5 July 2021
Digital assets market looks more constructive from both technical and on-chain perspective. On-chain data shows bitcoin is being transferred from speculative participants (weak hands) to participants with little history of selling (strong hands), resulting in higher liquid supply ratio (Chart 1); whale balance (1k-10k bitcoin holdings) has also jumped to 2-month high (Chart 2). Sentiments have also recovered slightly, with bitcoin fear and greed index now at 29 from 25 last week. In terms of price action, bitcoin continues to trade between $32–37k, with upside capped by psychologically-significant resistance at $40k. This, together with upcoming London hard fork and ETH-1559 in July, has caused market to rotate some of its capital to ether and ETHBTC saw strong bounce off 0.055 support level. Ether and ethereum-based DeFi tokens ($UNI +20%, $AAVE +36%, $MKR +30%, $COMP +75%, $SNX +33%) led the market, and bitcoin dominance has fallen to 45.0%.
We pointed out what seemed like globally-coordinated regulatory actions against Binance in last week’s report; the actions continued with Cayman Islands’ regulators beginning investigation on Binance (stating the exchange is not licensed there), and Thai officials filing a criminal complaint against Binance (for operating without a license). Binance’s exchange token, $BNB, and broader crypto market are not yet swayed by the FUD (Chart 3).
It is also worth noting that Binance.US made high-profile hires earlier this year, including Brian Brooks (former head of OCC) and Max Baucus (former Senator and ambassador to China). Crypto and TradFi rails continue to merge — last week saw Compound (Compound Treasury) and Coinbase (Coinbase Lend) launching savings accounts programmes, which allow users to access high crypto yield without having to deal with complexities of holding crypto; mobile banking company Current announced it will be offering its 3 million users access to Compound’s fixed 4% APR on deposits. Digital asset management firm NYDIG also struck a deal with NCR, an enterprise payments giant, to enable 650 US banks and credit unions to offer digital assets trading to estimated 24 million customers.
On the macro side, Friday’s NFP number confirmed broader consensus on strong labour market (850k in June vs. Est. 700k), with ISM Manufacturing PMI (Actual 60.6, Est. 61) showing signs of labour shortage. The overall upbeat data pushed stocks to new ATHs. This week, we have FOMC meeting minutes on Wednesday, and market is looking out for any discussions on asset purchase tapering.
What is Happening?
Interdealer broker TP ICAP plans to launch a crypto trading platform for institutional investors. The world’s biggest interdealer broker is developing the platform with crypto custody providers Fidelity Digital Assets and Standard Chartered’s Zodia Custody, alongside liquidity provider Flow Traders. According to ICAP, it is trying to offer an alternative to current crypto market infrastructure in which trading venues require pre-funding and also act as custodians. The platform is still pending registration with the UK’s FCA and is expected to launch end of this year, and will allow institutional clients to trade spot bitcoin and ether.
Robinhood’s S-1 goes public, detailing big surge in crypto business unit since the start of 2021. For the quarter ending March 31, 2021, 17% of Robinhood’s total revenue was derived from cryptocurrency transactions, compared to just 4% earned a quarter ago, with 9.5 million customers trading cryptocurrencies (vs. 1.7mio in Q4’20; more than half of Robinhood’s 18 million funded accounts traded cryptocurrencies). Another interesting snippet was that DOGE coin accounted for 34% of its cryptocurrency-based revenue in Q1 (vs. 4% in Q4’20).
Q2’21 was a challenging quarter as bitcoin underwent its 3rd largest quarterly drawdown (after Q1’18 and Q4’18). Nonetheless, the structural picture of bitcoin is starting to look better and we are cautiously optimistic marching into the new quarter. With plenty of money on the sideline (as measured by stablecoin ratio) and outsized short positions that we hear of on loan books of major lenders, we think a major short squeeze is not out of question, but will wait for price action to confirm our suspicion.