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OSL Trader View | Weekend Digest

Friday, November 27, 2020

Back that truck up because we are going to the moon

Green on the screen is a good day! And whilst we’ve been seeing more red in recent days, it’s a bit of a knee-jerk reaction with most taking it as a healthy correction – off the parabolic run-up we’d enjoyed. And this was not just a $BTC cavalcade. The moment Ethereum 2.0 hit the minimum 524,288 ETH to activate 2.0’s Beacon Chain, $ETH lost a tranche of support from the speculators selling on the news. A shrewd move considering the track record of Ethereum meeting self-imposed milestones. 

MTD the trade would have pocketed you +62% (at its peak). Peanuts compared to Ripple which eclipsed that trade by over fourfold:

The reason? Well, nothing new. The proposition of $XRP as an investment is dubious given the monster of an overhang posed by many sources of liquidity, not least to mention one billion $XRP dumped into the market by the foundation’s escrow each month like clockwork. With the 55% supply depleted by 2022. Newbies will surely be attracted to the big name partnerships that the network has forged and this will have in turn, served as validation for the protocol’s token. Volumes have exploded on this rip topping $25B on Nov 25th (a 5x increase vs 30 ADV). 

But indicators of euphoria were everywhere. Silvergate Bank (SI US) popped on gangbuster earnings. Arguably one of the most important fiat gateways connecting the industry to the traditional fiat network, they will benefit from all volume, regardless of price action.

And with $BTC now punching in 32~45B in turnover a day, they are not complaining. 

Even Riot Blockchain (RIOT US) basked under the sun.

Understandably the price rally fattens the margins for miners commensurately but considering the myriad of lawsuits the company is laden with, you’d have to have a solid constitution to stay exposed for too much longer.

Price action for the week was in the red but with a brief stint topping $19K triggering a river of profit taking – the correction has taken down some loss-cuts with it exacerbating the undershoot. 

But with support on the mid-Bollinger band and RSIs back to neutral levels, there’s clearly signs that this is just a pit stop before we power on to ATHs. The go-to benchmark for traditional financial participation: CME – has seen open interest grow 20% to top $1.2B. 

The OCC has the crypto community rallying behind it yet again with an interesting real-time lesson in history repeating itself – fair access to financial services. Crypto has faced its challenges but can 2020/21 be the year it follows the money services sector (2014);  foreign correspondent banks (2016); oil companies drilling in the Arctic (2019) et al. to be served fairly?  Nothing punitive to enforce the request but a dotted line into crypto from this statement does reiterate the obligation the banks have to serve all industries, without prejudice. The request may go further with Gary Gensler in the Biden entourage, as rumors of a permanent role in the Treasury from his current financial oversight transition team role can only help.

There is plenty of reason for the haste. China is throwing out feelers for the next DC/EP test launch in SuZhou while Russia’s third biggest bank Gazprom conducted their first bitcoin transaction under the supervision of the Swiss Financial Market Supervisory Authority. 

And adoption is poised to accelerate at home with DAiM’s offerings through 401(k)s casting a wider net for pickup accelerating a second wave already steepening the trajectory further in terms of total $BTC wallets with non-zero balances. 

And while Coinbase boasts a growth of $14B in institutional assets under custody since April, Galaxy Digital attracted $59mn for their funds and Morgan Creek vied to take a piece of the $10B in Grayscale with their new fund as JP Morgan came out with another positive comment re: adoption. The backdrop was also painted with Goldman Sachs 81-pager guiding China’s DC/EP to account for 15% of total payment value ($2.7tn) with President Xi urging G20 members (at these those in attendance) the “need to discuss developing standards and principles for central bank digital currencies with an open and accommodating attitude.” Meanwhile the trigger puller for one of the biggest asset managers on the planet, forecasted more upside for $BTC than gold on national television as SBI Holdings– a Japanese conglomerate sprawling over 260 subsidiaries- launched crypto lending services.

With just a month left in the Jay Clayton-run SEC, VanEck’s physically backed Bitcoin ETN listing on the Deutsche Borse Xetra must surely be a slap in the face. While not an ETF, the money manager had been given the Heisman by the SEC back in September. And as more American politicians realize that they are not even close to the front of the pack and the reckoning that this may indeed be the new arms race of the 21st century, it might just even be the case that Libra- may be their best horse. 

OKEx users were relieved to see Star Ming Xing (OKCoin founder) back in the saddle but for obvious reasons, there was a flood out the gates dropping open interest by 17% once they resumed withdrawals. There’s surely more to come because how else will a professional money manager defend his position of doing nothing after a breach revealed a key man risk for the entire exchange balance? It would be a breach of fiduciary duty. But then again, this may come to be the perfect litmus paper that reflects the true degree of institutional participation at the exchange because retailers will Ape regardless. 

Network difficulty has regained some following the 15% collapse – triggered by the annual Chinese migration as the wet season concluded. While the constraint in physical supply of ASICs for the rest of the year will cap the recovery of network hashrate, expect an uptick through the end of the year as the machines get plugged back in up north and away. Next Difficulty adjustment expected over the weekend to raise the difficulty by c.8%. 

Lots of ups and downs for the week, and while we are seeing some corrective red at the moment, it may be those bright warning lights on a reversing truck, backing up to the loading bay, in anticipation of a rewarding payload with the indicators of more bullish action to come.  Beep, beep, beep… 

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

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