Aug 10, 2020
Crypto — Call Option in the Future System
Market Recap
Crypto market recovers from the flash crash last Sunday. Bitcoin and Ethereum are both up ~5%, last trading at $11,700 and $390 respectively. As volatility bounces back, derivatives market turned active again. Focus is currently on Ethereum with open interest reaching all-time highs for both futures and options. [Figure 1]
On other alt coins, oracle tokens clocked explosive gains this week with ChainLink (LINK) rising 70% and Band Protocol (BAND) up a whopping 237%. The move propelled LINK to the 6th largest cryptocurrency by market capitalization. The rise is attributed to recent DeFi boom, new partnerships and integrations with both data providers as well as DApps; however, as a result of short squeeze, millions worth of LINK short contracts were liquidated in both Binance and a Defi platform named Aave due to a flash spike above $14. BAND’s strong rally comes after the news of Coinbase announced listing of the coin on its trading platform. Crypto exchange FTX has completed its first IEO (Initial Exchange Offer) of Serum token, in which Solana (the blockchain which Serum is built upon) surged 57% WTD.
Meanwhile, equity markets worldwide advanced this week as signs of economic recovery were reported. U.S. equities extended the previous week’s gain, pushing Nasdaq Composite Index to new highs. China’s Shanghai Composite Index also posted solid gain of 1.33% as investor confidence boosted by encouraging economic data, even after declining on Friday on news of escalated U.S.-China tension. Hang Seng Index is the only major index which posted a loss driven by the drop of Tencent after the U.S. banned WeChat.
What is Happening?
U.S. China relationship hit another low as Trump administration attempts to ban Chinese applications TikTok and Wechat as well as impose economic sanctions on Chinese officials for curtailing the Hong Kong’s autonomy. TikTok is reportedly planning to file a federal lawsuit against the administration on the executive orders issued by Trump as soon as next Tuesday. Additionally, a group of U.S. regulators recommended tightened disclosure requirements for Chinese listed companies in the U.S. stock market, which could trigger delisting of the companies. Current listed companies would have until 1-Jan-2022 to comply with the requirements, before that we’d expect to see more U.S. listed Chinese companies seeking for secondary listing in Chinese stock markets in anticipation of the uncertainty. With the U.S. presidential election coming in less than 3 months, the confronting Beijing card would definitely be played again and again.
Goldman Sachs, the investment bank that drew the ire of the crypto industry a few months ago declaring cryptocurrency is not an asset class, has revealed their recent development and visions of digital assets. The bank’s new head of digital assets — Matthew McDermott, disclosed that the bank is exploring the commercial viability of creating their own fiat digital token. The details remain unfold but the bank has been talking to J.P. Morgan and Facebook, both have experience or plan of creating stablecoins. Not to mention that Goldman is an early investor of Circle, the crypto finance company created USDC — the second largest stablecoin in crypto market. McDermott also confirmed that since a few years ago, interest in cryptocurrency has shifted from retail and HNWI to large institutions. Together with recent OCC (Office of the Comptroller of Currency) letter affirming banks to deal with cryptocurrency businesses and custody cryptos, we’d surely see banks expanding their cryptocurrency businesses and adoption of blockchain technology.
Conclusion
We live in an unorthodox time. America is imposing economic sanctions and banning technology firms unscrupulously. The trusted banking system could also be easily altered and anyone can be shut out of it.
Diversification does not only apply to investment but also to storage of wealth and even daily payment/ transaction methods. The decentralized financial system, although still immature, would avoid any central point of failure. Under increasing fear of disruption or breakdown of banking and even entire financial system, cryptocurrency is the call option in the future system.
