27 September 2021

Market Recap

Market spent the week range-bound following sell-off last Monday. Both price action and market sentiment look rather shaky, with bitcoin price failing to stay above $45k and 7-days moving average funding rate (Chart 1) turning negative.

Chart 1: YTD 7-Days Moving Average of Hourly Funding Rate for BTC and ETH on FTX

China FUD was real again last Friday as PBoC announced clamping down on crypto trading (crypto-fiat, crypto-crypto, derivatives trading), as well as on individuals working in exchanges that make crypto trading available in China (subject to legal prosecution). All these didn’t come as a surprise given China’s ambition to roll out CBDC and its prior mining ban; China-based centralised exchanges tokens such as $OKB (-30%) and $HT (-49%), $MX (-44%), and $BNB (-14%) saw significant sell-off and are still trading weak. Bitcoin and ether saw ~10% drawdown, but have since recovered during the weekend, especially with increased chatters of bitcoin ETF approval in the next couple of months. Satori’s market view in the recent weeks has been that: 1. Market is underallocated bitcoin, and plenty of drypowder is on the sideline, as evidenced by increased total stablecoin supply even in relatively weak market conditions (Chart 2), and that 2. DeFi summer is overdue, with enhanced regulation in the centralised space.

Chart 2: Total Stablecoin Supply

We especially like DeFi at this point, given clear lack of market interest and level of upside (it takes a lot less capital for select DeFi tokens to double vs. bitcoin to $100k), and prefer expressing the view through tokens that have taken on multi-chain approach and derivatives offerings. Nonetheles, DPI/ETH chart looks rather sad (although whether DPI appropriately represents DeFi is another matter) and there is still regulatory risk; waiting for confirmation to break above the descending trendline probably offer better risk-reward.

On the institutional side, crypto integration shows no sign of slowing down, from Robinhood’s introduction of crypto wallet and transfer features starting next month (potentially an additional conduit of crypto funds to decentralised platforms), to Twitter’s bitcoin tipping function. On the fundraising front, One River Digital Asset Management raised $41mio Series A (at $186mio valuation).

On the macro side, volatility made a comeback with no shortage of headlines to worry about. Evergrande financial troubles and potential contagion effects joined another brick to wall of worry, including growth slowdown concerns to inflation pressures to central bank tapering to debt ceiling. US equities saw first 5% pullback in almost a year on Monday, before rebounding as week progressed to end the week pretty much flat. Fed’s meeting was in line with expectations, as policymakers announced they would soon consider tapering asset purchase, but would look to continued improvement in the labour market before acting. With Fed tapering concerns past, market’s main concern continues to be Evergrande/China this week. There’s also Powell and Yellen testimony at a Senate Bankign Committee on Tuesday, and GDP/inflation/initial jobless claims number on Thursday, and US manufacturing PMI on Friday.

(Sep 27, 2021, Top 5 Crypto KPI)

What is Happening?

On regulatory fronts, Coinbase announced that it would not be issuing a lending product, given the SEC made its intent to deem the lending product as security clear. Crypto lending companies, such as BlockFi and more recently, Celsius, have also been ordered by several US states to stop offering interest-bearing accounts, and if SEC presses on to reinforce the treatment of lending products as securities, business models and IPO plan (or $CEL token for Celsius) could be seriously thwarted; these are some of the tail risk scenarios that Satori has in mind.

FTX is shifting HQ from Hong Kong to Bahamas where they registered as a digital assets business with the nation’s securities regulator. The decision is a logical one as FTX would be a licensed entity in a jurisdiction that has relatively clear framework for crypto firms, and employees also have freedom of movement (as SBF tweeted). Given FTX already only offers services to professional investors in HK, we think the move is more due to favourable business conditions, rather than pressure from regulators, like it was partially the case for BitMEX.

Conclusion

‘Bear market’ since May sell-off has been interesting given various themes that have played out (‘jpeg szn’ to solana summer to previously obscure layer-1 season), and decoupled movements of various cryptocurrencies, which makes sense as cryptocurrency as a single ‘sector’ is a misnomer given how broad it is. We think we may see a market focus shift to DeFi, and continue to like thematic plays as well as yield farming to fully utilize liquidity mining incentives vs. passive hodling.

Good Luck!