— Commentary —
Digital Assets +7% WoW. Gains were broad based with 81% of the top 200 coins and tokens ending the week higher. Amongst the top 25 most actively traded WoW gains were led by XLM +31%, ADA +26%, XTZ +23% and ZEC +17%. BTC ended the week +6% and back above $7,500 for the first time since the March 11 2020 -40% drop.
Top stories this week included: 1) Raoul Pal reiterating his 2025 $1M BTC target price, 2) HFT giant Renaissance Technologies preparing to trade BTC futures, 3) Attacks on DeFi platforms dForce and PegNet, 4) Coinbase trying to clean up DeFi price data 4) BTC on-chain activity surging and 5) Oil volatility that would make an ICO project blush.
Two very good BTC reports out this week. The first, from Bloomberg Intelligence, highlights BTC and Gold as the primary beneficiaries of unprecedented monetary stimulus and a possible mean reversion in global equities. The second, from Global Macro Investor, paints a more dire economic outlook — but again highlights BTC and Gold as the only assets that will allow investors to weather the coming storm.
This line of thinking seems to be gaining some traction; Bank of America also increased their 18 month target price on Gold (US$2,000 to $3,000). This is positive for the BTC value proposition as the drivers for Gold are the same for BTC (though given BTC’s much smaller market cap, I would expect it to outperform significantly).
Positioning remained positive with long term BTC investors continuing to accumulate BTC and cash on the sideline continuing to grow. Glassnode estimates that as much as 75,000 BTC is being acquired by long term holders daily. Meanwhile both USDT and USDC increased their market caps to US$7.3B and US$730M — refreshing previous historic highs. On exchange BTC balances also continued to fall this week — ending the week at a 1 year low.
Looking into next week, the 200 Day Moving Average at $8,000 remains the most significant near term line of resistance. I think there’s a good chance we challenge that this weekend. It seems as if the mainstream narrative is becoming increasingly supportive of the the BTC value proposition with positive reports this week from Bloomberg Intelligence, GMI and BoFA’s positive Gold note. YtD Gold is +14%, BTC is now +5% — while virtually everything else is down double digits. If BTC can maintain momentum into the halving — which is now just 18 days away — I think it will secure a significant degree of mainstream attention.
— Thoughts —
Crude Oil — Anything is Possible
To date there have been 10 BTC ETF applications and rejections with the SEC. 2 reasons consistently cited by the SEC for rejections are 1) market manipulation and 2) price volatility.
After watching crude futures crater -331% to a historic low of negative US$39 it’s going to be harder to cite price volatility.
I think trading in crude this week demonstrated that anything is possible at this point. If crude can trade negative and post multiple inter-day triple digit % moves, anything seems possible.
DeFi — There’s no free lunch
DeFi has had a tough quarter. Since Feb the total value locked on Decentralized Finance platforms has fallen -49% from the Feb high of US$1.24B to ~ US$720M this week.
The sharp drop in March was driven by volatility in ETH which resulted in $4.5 million of undercapitalized debt on MakerDao, a bailout from Crypto venture firm Paradigm, DAI haircuts / liquidations and a class action lawsuit against the Maker Foundation.
This week’s US$25M hack of DeFi platform dForce was a reminder to investors that there are actually a number of risks attached to generally high DeFi stablecoin lending yields as well. Outside of Regulatory and Counterparty risks the biggest concern is probably more fundamental — Smart Contract risk.
DeFi platforms represent a collection of smart contracts. Smart contracts have a long history of hacks and exploits starting with ETH’s June 2016 $50M DAO hack, The July 2017 $30M Parity Wallet hack, the Nov 2017 $280M Parity Wallet freeze and now the $25M hack of dForce.
DeFi is one of the most interesting concepts to come out of the Digital Asset space, but users have to be mindful of the risks.https://cdn.embedly.com/widgets/media.html?type=text%2Fhtml&key=a19fcc184b9711e1b4764040d3dc5c07&schema=twitter&url=https%3A//twitter.com/excellion/status/1252799597581201410&image=https%3A//i.embed.ly/1/image%3Furl%3Dhttps%253A%252F%252Fpbs.twimg.com%252Ftweet_video_thumb%252FEWLWYkPUEAAHugE.jpg%26key%3Da19fcc184b9711e1b4764040d3dc5c07
— Reads —
- Pretty positive report out from Bloomberg Intelligence this week:
“The stock market’s shakeout will temporarily drag on Bitcoin, in our view, but with an outcome more reminiscent of gold’s after the 2008 financial crisis.Coming into existence in 2009, the first-born crypto is faring relatively well, down less than a quarter as much as the S&P 500 in 2020 despite being almost 5x as risky on a volatility-weighted basis. Bitcoin’s 24/7 price transparency, and the lack of limits, interruptions or third-party oversight, is an accomplishment for an asset just a decade old.”
- Global Macro Investor: The Unfolding
Raoul Pal lays out how he sees the world unfolding of the next few years:
The COVID19 driven consumption crisis developing into a full blown debt crisis that destroys the velocity of money, leads to endless bailouts and printing that will still fail to offset dollar demand. Bond yields go negative, causing more deflation and a pension crisis. Dollar demand eventually breaks foreign central banks and forces them to find an alternative.
“The only answers that make any sense are Gold and Bitcoin.”
Over the next 3-5 years, Pal sees Gold up 3 to 5x and BTC gaining to US$1M.
- Surviving Crypto Volatility with Derivatives
– Crypto derivatives provide a means for traders to offset volatility, by hedging in times of high market uncertainty, isolating and protecting against different kinds of risks
— News —
- Renaissance Technologies’ $10B Medallion Fund is looking at BTC Futures
– Expected to begin trading with CME BTC Futures - Number of BTC transfers gains to 6 month high
– Points to a pick up in overall onchain activity - DeFi platform dForce hacked for US$25M loses all its BTC and ETH
– Thought to be exploited via a vulnerability in the ETH 777 standard
– Smart contracts have a long history of hacks starting with ETH’s June 2016 $50M DAO hack, The July 2017 $30M Parity Wallet hack, and the Nov 2017 $280M Parity Wallet freeze
– Have to wonder if the counterparty risks DeFi platforms were designed to offset are better or worse than the execution risks of using smart contracts
– Plot twist — the hacker has since returned most of the funds. Speculation is that they could possibly be tracked/prosecuted via VPN use - Chinese investors look to BTC as domestic fund returns disappoint
– ‘Bitcoin’ is reportedly a top search term in China at the moment
– Investors said to be moving out of money market funds for better returns - BTC sees a record high difficulty adjustment
– Follows +26% hashrate gain (network compute power) over past 1M
– Recent peak was just shy of historic high
– Difficulty adjustment makes mining harder to compensate for more compute power being applied to the network
– Think a lot of miners switch to BTC recently after BCH halving - Japan STO Association issues new guidelines
– Not much here really….looks like restrictions on marketing to the elderly
– Japan’s STOA is a self regulating organization, members include:
Nomura Securities, Rakuten Securities, SBI Securities, Monex, and others. - Crypto trading app Robinhood looking to raise US$250M
– Valuation said to be US$8B…I suspect this will be a hard sell
– Follows a $323M Series E raise at $7.6B valuation last summer
– Has been heavily criticized by users for a number of outages recently - BoFA jacks Gold PT from $2,000 to $3,000
– 18 month target price. ‘Fed can’t print Gold’
– I think that more investors will allocate to Gold, price will go up, and those investors will then look for assets with similar characteristics - Tether issuance does not drive crypto prices
– Comes from new study from the Centre for Economic Policy Research
– Operate as a stable store of value and a safe haven from market volatility
– A popular (though stupid) conspiracy theory is that USDT issuances directly drive BTC price and aren’t reflective on organic, market demand - DeFi platform PegNet attacked by its top 4 miners
– Looks to have suffered a 51% attack that resulted in $6.7 million worth of the USD-pegged stablecoin pUSD being fraudulently created
– The miners were apparently unsuccessful in liquidating funds
– Claim that it was a penetration test of the network. - Huobi Token given regulatory approval in Japan
– The first offshore exchange token to be approved by regulators - Coinbase launches DeFi pricing platform
“The Coinbase Oracle is intended to help make the decentralized finance (DeFi) ecosystem safer by providing a secure, trusted source of price information to help reduce reliance on signed price data from less liquid exchanges or on-chain data from decentralized exchanges” - Bakkt’s new CEO quits after just 4 months
– Stepped down at Bakkt to “pursue a new opportunity”
– Said to be moving to JP Morgan
— Charts —
Chart 1. WoW % Change
– Top 25 coins by volume all up this week
Chart 2. Long Term Holder Positioning
– This is another great chart from Glassnode
– Shows that long term holders of BTC have been aggressively accumulating
– I read this as a bit like insider activity for equities
Chart 3. Cash on The Sidelines
– Combined market cap of major stablecoins now up to US$8.7B
– Note the high velocity of money for USDT
– Wonder how much of this is investors just looking for USD exposure (?)
Chart 4. Gold Backed Stablecoins
– Combined market cap now up to a record high US$140M
Chart 5. BTC Gold Correlation
– On a 360 day basis, correlation continues to grind higher
– Bloomberg highlighted that the 52 week correlation is at an all time high
Chart 6. YTD Performance
– Bitcoin +5% and Gold +14% outperforming
– Global equities, treasuries and commodities still deep underwater
Chart 7. BTC Price
– BTC is no back above its 50D MAVG
– The 20D MAVG has also crossed above the 50D MAVG
– Next major line of resistance is the 200D MAVG at $8,000
