13 September 2021

Market Recap

Following last Tuesday’s flash crash, market spent the week consolidating. The flash crash was rather unexpected, as usual signs of exuberance, including funding rate (Chart 1), Kimchi premium, and GBTC premium, were absent; quickly rising futures open interest (Chart 2) and prices were slightly concerning but not dealbreakers.

Chart 1: YTD 7-Days Moving Average of Hourly Funding Rate for BTC and ETH on FTX
Chart 2: BTC/USD Price (Top) vs. Aggregated Open Interest (Bottom) on Binance, from Source: Coinalyze

Layer-1s continued to be the centre of attention — with $SOL (+13%), $LUNA (+11%), $AVAX (+11%), $ALGO (+68%), $EGLD (+45%), $HBAR (+26%), $NEAR (+34%), $ONE (+53%) outperforming BTC and ETH. $ALGO and $ONE also continued the trend of launching incentive programmes, of $300mio and $380mio respectively, and so far, the simple strategy of buying the liquidity incentive news has done not too bad. A couple of observations of the market: 1. We think the next trend may be awarding bridge users — Avalanche Bridge (AB) kickstarted this first by awarding bridge users with some $AVAX tokens so that they can use it to make first few transactions (e.g. swap more tokens to $AVAX), and during the weekend airdropped ~$1k worth of $GB tokens to AB users. 2. ‘Ethereum killers’ would have to increasingly compete with Layer-2 solutions — $DYDX started the trend with its zkSTARKS roll-up solution and attracted elevated trading volume with incentives for liquidity providers, and Arbitrum saw its TVL rocket to $1.7bn in the last 2 days (from almost nothing) on the back of Arbinyan project — rather ponzi-looking project whose main goal is to bridge users and goals to Arbitrum.

On the industry front, we continue to see capital flowing in — Bain Capital Venture filed to create crypto-focused fund, months after announcing a $1.3bn in fresh funds to invest in startups, and Dan Tapiero’s 10T Fund announced raising of $750mio with focus on building a portfolio of companies in the digital asset ecosystem, with Alan Howard amongst the fund’s biggest backers. Following foray into NFT by Visa earlier this month, Mastercard also aped into crypto, but by acquiring CipherTrace to enhance crypto capabilities as part of its digital assets strategy. Mastercard has existing partnerships with the likes of Gemini, BitPay and Uphold.

On the macro side, major indices retreated over shortened trading week, with S&P 500 logging its first 5-day losing streak since mid-February. Although the actual number is a less little over 1% off record highs, the market narrative can change fast with trifecta of global growth concerns (previous week’s significant August payrolls miss + delta variant, supply chain concerns), central banks and governments lifting their gas pedals (fading Fed and government stimulus), continued inflation fears (Friday’s August PPI number + 0.7% vs. Est. 0.6% + record 10.93mio JOLTS job openings).

(Sep 13, 2021, Top 5 Crypto KPI)

What is Happening?

Senator Elizabeth Warren likened crypto as the “new shadow bank”, saying crypto (probably DeFi) provides many of the same services as TradFi system, but without the consumer protections or financial stability. Back in July, Warren called for a coordinated and cohesive regulatory strategy to mitigate the growing risks that cryptocurrencies pose to the financial system.

SEC threatens to sue Coinbase over its proposed crypto lending program “Lend” as it considers Lend to involve a security. Coinbase’s CEO Brian Armstrong took to Twitter to express frustration with the SEC as it did not provide any reasoning to their decisions. Aside from the not-so-surprising opacity of the regulators, it raises another concern of whether such clampdown is a bellweather for other US-based lending platforms, such as BlockFi, that already had beef with state securities regulators. On the other hand, it could prove beneficial to Celcius and Nexo (not US-based), which have been offering especially competitive rates. Overall, the current regime seems pretty hostile to crypto (as former CFTC comissioner Brian Quintenz who joined a16z Crypto as an advisory partner mentioned in the latest Bankless podcast), and we expect more incoming FUD.


Nothing much has changed since last week, with bulk of the focus on L1s and liquidity incentives. We continue to prefer to not chase rallies at extended prices (especially on $SOL for now, given the 60% drop in reward emission on $SUNNY today), and would rather seek for opportunities in either quality projects or obscure chains/projects.

Good Luck!