22 November 2021
Following the sell-off last Monday, overall crypto market has been trading heavy; bitcoin (-12%) rejected $60k two times over the weekend, and ether (-11%) displayed similar price action as it rejected $4,400. Some of the headlines blamed for the correction included US infrastructure bill being signed into law (expected), Bitcoin spot ETF being rejected (expected), and Mt. Gox trustee finalising reimbursement plan for creditors (141k BTC is definitely big but not extremely huge + settlement to happen earliest in Q1’22). Zero interest rate has made its way into crypto-space as well, as hourly funding rate (Chart 1) turned neutral and currently hovers at negative territories. Nonetheless, open interest still remains elevated (bitcoin OI ~$23.4bn; Chart 2), implying that market’s still not flushed out / constructive on near-term price action. It is also worth noting that bitcoin dominance has actually been declining in this bout of sell-off (43.4% in 11/11 to current level of 42.2%). Top performers in Top20 crypto were $AVAX (+35%) and $CRO (+55%), which are both seeing good TVL growth; the latter also got publicity as it purchased naming rights to Staples Center (home to LA Lakers, amongst other teams – will there be Stadium Curse?). It’s also worth noting the continued rotation into metaverse and gaming tokens, as evidenced by outperformance of related tokens such as $MANA (+6%), $FLOW (+8%), $SAND (+31%), $GALA (+300%), $IMX (+24%). Other outperformers were those that were offering liquidity incentives, such as $EGLD (+40%, $1.29bn Maiar DEX liquidity incentive) and $ROSE (+72%, $160mio Ecosystem Fund)
On the institutional side, money continues to be abundant as funds continue to attract capital (Paradigm launches $2.5bn crypto venture fund), companies raise capital at record levels (Gemini raises $400mio at $7.1bn valuation; DCG raises $600mio in new credit facility, Marathon Digital reveals plans to sell $500mio in convertible bonds, taking a page out of the MicroStrategy playbook), and companies have little qualms about spending (aforementioned liquidity incentives from Oasis and Elrond, as well as Crypto.com spending hefty $700mio for naming rights to Staples Arena).
On the macro side, market continued to weight strong economic (October retail sales 1.7% vs. 1.2%, fastest since March; October industrial production 1.6% vs. Est. 0.7%) and profits data (S&P500 companies’ profits grew 39% YoY) against inflation fears, ongoing supply-chain strains, and a rise in COVID infections in some regions. Major indices ended the week mixed — NQ and ES hit new ATHs as growth outpaced value. On the energy fronts, oil prices dropped after China and US discussed releasing strategic reserves and US inventories rose for the first time in 5 weeks. On the rates front, yields finished tad lower, with increased chatters of Biden potentially appointing more dovish Brainard vs. current Chair Powell. Going into the week, market is closely watching data feast on Wednesday (including 3Q GDP data, Fed meeting minutes, etc.), infrastructure bill in Senate; we have a shortened week with Thanksgiving Thursday.
What is Happening?
El Salvador government plans ‘Bitcoin City’, backed by bitcoin bonds. President Nayib Bukele announced that the Bitcoin City, located at the east of the country, would initially be funded with the issuance of $1bn Bitcoin Bond — the issuance will be managed by Blockstream, a bitcoin services-focused company, with tokenized bonds being issued on top of its Liquid blockchain. Out of the $1bn proceeds, half will be used to purchase bitcoin, while the other half will be used to build bitcoin-specific mining and power infrastructure. The City would be powered by geothermal energy, and feature zero taxes for its citizens.
With the sharp pullback in crypto, and bitcoin failing to close above its 50dma, we are cautious of the overall crypto market, and are not yet ready to catch a falling knife. Nonetheless, we think the decoupling of tokens against bitcoin is a healthy sign that market is maturing, and are constructive of longer-term price action and industry outlook of digital assets. Aside from the longer-term view, we think being nimble and trading higher volatility names actively pays off in the current environment.