OSL Trader View | Weekend Digest
Friday, August 7, 2020
Data don't lie
Maybe the algorithms are skewing what’s being shown but the drum beat calling for mass adoption of Bitcoin continues to thump (louder and with rhythm). Alongside the crypto monthly that Bloomberg now punches out, most financial data services are serving up their own dish of crypto price feeds in their portals, if not dedicating sections to the space entirely. An anecdote is hardly an accurate way to extrapolate what is going on in the grand scheme of things but this Bloomberg article really pushed the boat out. As attention-seeking luminaries publicize their lofty (and hopefully correct) price predictions (see Raoul Pal chiming in with his nothing-else-is-worth-holding tweet), network activity data cannot hide the growing user base of the trueOG - $BTC.
Ethereum’s Testnet Medalla of the final phase of Eth 2.0 has been released and in true decentralized form, anyone with 32 ETH can run a node and start staking. Similar to the return curves on the DeFi platforms, this too will have diminishing returns as more players stake. Specifically, the payout looks something like this:
- 18.10% when 1m ETH is being staked
- 10.45% when 3m ETH is being staked
- 5.72% when 10m ETH is being staked
- 3.30% when 30m ETH is being staked
- 1.81% when 100m ETH is being staked
And we’re already seeing multiple players lining up their dance partners with the music queued...
So what to do as we seem to be facing a wall at $400?
Some have taken note of a potential issue with block finality; however this is precisely why testnets precede the mainnet launch - and the fact that they’ve already amassed 22k+ validators in less than a week is a pass in my books. Following the data, precedent suggests there will be a pop after the upgrades are implemented but whether they last, is another story.
The yellow jersey however goes to Ripple ($XRP) simply crushing it posting a 1700% increase in $XRP OTC sales to $32.5M. The question of the mind-boggling amount of $XRP in escrow may remain a significant concern, but for now, users seem to be content with the promise of the foundation stepping away from playing a role in managing coins in escrow as Ripple too morphs into an autonomous payment system. Until then, you can bet John Mcleb and the boys will continue to cash out. Hats off to the folks BUIDLing as arguably they do put the other protocols to shame with the latest having been getting IBIS Management Associates - the developer of yet another SWIFT alternative a.k.a. SWISSRoute service - to enable payments via Ripplenet.
The size of the network matters and the mishap we saw in Ethereum Classic ($ETC) this week goes to show that we still have a long way to go. The attacker is believed to have spent 17.5 $BTC to execute the 807K $ETC double spend realizing a near 30x return. Additionally it appears we may have yet another fork in the contentious $BCH, with several developers walking out during the discussion governing the algorithm’s difficulty adjustment.
Governance tokens of the DeFi world caught a second wave egged on by the likes of Coinbase pre-announcing its potential listing of 19 coins. Binance was also playing “look at me” by integrating token swap platforms through their TrustWallet amidst the backdrop of FTX’s successful raise for their DeX project Serum. Messari reckons almost 20% of the volumes on the DeX’s come from the aggregators.
Scanning the data, it’s safe to assume that the vast majority of participants in this trade are in it to make a quick buck with little desire to partake in the governance of the protocols. But the capital is not just flocking to DeFi. Leverage/lending through centralized service providers (more palatable to the traditional financial folks) has seen billions in deal originations this quarter. With the tech savvy camp opening their eyes to double digit (in some cases more) yields in the world of digital assets, surely it is a no brainer vis-a-vis US Treasuries where we’ve seen yields at fresh ATLs with the Bank of England hinting zero interest rates on the cards.
Fast adopter Huobi is also in the race as they push out Huobi DeFi Labs- to research and incubate DeFi applications and projects. Surely Hedget won’t be the last project thumping their chest on a successful raise.
But no matter how you cut it, DXY is feeling the pain as it approaches GFC lows and first-movers away from the old economic guard are reaping early benefits.
And the bandwagon jumping continues, with more catalysts from the establishment finally picking up what the crowd is leaving in their wake. Starting with Congressman Tom Emmer’s advocacy who called out QE saying “Bitcoin… is only getting stronger.” Emmer was joined by four fellow congressional representatives pleading the IRS to take it easy in taxing staking rewards. $BTC correlation with the SPX has also dropped to irrelevant levels, for now…
High risk, high return. Before you FOMO into this, “do your own research” (#DYOR) as it doesn't always end well. Alex Mashinsky is getting a lot of flack for backtracking on previous comments of Celsius not engaging uncollateralized loans, while a $370K hack in oTokens (ERC-20) was overshadowed by the stampeding bulls.
It came as a surprise to hear of the hardships that have landed on many Chinese bitcoin miners as they struggle to attract hosting clients who are willing to wear the electricity costs as their sites lay barren. While boots on the ground have said the reported impact of the floods are overdone, the pain the miners are feeling has been amplified by yet another delivery delay from Bitmain caused by "external interference over the company's management". It is likely the PBOC will encourage usage of their DCEP once it's out over the myriad of decentralized payment tokens available and am hearing many original hosting clients are now looking to diversify their geopolitical risk by mining elsewhere. We are seeing the beginning of the end of Bitmain dominance as MicroBT continues to encroach (the US is simply not an option). The Antminer S19 Pro still reigns supreme in mining profitability but can't see this lasting for long. Difficulty in the next epoch is expected to grow a meager 0.6%.
The constant heckling by traditional banks against legitimate digital asset outfits has finally struck a nerve with BnkToTheFuture who decided to pull all their balances (both fiat and crypto) with banks to park at FirstDigitalTrust citing risks of “fractional banking” and concerns about geo-economic disruption. They were joined by Blockchain Heroes, the company behind digital collectibles, in refusing fiat commitments for their cards and accepting $WAX only.
Indian regulators may also be getting dizzy as they begin to spin around on an earlier stance favoring digital assets (that saw significant interest in $BTC and the like) around the same time Japanese regulators have been doing a 180 of their own - turning from being a technologically progressive regulator, to one that puts investor protection ahead of technological advancements. They are raising red flags and dormant digital asset accounts are being reactivated en masse as “Mrs Watanabe” (aka the Japanese retail traders) is poised to pull the trigger. As we close out the highest monthly close ($11,351 in July) since the mania we saw towards the end of 2017, it is now undeniable that user adoption is real. And it’s not just Asia that is awakening, interest is coming from all corners of the globe...
News that caught our eye this week:
Travala continues to add to the lineup of travel options by 1.6M hotels and holiday homes as they look to mimic Square’s 600% YoY top line growth in bitcoin revenue 2Q20. The Russians have pulled a trick out of their hat too, after initially deeming all anonymous crypto transactions illegal, the country’s largest commercial bank Sberbank will be rolling out a Hyperledger Fabric based blockchain platform and their own stablecoin. Blockchain related jobs in China continue to fetch higher paychecks as both the private and public sector seek talent, and what about this poll on Maker? They’ve proposed to accept real life assets to be accepted as collateral. And can you imagine the scrutiny you’d be subject to if you tried to make a $1B wire over SWIFT? This guy did it for $4 via $BTC. #RealLifeUseCases !
The 17 year old mastermind behind the July Twitter fiasco has pleaded not guilty and presumably some of his fans sought to help out by Zoom bombing the hearing with salacious rants, obscene videos and rock’n roll. Quite the lapse of court protocol.
Some added headlines for your weekend reading list:
- Elrond ($ERD) burns 90% of token supply reducing total tokens outstanding from 20bn to 20mn.
- Makerdao votes to increase debt ceiling for all collateral accepted.
- Neural Capital shutters after posting a 50% loss.
- dYdX debuts $ETH and $BTC perpetuals
- Chainlink ($LINK) recovers from the FUD induced pullback rallying back to ATHs and rolls out a grant program. 100% of the HODLers are now ITM.
- Ethereum ($ETH) tx fees drop as network congestion eases
- OKEx ignores the Indian governments’ salted ban on crypto trading & launches P2P trading.
- Santiment releases a report on the most active DeFi platforms.
- Grayscale files Form 10 for GETH to become an SEC-reporting co. Currently hold 1.9mn ETH
- Polkadot ($DOT) launched testnet Rococo for sharding implementation on parachains
- Kazakhstan plans to impose a 15% tax on crypto mining revenues.
And to the end the week, @StoolPresidente, the Pied Piper of the millennial investor sect, has further minted his legendary status calling out the Winklevoss twins for a private Bitcoin 101 session and promising to trade it like no other... and of course, to bring in his millennial army.
Guess what Tyler said? Well folks, it’s on, like Donkey Kong… remember what this man did to TESLA?!
Data don’t lie!
OSL Trader View and Weekend Digest are contributed by Stefan Chu, SJ Oh, and Santiago Nazaretti
OSL is Asia’s most comprehensive digital asset platform providing brokerage, exchange, software-as-a-service and insured custody solutions to professional investors.
Home to one of the world's largest and most experienced digital asset trading desks, OSL has its finger on the pulse of the market. The Trader View newsletter is a short, easily digested summary of market activity and eye-catching news of the day.
Feedback is important to us, and we’re keen to learn more about the types of insights and intelligence that matter to you most. Please share your thoughts with us.
Please refer to OSL's relevant disclaimers and disclosures associated with this note, including restrictions on redistribution.