OSL Trader View | Weekend Digest

Friday, December 4, 2020

Kimchi, where are you?

Just as the Koreans were celebrating the delay in virtual asset capital gains tax implementation, Americans were caught off guard with Coinbase dishing out 1099-Ks (reports typically issued by card payment companies on gross transactions for voluntary tax compliance) leading many to erroneously think that they had tax bills due to Uncle Sam. Coinbase subsequently issued a statement clarifying that was not the case and has since stopped issuing them allowing $BTC to bounce off the -15% dip fuelled by panicked American investors. We subsequently tested $20K ATHs and this move, tinkering on the border of unchartered territory, has triggered a bonanza for interest and indicators of more to come

Volatility has exploded, taking Implied Volatility (IV) back up into the 60s with the premium collectors moving their wall up to $40K. Just last week, 20.1K $BTC were loaded only whiskers above $20K. Consensus is inching closer by the day in thinking that $20K too, will be merely a pitstop for this freight train building steam. 

Paul Tudor Jones has come through publicizing his deepening conviction regarding this asset class and the disproportionately small size of the industry compounding the tremendous upside to come. 

Guggenheim was the latest to announce deployment of capital into Bitcoin for the Guggenheim Macro Opportunities Fund upto 10% of NAV into GBTC and right behind the coattails of SGX’s push to own the crypto indices, S&P Dow Jones Indices wants in too

And with the bulls forming a stampede, the perpetual funding rates popped into the stratosphere. 

Bitmex $BTC perpetual funding rate: 

Per annum, it popped 9x to 97% and then some. This forced the cash-carry trades to be liquidated i.e. sell spot cover future short – subsequently leaning into the price as per Jake Choi, vice president of Investment & Hedging solutions.

As any OG in the space will attest, this time around- as cliche as it sounds- it genuinely feels different vis-a-vis the tulip craze of a market that took us up to $20K back at the end of 2017. Maybe some of you still remember that return to excess that transpired (catered breakfasts and front row seats to all the big games) that had been abruptly halted in the wake of Lehman’s fall a decade prior. Fast forward to 2020 and retail participants are clearly not in the driver’s seat. The myriad of announcements from established professional money managers and sellside alike re: making forays into digital assets, dwarfs the calls from distant relatives wanting to learn about crypto. 

Koreans were the epitome of the hype with KRW denominated prices of $BTC fetching 50% premium vs. USD pairs at its peak. They have since lost interest and the press is also discouraging participation calling this a “second bubble.” With Naver dominating domestic search market share, Google Trends is hardly the best sample, but with no better option: 

Queries on 비트코인 (Bitcoin) register barely more than a blip, and the premium has long gone and now at a discount. 

Top Chart: BTC/KRW (blue) , BTC/USD (red). Bottom Chart, Kimchi Premium

Interestingly, the Kimchi premium has long gone and only pops back up during steep drops suggesting most of the cross-border arb traders have thrown in the towel. It will also take a bigger nudge than previous as retail investors have been crushing it in the stock market. 

That hasn’t stopped mainstream payment service providers at all. While Mizuho Securities survey reveals 17% of Paypal’s 28mn merchants having tested the pipes on Bitcoin and Visa just announced they would be supporting $USDC stable coin across their 60mn merchant wide network.

Bar the 1099-K scare over the weekend, the institutions have kept at it. With open interest retaining the one billion handle. 

OKex open interest flinched, and subsequently recovered. 

Back Stateside, regulators are looking to raise the bar for anyone looking to issue a stable coin to acquire a full banking charter while Facebook resorts to new tactics – changing the name of their ill fated SDR 2.0 project to Diem and targeting a USD stablecoin launch for 2021. 

And if you’re new to the crypto space you might want to take things seriously when it comes to the local laws and regulations – and also understand the protections you are afforded (or not). Chinese law enforcement have seized $4.2bn+ worth of crypto related to the PlusToken scandal. PlusToken is alleged to have swindled over 2M people out of an estimated $7.6B.  The seized virtual assets were “forfeited to the national treasury” while culprits were denied appeal and sentenced up to 11 years in prison. 

Things are kicking in to higher gear in the CIS region. Kazakhstan has successfully attracted over $200mn in foreign investment into the ambitious AIFC and are on track to secure $900mn by the end of the year. Money clearly has its merits as a motivator and adjacent nations have stepped up their own efforts to get a piece of the action.The Ukraine national parliament just cleared the Draft Bill on Virtual Assets leaving just two more hearings before crypto becomes fully legal, and Russian Prime Minister Mikhail Mishustin pronounced government support for further development of the industry as the biggest bank in the country prepares a native coin launch a.k.a. Sbercoin.

After processing half a billion dollars worth of retail transactions with the DC/EP, the Middle Kingdom has now turned its eyes abroad with Xi Jinping mustering up support for a “digital Silk Road”.  Yet at the same time implications for crypto miners in the country have not been positive as the government continues to take action on digital assets not aligned to its own coin. The latest move was in Baoshan City where authorities are forcing state power suppliers to ban supplying crypto miners

AllianceBernstein splashed the headlines with their strategists’ views taking a 180 degree spin from bitcoin having “no role in asset allocation” to  publishing a 15-page missive “I have changed my mind” explaining that cash is trash. 

  • Grayscale launches its second #DropGold campaign and prepares 9:1 stock split on ETHE.
  • NYDIG Digital Assets Fund1 exclusively for bitcoin raised $50mn 
  • Brad Garlinghouse talks (again) about an overseas move for Ripple’s HQ
  • German private bank Hauck & Aufhauser and HAIC Digital Asset Fund launch crypto fund
  • FinHub officially christened as a stand-alone office to continue its mission of fostering innovation in the financial sector. Office will be run by Valerie A. Szczepanik reporting to the SEC Chairman. 
  • Australia’s largest crypto exchange, BTC Markets, leaked 270K email addresses of their clients in yet another reminder to ensure your accounts are adequately protect –  don’t forget to set your 2FA
  • The rapid adoption of digital assets has created an abundance of opportunities for career growth. Those tasked with stewarding the wealthy and institutional money will need to get hip to crypto or get left behind. Spotify and Visa are two global companies searching for DLT and/or digital asset experience meanwhile in Asia United Overseas Bank, Singapore’s third largest bank is hiring a VP of Crypto Security.  
  • And OSL is hiring too, be sure to share

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

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