23 August 2021
With little negative news and trend being our friend, crypto bull market playbook continues to unfold. Big 2 are largely quiet — ETH is continuing to consolidate, and BTC is testing $50k, following piercing through $48k resistance level. It is, however, Layer-1 season now — smart-contract platforms like $AVAX (+176%) and $ATOM (+41%) outperformed with the launch of liquidity mining programme and first DEX, respectively. Other platforms like $ADA (+29%), $DOT (+22%), $SOL (+37%), $LUNA (+43%) did well as well. Kimchi premium and GBTC premium remain little changed from last week (Chart 1, 2), but funding rate is peaking up (Chart 3). For the coming week, we like ether higher with the mainnet launch of Arbitrum and renewed interest in Ethereum.
On the industry front, Binance is further tightening their KYC procedures — this should prove to be med- to long-term bullish for both Binance and crypto. And it is worth noting that the exchange is faring excellently with respect to market share (Chart 4) despite the regulatory clampdown — a stark contrast to BitMEX, which turned from #1 derivatives exchange to trading <10% of Binance’s derivatives volume.
Strong community engagement and retail flow are unique selling points of Binance, but Satori continues to favour $FTT in terms of token exposure due to FTX’s growth rate, active marketing strategies, and smart contract alignment (BSC-season is largely over; $SOL and $SRM will perform). On the topic of exchanges, Coinbase received board approval to purchase $500mio worth of crypto (vs. US$ 4.3bn in cash, i.e. still a lot of dry powder), and to invest 10% of all profit going forward in crypto (H1’21 net income = US$ 2.37bn, i.e. ~US$ 500mio/year in crypto purchases at current run-rate); with the broad mandate of crypto investments (bitcoin, ether, PoS tokens, DeFi tokens, etc.) and size of the purchase, we are bullish on both crypto at large and on $COIN stocks (similar to $MSTR being levered play). We also think crypto companies gearing up for IPOs (BlockFi, Gemini, Binance.US), could take similar approach, providing buyback support on the way down, and acceleration on the way up.
On the macro side, stock indices pulled back after the S&P 500 Index doubled from Mar’20 lows. FOMC meeting minutes (tapering would begin by end of the year), concerns over peaking growth (retail sales -1.1% MoM July vs. Est. -0.3%), and continued spread of delta variant concerned investors. UST flattened through most of the week with the soft data and fears over delta variant. With earnings season mostly behind us and ‘concerning’ FOMC meeting minutes last week, all eyes will be on Powell’s speech at the Jackson Hole this week.
What is Happening?
Robinhood’s 2Q results showed cryptocurrency trading transaction-based revenue increased by 4,282% YoY (US$ 5mio to US$ 233mio). Crypto trading transaction-based revenues was 52% of Robinhood’s overall trading volume — far eclipsing US $164mio from options and US$ 52mio from equities that Robinhood is known for. Robinhood also noted that >60% of funded accounts traded crypto in Q2, and ~62% of crypto transactions were Dogecoin trades (power of memes…). Robinhood’s and Square’s decisions to offer crypto trading are paying off handsomely as it is forming a majority of their activities.
Liquid Exchange’s warm wallets hacked to the tune of US$ 80mio. So far, withdrawals and deposits have been suspended (and still are), with the exchange promising to provide regular updates as its investigation unfolds. The management has done a good job thus far by communicating promptly (and transparently) via Tweeter.
FinTech Collective closes US$ 250mio fund — $200mio is assigned for firm’s existing early-stage strategy, which targets fintech and digital assets, while $50mio is assigned to a newly-formed DeFi fund. The DeFi fund, which is helmed by a former professional poker player, will invest in both equity and tokens. So far, the Fund has already invested in the following: Centrifuge, Dharma, NYDIG, $UMA, $BAL.
We like broader crypto higher. Bullish fundamentals (committed purchase from Coinbase), technicals (trend higher, many tokens breaking out), and narrative (decoupled outperformance of crypto from weak equity market). Again, we prefer to milk this rally by pre-positioning for break-outs and by performing fundamental analysis on themes and projects (that we share on our other letters).