There’s not much to cheer about in the latest crypto market report by the San Francisco Open Exchange (SFOX), a crypto trading solution. 

The exchange has revised its multi-factor market index for 2020 from “mildly bullish” to “neutral.” The report’s prognosis follows a sudden crash in cryptocurrency prices in the last two days. Taken together, the two developments do not bode well for traders, at least in the short-term.

“The current setting of the Multi-Factor Market Index at ‘neutral’ may be at least partly due to uncertainty regarding how bitcoin and other cryptoassets may react to upcoming investment product launches, together with holidays such as Christmas and New Year’s Eve,” the report’s authors state.

Why did SFOX revise its crypto market index?

Various factors have played a role in the exchange’s decision to revise its assessment of the markets.

First, there’s the decline in crypto market valuations on a monthly basis. Amidst the crash and tumble of markets, prices for leading cryptocurrencies on a month-to-month basis fell. According to SFOX’s calculations, Litecoin was the biggest loser, shedding 25% of its overall price while Bitcoin, even with a hefty 15% decline in its price, lost the least. The falling prices were further exacerbated by collapsing trading volumes at cryptocurrency exchanges, according to the report. 

The second factor influencing the downgrade was the closure of crypto-focused hedge funds. A new report by Crypto Hedge Fund Research states that 70 new crypto hedge funds have closed this year. The current situation presents a dramatic contrast to the one two years ago, when crypto hedge funds touted their outsized returns to distinguish their products from other industries. 

But their departure also means that valuable liquidity and trading volumes, already in short supply in crypto markets, exits with them. There aren’t enough new funds to replace the ones that have closed. The report states that the number of new funds launched this year is less than half of those that opened in 2018. 

Institutional investors were supposed to make up for the shortfall in liquidity. Even as exchanges roll out products targeted at institutional investors, it might be a while before such investors actually invest in crypto. “Funds and institutions may still have some trepidation when it comes to investing in cryptocurrencies, despite the products that are being launched to cater to their needs,” the SFOX Research Team stated in an email.

Hope for 2020? 

The slump in crypto markets has occurred at a time when equity markets are thriving. Investors are moving funds from safe havens like gold and treasury bonds to stock markets. According to the Wall Street Journal, reported earnings per share (EPS) were at a record in the 12 months to June and are forecast to keep rising.

To that end, the SFOX report indicates correlations between different cryptoassets have increased as traders shift their funds around to maximize their profit potential. According to the report, Bitcoin’s price movement has become highly correlated with that of Ethereum’s ether, Bitcoin Cash, Litecoin, and Ethereum Classic in recent months.

Correlations and fund closings apart, the dismal crypto winter of 2019 might portend hope for 2020. The same report was set to “mildly bearish” going into this year but had been revised to “mildly bullish” by February.