26 July 2021
Cascade of short crypto liquidations (Chart 1), 85% of which were bitcoin positions, pushed spot higher, bringing bitcoin to briefly trade over $39,000 today for the first time since June 17.
As mentioned in Friday’s letter, BTC has broken above declining trendline from 6/15, and with further breakout from hourly rising wedge (Chart 2), bitcoin price quickly from $32,500 to $38,000 on thin weekend/Monday morning liquidity. Bitcoin outperformed in this bout of rally, but we expect rest of the alts to play catchup should the rally be sustained.
With risk events such as GBTC unlocks and President’s Working Group stablecoin discussion in history, it appears that market is sensing less uncertainty, and is embracing positive news at their face values. On the flow-side, we heard of TWAP bidding bitcoin on FTX during the weekend, of steady bids in the OTC market following the break of $36,000, and of outsized short positions either getting margin-called or closed. With still relatively flat/negative funding and stablecoins held on exchanges (Chart 3) close to record highs, we are cautiously optimistic that this short squeeze will have legs.
Various headlines on digital assets becoming more mainstream gained steam last week. Amazon is dipping its toes into digital currency waters, with the company looking to hire blockchainspecific roles to work on the company’s digital currency and blockchain strategy and product roadmap. We also saw digitalnative companies stepping closer to regulated environment; Uniswap, the biggest decentralised exchange, announced it would cut off access to certain tokens, especially synthetic tokens that imitate traditional assets like stocks and commodities, due to ‘evolving regulatory landscape’ and SEC’s Gensler’s warning against stock tokens last week; FTX, which just raised US$ 900mio at an US$ 18bn valuation, lowered limit on leverage trading to 20x (from 101x), perhaps due to concerns voiced by their investors; Binance US and BlockFi, both of which are currently under regulatory scrutiny, mentioned plans to go public and tap into public capital markets.
On the macro side, rising COVID cases and delta variant concern weighed on sentiment, as market initially sold off sharply before rebounding to finish the week higher. Nonetheless, breadth of the rally was narrow, with much of the gains concentrated in technology and growth stocks, and volume low. US Treasury yields followed similar pattern to equity benchmarks, initially seeing steep decline in 10s yields before quickly retracing the move lower. This week will be heavy on both the earnings and economic calendar — on the earnings side, tech heavyweights will be in spotlight, with Apple, Microsoft, Alphabet, and Facebook all reporting earnings. On the economic side, we have Q2 GDP data as well as other data such as Core PCE, pending home sales, and durable goods orders. The Fed two-day meeting of its policy-making committee wraps up on July 28.
What is Happening?
Elon Musk confirms he personally owns bitcoin, ethereum and doge. During “B” Word Conference, Musk acknowledged that bitcoin is his biggest holding outside of Tesla and SpaceX stock, and that it makes up far greater share of his personal crypto portfolio than ether and doge. He also confirmed that SpaceX owned bitcoin. Thomas Peterffy, the billionaire Interactive Brokers founder and chairman worth US$ 25bn, also confirmed that he owned some cryptocurrencies because he has to ‘play the odds’ in case it becomes the dominant currency, while maintaining that such chance is small.
JP Morgan makes crypto funds exposure available to wealth management clients, making it the first bank to do so. On top of just this institutional investor expansion, JPMorgan is also reportedly giving their retail client side wider access to indirect crypto exposure through the GBTC and Osprey Bitcoin Trust.
Following the dismal sentiment last week, price action has turned for the better, with the break below $30k proving to be a bear trap. Although bitcoin has broken out of its downtrend, it remains within the broader $30,000–41,000 range seen since May’18 and we will not fully convinced of the rally until it does so. Nonetheless, given the sizeable short positions built in the OTC market during the last 2 months of sideways market, we are cautiously optimistic on further short squeeze and supercycle.