Stacking Sats — our 2 satoshis

19 Apr 2021

Market Recap

Digital asset saw strong growth and new records in anticipation of Coinbase’s public listing last Wednesday. Bitcoin broke through $60k resistance to ATH of $64,900 on Coinbase, but alt-coins clocked even more impressive performance as ‘legacy’ coins from previous cycle ($BCH +47%, $BSV 21%+, $NEO +91%) and memecoin $DOGE (+350% and YTD 65x) outperformed, leading to current bitcoin dominance of 51.1%. Digital assets have since retraced, with sharp sell-off on Sunday and concomitant $9.26bn long liquidation in BTC (Chart 1).

Chart 1: Total BTC liquidations, from Source: bybt

However, open interest still remains at elevated levels (Chart 2), and further flushing out of levered longs is a possibility.

Chart 2: Exchange BTC Futures Open Interest, from Source: bybt

Coinbase’s public listing was hailed as a historic moment for digital assets space; $COIN finished the first week of trading at $332 (market cap of ~$64bn), but price action was that of ‘buy the rumour, sell the fact’ as both digital assets and related assets (such as shares of MicroStrategy, Riot Blockchain, Galaxy Digital) sold off following the listing. Aside from the Coinbase listing, traditional finance space continued to adopt digital assets in the form of investments (JPM, UBS, Mastercard invested in Consensys; insurers invested in NYDIG), product offerings (State Street to start offering digital assets trading from middle of 2021; VanEck launched new ETF (Ticker: DAPP) to provide exposure to digital assets) and actual usage (AXA Switzerland allowing customers to pay premiums in bitcoin). The market has drastically changed in the last 6 months with the entry of institutional investors that have high anchor prices for Bitcoin — there are now 2.3 million bitcoins that have changed hands on-chain at >$50k, and 608k bitcoins at >$57k (Source: Chainalysis), creating a floor on the price.

The continued outperformance in alts and kimchi premium (Chart 3) as pointed out in previous week’s letter are rather reflective of exuberant sentiment in the crypto market, but with the underlying demand-supply dynamic, we prefer to stack sats on the dips.

Chart 3: Kimchi premium (Upbit vs. Binance), from Source: Scolkg

On the macro side, signs of rising demand (core retail sales +9.8% MoM, initial jobless claims 576k), inflation (Core CPI +1.6% YoY), and earning all pointed to an accelerating recovery and propelled equities, bonds, and commodities higher. Major benchmarks continued its 4th week of rally, and reached new record highs. Market continues to closely observe Q1 earnings reports this week, as well as further developments on vaccine distribution with CDC expecting to meet this week to consider recommendations for Johnson & Johnson’s vaccine.

(Apr 19, 2021 Top 5 Crypto KPI)

What is Happening?

The US Senate officially confirmed Gary Gensler as chairman of the SEC. As a cryptocurrency policy and blockchain expert (Gensler previously taught “Blockchain and Money” course at MIT), market is optimistic that US could soon see a Bitcoin ETF approval. ETF developments have been gathering pace, with BNY Mellon announcing they would be the service provider for the proposed First Trust Skybridge Bitcoin ETF, Galaxy Digital filing for Bitcoin ETF last week, and SEC having started review of WisdomTree and VanEck’s ETF filing.

Canada approved 2 Ethereum ETFs in one day. Purpose Investments and CI Global Asset Managemnet both received approval to launch Ether ETF (Purpose Ether ETF, Ticker: ETHH, CI Galaxy Ethereum ETF, Ticker: ETHX, respectively), and the two ETFs are expected to launch on the Toronto Stock Exchange on 4/20, subject to TSX approval. The approval comes a little over 2 months after Canada approved the Purpose Bitcoin ETF, which has since reached CAD$ 1.4bn AUM. Overall, Galaxy Digital (Ticker: GLXY) seems to very active, albeit quietly, in the space, being involved with both the CI crypto ETFs and their own Bitcoin ETF ambitions in the US.

Conclusion

On the risk of sounding like a broken record, we continue to be constructive on digital asset market with the trifecta of fundamental (industry developments and adoption), technical (price action) and narrative (bitcoin as store of value, and DeFi as a contender to future of finance) on our side. That was our two satoshis.

Good Luck!