28 June 2021
Digital assets market continued to chop as newsflows and narrative remained largely unchanged. Stories of El Salvador (bitcoin to be legal tender from September 7th, with government ‘airdropping’ $30 worth of bitcoin/citizen), MicroStrategy (completing its purchase of 13,005 bitcoin for ~$489mio, bringing its total holdings to ~105,805 bitcoin at average price of ~$26,080), and China FUD (PBoC ordering banks to cut off accounts for OTC merchants) continued, and bitcoin traded in the $31–35k range most of the week. Bitcoin outperformed alts, and bitcoin dominance now sits at 47.1% even as we inch into July and long-awaited London hard fork. ETHBTC cross has been drifting lower and is currently testing 0.057 support level, and running joke is that EIP1559 is actually ether’s price target. The recent issues with Eth2 staking service providers (Chart 1), such as Stakehound losing 38,178 ether that was in custody with Fireblocks, and SharedStake rug-pulling, as well as slowing DeFi activities, have definitely dampened market’s confidence in ether.
On the institutional/regulatory-front, investments into the space show no signs of slowing down, with VC firms raising new crypto funds, and TradFi and blockchain rails merging. Andreesen Horowitz (a16z) launched $2.2bn Crypto Fund III, its 3rd and largest crypto fund, and Blockchain Capital raised $300mio for its Fund V, featuring partnerships with Paypal and Visa. The dry powder would enable digital asset firms to continue building in what could be cold crypto winter. On the regulatory front, financial regulators in Canada, UK, and Japan are clamping down on ‘unregulated’ crypto exchanges. The actions seem to be especially targeted at Binance, the world’s largest exchange, as UK’s FCA ordered Binance to stop all regulated activities in Britain and Japan’s FSA issued another warning to Binance for operating in the country without registration. The exchange’s token, $BNB, has been holding relatively well despite the FUD (Chart 2), but this is a risk worth monitoring given what has happened to BitMEX following allegations from CFTC and DOJ.
On the macro side, markets quickly faded the kneejerk reactions from the June FOMC as dips in equities and commodities were bought (S&P 500 and Nasdaq to new highs and best weekly gains since early April; oil price highest since Oct’18), Fed hike pricing stabilised, and real yields reversed downward. Biden and bipartisan group of senators also agreed to spend $579bn on “hard” infrastructure, and data presented presented consistent story of supply-side constrants and rising inflationary pressure. This week, market would be looking out for whether the positive risk sentiment can extend into US tier one data (ISM Mfg on Thurs, NFP on Fri), and risk of Fed becoming incrementally hawkish if data surprise to the upside. Outside of the US, EU CPI and China Caixin Mfg prints on Wednesday, and centenary of the CPC on Thursday.
What is Happening?
Citigroup launches a digital asset unit within its wealth management division. Following Goldman Sachs and Morgan Stanley, Citi is the latest bank to offer crypto wealth management services. Its internal memo cited “exciting new developments … around cryptocurrencies, tokenization, and other advances powered by blockchain technology” as the reason for formation of the Digital Assets Group, and mentioned it will be working in tandem with braoder Capital markets and Citi Investment Management teams to develop new product offerings.
Bank of Israel issued digital currency on Ethereum for a first internal pilot programme prior to the possiblity of issuing a digital shekel. In May, the central bank issued a report concluding that the digital payment system could have a positive impact on the economy by simplifying payment processes while providing security to both parties in a transaction, and Deputy Governor Andrew Abir rehashed last week that the programme stemmed from the need to upgrade the payments system in Israel.
On the risk of sounding like a broken record, Satori remains light delta given the bearish / range-y market. Although we remain constructive on the future of digital assets, market can stay irrational longer than we can remain solvent and we prefer to let the only truth of the market, i.e. price, guide our decisions for now.