OSL Trader View | Weekend Digest

Friday, December 11, 2020

Overdrive – there’s no coasting to the finish in 2020

While the positive headlines continued to roll with all the newbies joining the fray and old-hats piling in more, the crypto markets themselves took a breather after the gallant effort to crack the $20K nut came up short. $BTC peeled off the upper Bollinger band and is looking to test the lower band at $17,213 which happens to coincide with the first dead cat bounce off the highs we enjoyed at the end of 2017. We can suspect further downside if it breaches this level, but with the overwhelming demand well eclipsing the supply and momentum indicators off their oversold levels, see risk to the upside. Having said that, futures’ curves across many of the trading venues imply a lack of consensus with some citing uptick of inflows into exchanges being a harbinger of a correction. But, it simply is not true with 43K $BTC exiting the building. 

The European Central Bank topped up its Pandemic Emergency Purchase Program (PEPP) by €500bn, inline with street expectations as we continue to see signs of coordination by global central banks. Japan also pushed through a $700bn stimulus package while the Americans are back with their attempt to confirm yet another $900bn in COVID19 relief aid. The dollar is hurting. However if everyone goes on to devalue their sovereign currencies, it’ll certainly give more cover for the Fed. The DXY popped with the $2tn stimulus that came expediently during the quickest recession ever, only to lose its sheen as people get their heads around the biggest Fed balance sheet expansion ever. History sure repeats itself. The GFC triggered a $700bn TARP relief aid, subsequently joined by Mario Draghi pledging to do “whatever it takes”… Crypto is no stranger to history either. If you recall your initial foray into cryptocurrencies, the often mulled question was: $BTC or $ETH? While the OG is certainly the battle tested bigger, more stable network, transaction volumes on ETH have eclipsed $BTC and the advent of DeFi this year has put oil on the fire. You can almost hear the new entrants committing to ETH, just like 2018. 

Grayscale reported: “we are seeing a new group of investors who are Ethereum first and in some cases Ethereum only.” Remember when the Flippening (ETH price > BTC price) was a thing? Well it’s back. 

Not to mention the incredible support ETH 2.0 has been getting.

Suspect players burnt in DeFi by the all too frequent rug-pulling by sketchy shit-coins would have put many off and with nose-bleed yields well off their highs, 13% APY on the second biggest crypto protocol does not seem like a bad proposition at all. 

Subsequently, this has translated into insatiable demand in Grayscale’s Ethereum Trust (ETHE) that has pushed the premium vis-a-vis $ETH to triple digits. 

The Litecoin trust, is testing a mind boggling premium of 2732%… 

Again, going back to the time when the originals first jumped into these markets: Remember that narrative of $LTC being a more efficient form of $BTC? The catalyst here surely being the sub-par user experiences as the mempool came throwing distance away from ATHs 

While the 2018 ATH was reached through bids from Mrs Kim and her fellow retail punters, the pay day tickets this time round have clearly come from the institutions and the charts are telling me they are going through the same learning curve. 

Michael Saylor has flipped from non-coiner to one of the biggest proponents. Not only has he nearly depleted MicroStrategy’s cash balance with the $BTC conversion, he has taken it to the next level by issuing $400mn convertible notes (with option for $60mn top up) with the offer closing today US time. This is an ingenious move from the $BTC maximalist as by offering an arms-length vehicle that can be accounted for (and therefore more palatable to the traditional camp), with the hopes of delivering the underlying in 2025 upon expiry. He is making the bet that the regulators will have gotten their act together by then implying minimal risk to deliver the $BTC. Citi however did not agree as they subsequently downgraded MSTR to SELL “We are also concerned that the company could be losing focus on execution with CEO Saylor’s disproportionate focus on Bitcoin…” 

Wells Fargo’s Head of Global Asset Allocation Strategy Tracie McMillion chimed in, citing volatility as a reason for investors to refrain from FOMOing into the best performing asset of the year (not to mention the past five and 10 years, but who’s counting?).

Adoption, adoption, adoption

Ok, so Tyler Radke is a non-coiner… They are actually the minority when it comes to bulge-bracket activity in this nascent asset class. Goldman Sachs has actually decided to bite the bullet and give JPM’s coin a go; Fidelity added coin collateralized borrowing alongside their crypto custody offering; ING opened up on their crypto initiative during Singapore Fintech Festival; 266yrs old Bankhaus von der Heydt (BVDH) will try its’ hand in creating a Euro backed stable coin on Stellar; BBVA, Spain’s second largest bank revealed plans to penetrate crypto trading and custody starting in Switzerland under FINMA; Swiss Stock Exchange takes a position in Custodigit, Swiss’ first digital asset bank; Standard Chartered launches crypto trading for institutional investors; Bertelsmann funds Greenfield One; and DBS comes clean on their cryptocurrency initiative.   

The index creators are also getting involved with Bitwise Asset Management landing the title of first publicly traded crypto index fund in the US (BITW). There is over $1tn tracking the MSCI Indices via ETFs.

Morgan Stanley’s Chief Global Strategist Ruchir Sharma expects $BTC to continue encroaching market share from conventional means of payment (read USD) expecting bitcoin to gain while Jamie Dimon is also pulling a Saylor by touting Bitcoin as the preferred safe haven vis-a-vis gold with much more upside coming from the disparity of adoption. 

Hardly a coincidence to see the second biggest inflows into crypto investment vehicles last week to the tune of $429mn as per CoinShares. 

The antagonists have not stopped with rep. Rashida Tlaib introducing a draft bill a.k.a. The Stable Bill – that would mandate all stable coin issuers to acquire a bank charter. Both the government and the private sectors have come to rally against this potentially devastating bill for American stable coin projects. Libertarian Ron Paul has stressed the need to nurture the industry as he was joined by SEC Chairman Jay Clayton pursuing a means for crypto firms to become FINRA approved broker-dealers.

In their perspective, the concerns do appear well placed with Venezuela’s planned increase of $BTC adoption for commerce with her allies as South American remitters circumvent conventional ISPs that charge through the nose. These pale to the issues the Mexican government faces as drug cartels warm up to $BTC. With their traditional banking lines blown away by the incriminating ICIJ expose, they seem to have found a substitute. 

Ripple’s 246% move last month has since been stunted with concerns of $XRP being tagged a security and Brad Garlinghouse backtracking on threats to move HQ to Singapore or elsewhere, as his bluff gets called. The community has since rallied to address the 48bn $XRP escrow overhang with over 80% voters- the minimum threshold- voting to burn the tokens a.k.a. The Checks Amendment. However researchers at Bern University were not impressed.

Speaking of Singapore, plenty of news came out of Singapore Fintech Festival this week with StandChart stating it is jumping into the crypto business only to be followed up by the Lion City’s leading bank, DBS, doing the same. Both banks set to service institutional and professional investors.

RSK has also emerged from the shadows proposing a new wrapper for king $BTC with the new bridge protocol Powpeg. Despite all the bad actors, TVL in DeFi is still above $14bn

And with Steve Wozniak’s ICO $WOZX popping 223% post debut, a planned crypto movie based on the incredible Ross Ulbricht debut next year and a book on Bitcoin coming in 3rd on Amazon’s best selling macro economy book category, maybe the retailers are at the cusp of pouncing on this rally. #CanYouHearTheHerd? 

  • China to expand DC/EP testing to Hong Kong to build a new cross-border payment infrastructure
  • FB US -29bps FTC files antitrust lawsuit, German Finance minister not amused with the Diem
  • G7 urges US to regulate digital assets. 
  • CFTC chairman Heath P. Tarbert cites defining Ethereum a commodity as an achievement during his tenure. To resign early-2021
  • BIS claims success in two POCs for Swiss CBDC a.k.a. Project Helvetia.
  • Cardano ($ADA) down 2.5%, announces mid-Dec fork.
  • BitSo raises $62mn in Series-B for further expansion 
  • Bitfury to sell 38% stake in TSX listed Hut 8 (HUT) valued at $57mn 
  • Bitpay files for federal bank charter. A.k.a. National Trust Bank, to launch with $12mn PUC. 
  • Paxos files for National Bank Charter

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

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