, only three monthly contracts, and a 44% initial margin requirement. CME offered more favorable terms—5 BTC contracts, four contract months, and a 35% margin, making it more accessible.
By mid-2019, CME’s daily futures volume reached $9 million**, while CBOE lagged at under **$1 million—a tenfold difference.
Bakkt Enters the Arena
In July 2019, Bakkt launched physically settled Bitcoin futures—a game-changer for institutional trust. Despite a weak start (only 71 BTC traded on day one), volumes surged by late 2019.
By December, Bakkt’s daily futures volume hit $47 million**, with monthly volumes exceeding **$350 million—rivaling CME. The platform also introduced cash-settled futures and Bitcoin options, completing its derivatives suite.
Bakkt’s success signals growing institutional confidence in regulated crypto products.
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Institutional Adoption Accelerates
Despite a wave of fund closures in 2019—over 70 funds shut down, and total crypto VC funding dropped to $1.5 billion—institutional interest continued to grow.
Grayscale Leads the Charge
Grayscale Investments, the largest crypto fund manager, saw record inflows of $171.1 million in Q3 2019 for its Bitcoin Trust. The firm shifted toward simpler, single-asset products due to SEC delays on Bitcoin ETFs.
Other top-performing funds include:
- Digital Currency Group
- Coinbase Ventures
- Galaxy Digital
- Pantera Capital
- Polychain Capital
More than half of the top 10 crypto funds are U.S.-based, reflecting America’s leadership in institutional crypto finance.
Performance vs. Traditional Markets
Crypto funds outperformed both Bitcoin and traditional indices:
- From January 2017 to June 2019: Crypto funds rose over 1400%, vs. BTC’s ~1000%.
- S&P 500 gained only 35% during the same period.
- In 2018’s bear market, BTC dropped ~75%, while the CFR Crypto Fund Index fell just 33%.
This resilience highlights professional fund managers’ ability to hedge and diversify.
Traditional Finance Joins In
Major institutions made strategic moves:
- Vanguard partnered with blockchain firm Symbiont to build a trading platform.
- Fidelity Digital Assets began serving institutional clients with custody and trading services.
- Coinbase Prime launched to serve hedge funds and VCs, attracting $20 billion in assets.
- Two U.S. pension funds invested $40 million in Morgan Creek Digital’s crypto fund—marking rare conservative institutional entry.
These developments signal that digital assets are increasingly viewed as legitimate portfolio diversifiers—even as hedges against macro risks.
Exchange Competition Heats Up
The exchange landscape is intensifying, with Huobi Global emerging as a leader in spot trading volume.
Huobi Surpasses Rivals
As of December 31, 2019, the top five exchanges by 24-hour volume were:
- Huobi Global – $51.26 billion
- OKEx – $27.02 billion
- Binance – $25.4 billion
- Bitget – $7.8 billion
- BitMEX – $7.5 billion
Huobi’s daily volume exceeded that of major traditional markets like the Shanghai Stock Exchange (37%) and Shenzhen Stock Exchange (27%), demonstrating crypto’s growing scale.
Derivatives Drive Competition
Exchanges are expanding derivative offerings:
- OKEx: Launched perpetual swaps in 2018; leads in total open interest.
- Binance: Introduced dual-margin futures via Binance JEX.
- CME: Offers only BTC futures with quarterly contracts.
- Huobi & OKEx: Support weekly, bi-weekly, and quarterly futures across major tokens.
While BitMEX and Binance dominate perpetual contracts, Huobi and OKEx lead in traditional futures trading.
Liquidity and Trading Experience
Huobi excels in liquidity:
- Highest order book depth for top and mid-tier assets.
- Lowest average spread for major pairs: 0.18% for top assets.
- Competitive fees: 0.02% maker / 0.03% taker, lower than Binance (0.075%/0.1%).
Even without perpetual contracts until recently, Huobi’s depth and low slippage attract serious traders.
Outlook for 2020: Key Trends to Watch
Halving Event: Supply Shock Ahead
Bitcoin’s third halving—expected in May 2020—will reduce block rewards from 12.5 to 6.25 BTC. Historically, halvings have preceded bull runs.
With supply cut in half and demand potentially rising:
- Price could reach $50,000 based on S2F projections.
- Scarcity metric (S2F) may rise to 45, rivaling gold.
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Bitcoin as a Risk Hedge
Bitcoin is evolving from a speculative asset to a potential macro hedge:
- Increasing correlation with gold.
- Declining correlation with S&P 500.
- Rising correlation with volatility index (VIX).
This shift suggests BTC may be used alongside gold to hedge against equity market downturns.
Continued "Matthew Effect"
Bitcoin’s dominance is likely to remain above 50% in 2020 due to:
- Mature infrastructure (custody, ETFs via trusts).
- Strong brand recognition.
- Institutional preference for established assets.
Smaller altcoins may struggle unless they offer unique utility.
Derivatives Explosion
Derivatives volume grew from ~$5 billion/month in early 2019 to **$12.4 billion/day** by year-end—a 2–3x increase.
With OKEx, CME, and Bakkt planning to launch options contracts, expect even faster growth in structured products.
Institutional Momentum Builds
A Fidelity survey found:
- 47% of U.S. institutional investors view digital assets as innovative tech products.
- Over 70% are optimistic about crypto.
- 40% are open to future investments.
With developments like Libra and China’s central bank digital currency (CBDC), mainstream attention will only grow.
Frequently Asked Questions
What is Bitcoin's Stock-to-Flow (S2F) model?
The S2F model measures scarcity by dividing existing stock by annual production. A higher ratio means greater scarcity. Bitcoin’s S2F is projected to rise to ~45 after the 2020 halving, potentially boosting its value.
Why did CBOE stop offering Bitcoin futures?
CBOE discontinued its Bitcoin futures due to low adoption caused by high entry barriers—large contract size (1 BTC), limited contract months, and high margin requirements (44%).
How do crypto funds outperform Bitcoin?
Professional crypto funds use hedging strategies, diversification, and arbitrage to reduce downside risk. This allows them to outperform during bear markets and capture upside during rallies.
What makes Huobi more liquid than other exchanges?
Huobi offers deeper order books and tighter spreads—especially for major assets—due to high trading depth and competitive fee structures.
Is Bitcoin becoming a safe-haven asset?
Evidence suggests yes: BTC shows rising correlation with gold and VIX while decoupling from equities—a sign it may serve as a hedge against traditional market volatility.
How will institutional adoption impact crypto markets?
Institutional involvement brings larger capital inflows, improved regulation, better custody solutions, and more sophisticated products—all contributing to market maturity and stability.
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