Alt season continues
26 Apr 2021
Market Recap
Following the ‘Coinbase top’, digital assets market has been under pressure. Bitcoin making lower lows and lower highs, Kimchi premium briefly disappearing (before bouncing up to current level of ~8%, a sign of still-bullish Korean market participants), and further FUD following proposed changes to federal capital gains tax and unverified rumour that Yellen was contemplating windfalls tax on crypto. As warned in last week’s letter, we saw further flushing out of levered longs given still-elevated levels of open interest after ~$10bn liquidation on 4/18. Amidst broader market sell-off, select ‘quality alt-coins’ showed decent weekly performance ($ETH +8%, $UNI +10%, $SOL +48%, $LUNA +31%, $CAKE +40%), bringing bitcoin dominance to lower low of 50.5%.
Coinbase’s IPO performance has been disappointing so far. Regardless of price action, the listing serves as a stamp of approval for further institutional involvement. Last week saw digital asset companies making high profile appointments (Brian Brooks, former Comptroller of the Currency, joined Binance.US as CEO; Chris Giancarlo, former head of CFTC, joined BlockFi as board of directors), and ‘traditional’ companies accepting crypto as a payment medium (WeWork, Time Magazine, AXA), and TraFi endorsing/adding exposure to crypto (Brevan Howard allocates up to 1.5% of their funds to crypto; Rothschild Investment Corporation added Bitcoin and Ether exposure and RIT Capital Partners acquired stake in Kraken; Li Bo, vice-governor of PBoC, mentioned digital assets are viable alternative investment).
We prefer to ride this secular trend, and buy ‘high-quality’ digital assets on dips. Phenomena like $DOGE parabolic raly (+5,485% YTD) and kimchi premium, are concerning, but we view it as a symptom of new normal of flush liquidity (not dissimilar to GME, AMC) rather than a sign of bubble in crypto. With declining exchanges reserves (Chart 1) and low miner sell pressure (Chart 2), supply dynamics are supportive of higher bitcoin prices.
On the macro side, stocks finished little changed in an up-and-down week amid light volume. Headlines on possible capital gains tax hike briefly rattled stocks but optimistic Q1 earnings and initial unemployment number brought risk sentiment back up. This week’s FOMC meeting and Powell press conference are not expected to be a volatility event, but market will be watching if ‘substantial progress’ (marker by which the Fed will reduce the pace of QE) has been achieved in the eyes of the Fed.
What is Happening?
4 Ethereum ETFs began trading on Toronto Stock Exchange (TSE) last week; the 4 ETFs are provided by Purpose Investments, CI Global Asset Management, Evolve ETFs, and 3iQ (Tickers: ETHH, ETHX, ETHR, ETHQ, respectively), all of which already have Bitcoin ETFs products in the TSE. The Bitcoin/Ether ETFs have gained major traction on the TSE with 1/3 of the 25 most activelytraded ETFs on TSE on 4/20 being crypto-related (Chart 3). On the Grayscale side, GBTC discount continued to trade wide at ~10–19% last week, while ETHE has been trading around par.
PayPal-owned Venmo to launch cryptocurrency trading within a few weeks. Venmo currently has 70+ million users, all of whom will be able to buy 4 major cryptocurrencies (BTC, ETH, LTC, BCH); transactions will be facilitated via Paxos Trust Company. This further adds to the portfolio of payment companies, including Square, PayPal, and Revolut, that allow its users to purchase cryptocurrencies on its platforms. According to the company’s research, over 30% of Venmo users are already trading cryptocurrency on other platforms.
Conclusion
We at Satori Research are in this digital assets space because we believe in the growth potential. Opportunities have begun to materialize in the past 1 year, and fastest horses already in the track will benefit the most from the trend. At the same time, we are a group of traders and risk managers that do not let our beliefs and ego stop us from capitalising opportunities that market presents us with. We have been identifying emerging themes and trends in the market, and will continue to monitor the space to help our clients and ourselves position correctly.
Good Luck!
