OSL Trader View | Weekend Digest

Friday, March 20, 2020 

Welcome to the first of we hope many editions of our Trader View | Weekend Digest. 

OSL is one of the world's largest digital asset trading desks and our Trader View newsletters (Daily and the Weekend Digest) aim to provide you summaries of market activity and the news that caught our eye.

We’d love to get your feedback, especially to learn more about the types of insights and intelligence that would matter most to you. Let us know

 


 

Seigniorage

Christine Lagarde has stepped right back in-line after her initial “we are not here to close spreads” statement. Don’t let the “nothing done” ECB policy meeting fool you. They’ve been dipping deep into their fiscal policy arsenal (LTROs to be extended, TLTRO rates dive further into negative territory, “envelope” of EUR120bn net asset purchases for the year) and wrapped it up with a Draghi-esque “we will do whatever it takes” pledge. The sliver of hope in Lagarde not being cut from your typical central banker cloth - reversing the printing press and finding a sustainable solution for the over leveraged capital markets - has vanished after she followed suit with similar measures.

Interestingly, $BTC has staged a remarkable comeback recouping a third of its recent losses following the Fed’s $1.2tn bazooka (which included a $1,200 per person cash gift). The list of market dislocations is long and distinguished but we’re noticing a significant uptick of tweets pointing out that the Central Banks are quite literally printing your wealth away.

The sheer amount of pledged QE eclipses the total market capitalization of all virtual assets by over tenfold. The global financial crisis of 2008-9 was the genesis of Bitcoin; will this meltdown finally end the funding of American excess by Asian savers and the tipping point for mass digital asset adoption?  OSL is certainly hoping so.

With no March Madness or NBA, having already burnt through every episode on your favorite streaming service, but in-between clicks on OSL’s iRFQ trading tool, you can always play your favorite Central Banker this weekend and get a feel for printing money yourself. 

The alternative narrative would be that we’ve just seen a dead cat bounce from the undershoot triggered by a combination of margin calls, stop losses and deleveraging in the system. The aggregate open interest of all bitcoin futures offered has dipped to less than $1.85bn; 67% drop MoM as pretty much all platforms report liquidations with Bitmex taking the jersey as the biggest loser.

 

The issues with the platform were compounded by a DDoS attack. We couldn’t help but notice a massive PR push by OKeX, thumping their chest, on how they briefly were the largest $BTC futures exchange immediately after the rout - which perhaps unsurprisingly, was soon followed by a temporary suspension of its own trading platform. 

Separately Huobi reckons they can solve this problem by implementing circuit breakers… this may not be prudent,  if only to serve as yet another arb for traders to game. Remember, the recent “flash loan” debacle, Maker’s near collapse, and the DDoS exacerbated liquidations on Bitmex all (to a certain degree) were caused by a mismatch in latency of the price feeds vs. the actionable price. Circuit breakers work with equities as there is no perfect substitute to trade.  There’s no substitute to the NASDAQ to trade AMZN US, for example, if the exchange triggers its circuit breakers. There are, however, literally hundreds of venues where Huobi users can take their business in a similar scenario. 

While plenty of bodies lay on the street, miners are arguably the worst hit as the most leveraged players in the space. It is no secret that many are leveraged up to the brim, doubling down on their perpetually bullish outlook inflated by the upcoming halving. There has been a plethora of credit lines extended as the pledged ASICs, $BTC, future mining rewards and in some cases, even their mining plants for fiat to pay off operating expenses. That strategy seems to have seriously backfired.  Compounding the issue, plenty of lenders have issued undercollateralized loans. Liquidations followed suit the unmet margin calls and this has translated into a 33% dip in the network hash-rate with the next difficulty adjustment implying another 13% slide.

 

 

MakerDAO avoids shuttering and alongside it, the forced dump of 2.4mn $ETH that would have happened as supporters pledge to cover the shortfall, following a 66% drop in collateral. They have also added $USDC as acceptable collateral. This does raise the question what the value proposition of parking one of the most liquid stable coins for one of the least is…

Defi platforms SparkSwap & Paradigm Labs have not been as fortunate as their backers pull the plug due to lack of adoption and surely, they will not be the last. 

Nevermind HY credit. Gyrations in treasury yields pretty much says it all. 

The USD shortage is very real and the additional $540bn credit lines extended to nine central banks around the world will hardly be sufficient. The downgrade of US sovereign rating triggered a massive influx into treasuries during the global financial crisis as investors figured if the US was losing its AAA credit the World must be going pear shaped. FX has definitely started to show similar price action but dare I say, this time it feels different? 

Trump is back to blaming China (just a week ago it was Europe) for COVID-19 as he accuses the Chinese government of feeding misinformation and withholding crucial data despite reports saying otherwise. While it is hard to see most other countries implementing China’s draconian measures (or not), those measures seem to have stopped the rout as Italy tops the ranks for most deaths. 

Despite all this bashing, the Americans are not exactly walking their own talk.  And who knows, they might just come cap in hand for help to the likes of Alibaba (which has already offered their cloud-based diagnosis tool to Europe’s health systems) and other Chinese firms. The consensus seems to be that Europe and the US are far less prepared for the days to come. 

Bitcoin baby, it is #TimeToShine.

 

May the trend be your friend… Happy Trading!


 

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.
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