OSL Trader View | Weekend Digest

Friday, July 31, 2020

Army of Benjamins - the soldiers of lost fortunes

The unprecedented liquidity injection by the US is leading to some serious mis-allocation of capital. I mean what did they expect? Pantera has pointed out that the American printing press has printed more Benjamins in June than the first two centuries of existence. 

And this following the worst quarterly GDP print in 83 years (2Q20 -32.9%) and yet, they remain trigger happy. 

With dovish guidance setting the tone, the alphabet soup concoction of support measures has just been given a three-month extension to continue through the end of the year. So what are they doing with the Benjamins? 

Section 13(3) of the Federal Reserve Act has authorized:

  • Secondary Market Corporate Credit Facility - NY Fed, via SPV to buy secondary market corporate debt (Individual corporate bonds, bond ETFs & Index tracking bonds by american issuers, 1.5% weighting max, or 10% outstanding. $75B from Fed; levered 10x; Total $750B. a.k.a. Primary Market Corporate Credit Facility (PMCCF) ~ deadline 12/31/2020
  • Main Street Priority Loan Facility. the Main Street New Loan Facility (MSNLF), Main Street Expanded Loan Facility (MSELF) , loans to SMEs 15K employees > or ’19 revenue, 5yr maturity first 2 yrs interest payment deferred. <$5B. Federal Reserve Bank of Boston to buy out 95% of the Eligible Loans. $75B commitment from the Treasury pulling cash from the Exchange Stabilization Fund under section 4027 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), total size $600B.
  • Money Market Mutual Fund Liquidity Facility. Boston Fed will lend to US Depository Instos, US Bank holding co’s, US branches and agencies of frgn banks eligible under the facility 3/23/2020~ @ primary credit rates. non-recourse LOANs; $10B
  • Term Asset-Backed Securities Loan Facility (TALF).  $10B from NY Fed in SPV. Total size $100B, 3 year loans non-recourse. Eligible collateral: Auto loans & leases; Student loans; Credit card receivables (both consumer and corporate); Equipment loans & leases; Floorplan loans; Premium finance loans for RE & casualty insurance;  Certain small business loans that are guaranteed by the Small Business Administration; Leveraged loans; commercial mortgages at 80~95% LTV.
  • Paycheck Protection Program Liquidity Facility for Depository instos/credit union; community development financial insto. Member of the Farm Credit System, Small business lending companies & others
  • Primary Dealer Credit Facility. Primary dealers of the NY Fed get 90 day loans. 
  • Non-Profit Organization New Loan Facility. $600B 


Needless to say, this has boosted safe haven assets including gold, to an all-time high. Analysts, including Goldman Sachs, reckons gold is just hitting its stride with target prices to $2300/oz as they expect the trend to continue hinting of a potential paradigm shift away from the petrodollar’s supreme reign. We’ve all witnessed $BTC’s vaulting heights this week too, and the fires being stoked by new entrants to the market… an added sign that portfolio managers are diversifying into alternative assets and redeploying some of their equity profits they’d enjoyed through the Benjamin offensive (aka stimulus action).

 

Digital assets market has also benefited from investors seeking protection against inflation. Various exchanges popped the champagne with record volumes reported at Deribit, significant gains at CME Group, Bakkt boasted record on top of record activity, and even OSL has been going from strength to strength.

Following the FOMC meeting, $BTC has popped above resistance.

The bulls have literally bulldozed through the exorbitant funding rates on Bitmex 

And the lions’ share of options volumes have been bullish.

 And as alluded to earlier, we’ve been seeing more new entrants (addresses) flock to the market, but we’re equally as encouraged to see the number of (re)activated addresses continuing to tick higher suggesting broad based support.

 

 

We’ve been getting a lot more pings from peers and ex-colleagues in the traditional banking world - and they want in. Most banks require a mandatory holding period of at least two weeks and given how fickle these market moving millennials can be, not to mention eye-watering valuations, you would need a strong constitution to get into these markets without a readied escape route to cut your losses at the first hint of a pullback. 

So a lot of these folks have begun actively looking into $BTC and other digital asset investments to support their personal portfolios - especially given the banking level of compliance and reporting standards that OSL offers - to bring to their compliance departments and put them at ease that the interests of their brands (and I guess their staff) are protected. But moreover paving the way for a savvy group of executives to have at least one more avenue to capture the markets without the burden of the mandatory holding periods associated with securities. Some of these folks are getting exposure through Grayscale’s GBTC at a 22% premium. 

But hey, we are in the trading and brokerage space so of course we remain optimistic and bullish for the future, it’s our job, but with over 90% of holdings allegedly in the money at these levels (as per Glassnode) it really does the selling for itself… you just need to have the right, trusted partner to be your gateway in and out.  We’ll be awaiting your calls. 

But with this sizable number of profitable accounts, we can certainly expect a pitstop or two during the race with expected profit taking before we go to the moon. 

Ethereum has outperformed $BTC by a significant margin as we inch closer to the 2.0 hardfork. 

... and the Ethereum foundation has done wonders to stoke the fires by unveiling a validator launchpad

The elevated levels of activity have certainly benefited Silvergate Bank (SI.US) which reported an 80% increase on the nascent bitcoin collateralized loan offerings; $5.5M NP +25% QoQ as they cleared $22.4B transfers during the quarter. The contrast vis-a-vis the commercial banks could not be more striking as many of the banks report NPL provisions that eclipse their bottomline by a significant margin. The spike in volatility managed to have the trading desks bring up the rear and, for many, were the only reason they stayed out of the red. But seriously, why would anyone park their wealth with them for a paltry 1% APY?  It will be interesting to see how the BLINC initiative pans out. Spearheaded by BCB Group, they have released an alternative to the cliquey “old boys club” of a rail (a.k.a. SWIFT). Needless to say, they will have abundant support from the digital asset community. 

One thing is for sure, millennials aren’t big fans of banks. While Maker DAO made history taking the mantle as the first DeFi project to hit the one billion milestone, #ETH witnessed 3.1M contract calls last Saturday (an ATH as volumes on the dEx’s continue to trend up and to the right).  Additionally, YFI has been so successful that it has unwittingly invited its own step-brother of sorts as a Chinese entity launched a similar (read identical) project called.... YFII

But there is still a lot more BUIDLing to be done. Indeed, we have come a long way but scams are all too common and without regulation, it will remain so. The soap opera at Bitmain continues as 10,000 Antminers from their mines were stolxen and Zeus Capital- the author of a scathing report on Chainlink has allegedly been paying influencers to spread the FUD causing $LINK to pull back from ATHs. Even some of the industry leaders need to get their act together, case-in-point Binance as they quietly remove their native token $BNB from the top of the DeFi token rankings after a barrage of criticism. C’mon now… 

The massive $5.7B overhang from the PlusToken scam has been put to bed as all 27 primary suspects arrested over 100 persons involved in the scam. Thank you COVID… 

The announcement by the Office of the Comptroller of the Currency permitting digital asset custody by the banks has lit a fire under other countries… and now the race is clearly on. The BoJ has made the digital yen a top priority while the Bank of England attempts to retrofit CBDC transfer capability on their antiquated RTGS payment network. First they laugh at you… 

Some added news that caught our eye for to get you through the weekend:

  • Polkadot ($DOT) raises 3982.07 $BTC in second raise @ $125/DOT in 72 hrs and proposes to increase supply 100x through the first token-based vote
  • Twitch begins accepting crypto as legal tender. With a discount! 
  • 120K $BTC hacked from Bitfinex in 2016 is on the move
  • FiCAS AG lists world’s first actively managed Cryptocurrency ETP Bitcoin Capital Active (BTCA; ISIN CH0548689600)
  • Cardano ($ADA) successfully migrates to Shelley mainnet attracting 500 Stake pools
  • Liquid exchange delists privacy tokens as they apply for the PSA license in Singapore
  • Binance begins shipping crypto debit cards
  • Ripple ($XRP) unveils beta version of a P2P payments platform a.k.a. Payburner.com
  • FTX releases whitepaper for Serum, a decentralized exchange on the Solana ($SOL) blockchain.
  • A1 Telekom Austria Group the country’s largest telecom operator now accepts crypto as legal tender
  • Europol’s “No More Ransom” decryption tool repository continues to fight against hackers
  • Aave ($LEND) to migrate to genesis governance i.e. fully autonomous
  • Binance launches AUD onramp


And so we end another month… hello August!  Stay safe and happy trading.

 

OSL Trader View and Weekend Digest are contributed by Stefan Chu, SJ Oh, and Santiago Nazaretti

 


 

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