OSL Trader View | Weekend Digest

Friday April 17, 2020

Going against the grain

With confirmed COVID-19 cases topping 2.1M around the globe, cities belatedly hit by the pandemic in the West continue scurrying to shutter their borders or tighten/extend current measures, meanwhile the individual US states are left to balance the mixed messages and guidance coming from their nation’s capital.

One thing on which the World has tended to be in agreement, prior to the pandemic, is speeding up the phasing out of high carbon-emitting and unsustainable energy sources, yet the US President has just more than doubled down on his willingness to compromise the environment - paving the way for oil and coal fired power plants to spit out mercury and other toxic byproducts into the soil, rivers and streams uninhibited.  All the while distracting the public with free money in a classic bait and switch. 

Sure, desperate times require desperate measures and considering we are in the midst of the biggest recession since WW2, they have responded with the boldest, largest fiscal support measures ever.  But at what long-term cost?  It certainly looks as though the future has been mortgaged heavily:

With a couple billion here, a few trillion there, the Fed’s balance sheet has grown 50% over the past month - equivalent to 10% of the American economy.

This doesn’t only impact Americans.  You can’t expect the many sovereign holders of US debt to sit idly, let alone be thrilled, as POTUS debases the $13 trillion in US government debt they hold. That said, some of those same sovereigns are actually taking a shine to the whole monetary and fiscal stimulus tactics, turbo charging their own printing presses. Talk about contagious diseases!

Trump inflated false hopes that daily life could resume to normal by ordering cities and states back to business-as-usual. An effort he himself hoped would inject some life into the economy (ahem, stock market), but far too premature and a tad unconstitutional.  Things are far from normal, the March housing sector witnessed its biggest month-to-month drop (22.3%) in thirty six years and initial jobless claims filed over the past three weeks has topped 22M (the biggest claim on record since 671K, 1982).

Digital asset players have not been immune to the pullback. GalaxyDigital reported $32.7M net losses for 4Q19 with a warning for darker times ahead while Canaan has seen their bottomline lurch further into the abyss, racking up $107.8M losses (a 32x increase YoY).

Virtual assets are having a good run at the time of writing - with Ether ($ETH) +12.6% spearheading the charge as the market speculates the EVM will be Libra’s choice to deploy their revamped version of a supranational currency. After quickly taking the mantle of governments’ most hated with their attempt to usurp them of their seigniorage, they’ve conceded and have come back with plans to issue a stable coin per currency and then move on to create a global currency composed of these stable coins.

Even without this turn of events, Ethereum has been on an impressive tear. As a matter of fact, on-chain value transfers have reached parity with Bitcoin.

The value of USDT on the EVM ($4,853M) eclipsed that on the Bitcoin blockchain ($1,223) almost by a factor of four as stablecoins issuances in 1Q20 reached $8B. Maybe a reason why Reddit decided to launch their community points token as an ERC-20.

Despite Main Street being bailed out, more people are starting to realize just how weak a store of value the greenback has become and are slowly starting to get their toes wet with alternatives - i.e. digital assets. Grayscale witnessed $503.7mn uptick in their tracker ETPs 1Q20 and this is a product that has a history of double digit tracking error. Non-coiners using it as a hedge? Definitely more from where that came from.  

Lawmakers in Wyoming have successfully passed House Bill 0021 (effective July 1st) that permits digital asset investments by insurance companies. Whether the insurance companies actually playball is another story but could this just be the epiphany moment triggering FOMO en masse and a stampede to the gates? Recall, less than two years ago the $400M check Yale Endowment wrote for Paradigm was a tipping point for their peers to get involved in the game and now, nearly all endowments have some exposure to the space. Just as Ivy League endowments compare themselves with other endowments, the same applies for pension funds, hedge funds, long only asset managers and yes, insurers.

$BTC balances on exchanges have slipped 10% from highs and futures have flipped out of backwardation forcing the basis-arb traders to revisit positions, subsequently triggering a short squeeze of sorts. Halvening not so bad after all?

After pledging nearly 30% of his net wealth in fighting COVID-19, Jack Dorsey’s Square Capital was accepted by US Treasury & Small Business Administration to become a lender under the federal Paycheck Protection Program (PPP) as China shortlists 71 entities to join the "National Blockchain and Distributed Accounting Technology Standardization Technical Committee" where the group will discuss and set industry standards for distributed ledger technology as the Agricultural Bank of China debuts an interface for whitelisted users to test the country's CBDC (a.k.a. DCEP).

Roche Cyrulink Freedman LLP has come out of left-field in their filing of 11 class-action lawsuits against seven token issuers: Block.One ($EOS +9.5%), Tron Foundation ($TRX +6.5%), Bprotocol Foundation ($BNT +5.4%), Civic ($CVC +7.4%), Kaydex Pte ($KNC+4%), Quantstamp ($QSP +7.3%) and exchanges: Binance, Bibox, Bitmex & KuCoin. Their crime? Selling securities to US persons without meeting regulatory requirements to do so. A creative response from KuCoin to mounting litigations and roadblocks has taken the bunny hopping business model to the next level.

The $BCH halvening caused a -28% move from which it has since been clawing back the losses but with the network hashrate of 1.7EH, 1.4% the size of $BTCs, and a price tag of less than $10K for a 51% hack makes you wonder if they’ll still be around.

The Bitcoin halvening is a month away and what a striking contrast this will depict vs. the trillions that your governments are flushing away.  Somehow there seems to be a grain we’re comfortable following… #BuyBitcoin

Happy trading!

May the trend be your friend!   



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