19 July 2021
Digital assets trade heavy, key risk events looming (GBTC unlock this week and London hard fork on 8/4/2021). Today (7/19) would be the largest-ever GBTC share unlock (16,340 BTC-equivalent) and 8,796 BTC-equivalent being unlocked tomorrow (Chart 1).
Yellen also convened President’s Working Group, comprising of the Treasury, the OCC and the FDIC, to discuss stablecoins. Stablecoins’ circulating supply has grown explosively from ~$29bn to ~$110bn this year (3.8x; Chart 2), but stablecoin operators do not have a clear regulator to answer to in the US, instead dealing with state-by-state charters and licenses.
With Powell telling Senate subcommittee last week that proper regulation of stablecoins would be a ‘more direct solution’ to US payments vis-à-vis Fed’s isuance of CBDC, we can expect further regulation of the space. Market participants are still very cautious of systemic risk that stablecoin, especially tether, poses to broader digital assets, with broker-dealers seeing increasing number of queries for USDT puts and/or outright short digital assets. On topic of stablecoins, PBoC published whitepaper for the e-CNY last week, which notably confirmed that e-CNY is designed to be programmable with smart contract features. The whitepaper also explains that the context in which China was pushed into R&D of e-CNY was the emergence of cryptocurrencies and stablecoins and the risks and challenges they brought to the existing financial system. Based on these negative backdrops, most tokens suffered double-digit drawdowns; bitcoin outperformed and bitcoin dominance ticked 1pp higher to 46.2%. Axie Infinity ($AXS), which saw fresh ATH in the bear market also saw sharp drawdown from $29 to $17.
Notable ‘institutional’ developments last week were: S&P 500 announcing 5 new cryptocurrency indices, Square’s Jack Dorsey saying that the company is working to create an open developer platform focused on bitcoin-tied financial services, and Capital International Group purchasing 12.2% of MicroStrategy’s stock. This represents 950k MSTR stocks currently valued at ~US$ 497mio.
On the macro side, major US equity indices retreated slightly as earnings season got under way, with small-cap continuing to lag large-cap and tech counterparts by a wide margin. Conversation surrounding inflation persisted, with June CPI notching a 5.4% YoY (Est. 3.8%) increase whilst retail sales rose 0.6% (Est. -0.4%); Powell was quick to note to congressional panel that the Fed would not hesitate to lift interest rates to control rising prices, but still expect prices to normalise later this year. With inflation-related news generating bid headlines, bond market volatility picked up. Going into the week, 21 S&P 500 companies are scheduled to report 2Q earnings and we also have weekly unemployment claims and existing home sales on Thursday.
What is Happening?
Binance to no longer offer trading of stock tokens. The news came a few hours ahead of Hong Kong’s Securities and Futures Commission’s (SFC) warning statement, which clarified that Binance is not licensed/registered to conduct ‘regulated activity’ in Hong Kong, specifically that related to offering of stock tokens. Binance launched its stock tokens trading service in Apr’20 and offers 5 stock tokens, but the product never really took off with inception-to-date total trading volume of ~US$ 1mio. Although the decision might have been business-driven, as Binance noted, a few interesting things to note are: 1. what appears like concerted attack on Binance (warnings from Germany, UK, US, Italy, Japan, Thailand, Poland, Cayman Islands), and 2. why other crypto exchanges such as FTX and Bittrex Global that offer similar services via CM-Equity did not receive similar warnings.
The overall sentiment is bearish given prolonged period of sideways price action, and continued FUD surrounding GBTC unlock, stablecoin uncertainty, and concerted regulatory attack against Binance. On-chain data is also showing big inflows into exchanges, with BTC net flows hitting a 5-month high of 28.7k BTC into cryptocurrency exchanges (Chart 3); this is usually perceived as a bearish signal as it might represent token movements into exchanges to sell them. The backdrop and price action are as negative as they could be. At Satori Research, we are maintaining our neutral stance, and waiting for bitcoin price to break out of its current range.