15 November 2021

Market Recap

We saw rather interesting price action in bitcoin last week, as the digital gold reacted positively to both risk-on and risk-off events. On the risk-on side, tailwind of constructive risk sentiments (major equity indices at ATH) pushed bitcoin and broader crypto higher. On the risk-off/inflation hedge side, bitcoin initially printed new ATH (~$69k) following higher-than-expected US CPI, before retracing the move sharply to ~$63k. After the sell-off, market spent the week consolidating; bitcoin and broader markets are trading constructively despite SEC’s rejection of Vaneck’s bitcoin spot ETF proposal after-hours; bitcoin’s Taproot Upgrade activation yesterday was smooth, and we are not seeing much market reaction. On the alts side, Satori continues to favour ether’s price action over that of bitcoin’s. It was also a good call to fade event-driven trades, such as long $SOL (-4%, 11/7 annual conference) and $DOT (-10%, 11/11 parachain auction) into the actual events, as they proved to be “buy the rumour, sell the fact” trades. $AVAX (+12%) continued to do well with influx of capital into Avalanche Bridge, launch of USDT on Avalanche, and trendy dApps (most notably Blizz Finance, another lending protocol). Outperforming sectors included legacy tokens (LTC +36%, BCH +13%, TRX +11%, DASH +20%, ZEC +22%) and metaverse- tokens (MANA +20%, SAND +12%, CHR +58%). CRO (+36%) also continued to outperform, with Cronos Chain developments in full swing.

Chart 1: YTD 7-Days Moving Average of Hourly Funding Rate for BTC and ETH on FTX

On the institutional side, Web3 continued to be at the centre of attention, with multiple social media / web platforms (Twitter, Brave, Discord, Bumble) revealing Web3 integration ambitions. Given the entrances of Web 2.0 incumbents into the space, we prefer expressing our bullish Web 3.0 via investing in infrasturcture projects as opposed to app-specific projects. On the invesment front, crypto- fundraising is becoming more heated with well-endowed DAOs and project treasuries fighting for allocations with traditional VCs — projects are getting more demanding (for good reasons), and we expect higher bars for capital owners to be able to participate in fundraising.

On the macro side, market confronted highest inflation in 3 decades as US CPI printed +6.2% YoY (vs. Est. 5.8%) in the month of October. Stocks retreated from record highs with inflation concerns, but given that $ES was already overextended, having rallied ~9% in 4 weeks, correction was not surprising. Elon Musk’s anticipated sale of $TSLA stock following Twitter poll to sell 10% of his Tesla stock did not help the market as well ($TSLA down ~20%). Future expectations of labour market and economy continued to be positive, with better-than-expected JOLTS job openings in September (10.4mio vs. Est. 10.9mio), and Pfizoer’s announcement that it was seeking emergency approval for a highly effective treatment for COVID-19. Nonetheless, with highly commoditized market and liquidity being core driver of the market, inflation concerns are most-watched; upside inflation surprise drove UST yields higher, with 10s finishing the week at 1.58% (+8bp). Going into the week, Tuesday’s retail sales are closely watched given the upcoming holiday shopping season and inflation concerns looming large.

(Nov 15, 2021, Top 5 Crypto KPI)

What is Happening?

FTX.US reports 512% increase in average daily volume in Q3’21. FTX.US reported average daily volume of ~$360bn, and ~4.5% market share of US crypto spot market (up from 2% at the start of 3Q), and saw user count increase by 52% QoQ. FTX’s growth contradicted Coinbase’s lackadaiscal user base (-16% in monthly transactin users) and trading volume (-29.1%) numbers in Q3’21. Apart from retail base that they’ve been targeting via active marketing and sports sponsoring, FTX.US also reported good institutional demand following acquisition of LedgerX and potential crypto derivatives offerings; ~60% of its volume came from institutions.

Conclusion

Crypto market still looks constructive from broader global macro, asset-class price action, and market structure (Chart 1) angles. Nonetheless, as time passes by and L1 gravy train goes on, we are more inclined to fade L1 rallies in favour of other themes, including metaverse/Web3 infrastructures, and DeFi 2.0 to a certain extent.

Good Luck!