Market Watch – 31 July 2020

Cryptocurrencies, Market Analysis
  • BTC 24 Hour High $11,224.63
  • BTC 24 Hour Low $10,895.46
  • BTC + 1.2%

We kick off the final week of July with positive market sentiment in both traditional and digital asset markets on the expectation of more positive news to push them further - from stimulus to COVID19 vaccine progress with human trials and targets set on government approval.

The unprecedented liquidity injection by the US is leading to some serious mis-allocation of capital. Needless to say, this has boosted safe haven assets including gold, to an all-time high. Analysts, including Goldman Sachs, reckons gold is just hitting its stride with target prices to $2300/oz as they expect the trend to continue hinting of a potential paradigm shift away from the petrodollar’s supreme reign.

Traditional Markets
  • S&P dropped 0.38%
  • NASDAQ up a modest 0.5%
  • 10 year US Treasury yields are threatening negative territory
  • VIX climbed up 2.7pts to 24.76 overnight off the day’s sentiment
Cryptocurrency

On the digital asset side; 27 people involved with the Plustoken Ponzi (a theft of around $3B worth of coins and tokens) have finally been caught.

As can be seen in the 1W chart below, the market is on pace for a second week of gains after towering an impressive +11.25%, the best weekly performance since the week of April 27. Not only is the market on track to post its best performance in 3-months, but weekly trading volumes are at a 10-week high as of Friday. With the market standing a mere +7% away from breaking through $358B resistance, the next couple of weeks could bring about new highs as the market kicks off what many are calling the start of a "new bull market."

Digital assets market cap stands at 300B, with the DeFi token market cap gaining (from 6.8B to 7.3B to start the morning) at only 2.4% of total market cap.

We started the week off with BTC pushing back up to 10K levels following its strong weekend performance pushed up 500 or +5%. Volumes spiked to 22B on the weekend after seeing mid 15-18B for the past couple weeks. BTC last traded at 10k nearly two months ago when it rejected 10400 levels.

BTC Futures’ aggregate open interest at 4.5B, with traded futures volumes doubling from late last week to 15B, highest in the month. 148B Short contracts liquidated in the past 24h on this 10K move up.

ETH maintained its momentum, spiking +31% in six consecutive traded days from 236 to 311 as the yield farming DeFi tokens take-off. Traded volumes up 16% to 14B. Foreseeing ETH to remain strong in the short-term until more updates regarding ETH 2.0, its final testnet development and the demand for DeFi tokens.

The craze in DeFi has done nothing but continue to grow. Since June 1st, total value locked in these dApps has grown by $2.5B
During the same period: DEX’s $784M, +$696M
Balancer $278M, +$263M
Defi 373 > 640 +70$, $267M Curve $80> $387M, +$180M
Aave $606M, +$544M

You can laugh at them but they are moving markets. And with the forever giving Fed, these mind-boggling multiples might just be the new norm.




Bitcoin Will Become Mainstream Sooner Rather Than Later

The OCC (Office of the Comptroller of the Currency), the government entity supervising banks in the US, made the unprecedented decision on July 22nd to allow banks to provide custody of cryptocurrency. Both the continued rise of central banking balance sheets and the continued improvement in the regulatory landscape for crypto ring the bells for crypto as loud as possible. Bitcoin will become mainstream sooner rather than later.

Bitcoin had for a long time two identities: 1) as cypherpunk money - cherishing privacy and financial sovereignty, and 2) as Digital Gold, focusing on a limited and auditable supply of coins. The entrance to the mainstream will heavily limit the first identity. Hopes for financial digital privacy are quietly making room for the more material hopes of holders and speculators for a $100,000 Bitcoin, or maybe even a $1M coin. But this has its price.

On July 5th, The Block shared that the mammoth US cryptocurrency retail brokerage and custody provider Coinbase seems to be in the process of selling blockchain analytics services to the American DEA and IRS. These tools help identify and keep track of activity of cryptocurrency users. On July 20th, 2 days before the OCC announcement, The Block published an article claiming that leading Bitcoin exchanges in the US: Kraken, Gemini and Bittrex have joined Coinbase and Bitgo as part of the Financial Action Task Force (FATF), an intergovernmental organization founded in 1989 by the G7, which develops policies to combat money laundering. According to the FATF requirements, cryptocurrency exchanges must collect information on the recipients and senders of transactions over $1,000.

This follows the European Union’s new 5AMLD (The European Union’s 5th Anti-Money Laundering Directive), which came into effect at the start of 2020 and requires exchanges to report all cryptocurrency addresses belonging to clients, making sure each Satoshi is accounted for. These recent developments show a clear trend of Bitcoin being integrated into the traditional governance system with no apparent pushback. This leads us to think that increasingly clear regulations on cryptocurrency will be provided by western governments. Bitcoin will be leaving the regulatory twilight zone in favor of a highly supervised existence. Though Bitcoin’s network can transfer 1 dollar as easily as a billion, it’s unlikely, in our opinion, that governments will be highly accepting of unsupervised cross-border activity.

In conclusion: After 11 years, Bitcoin seems to have gotten the government on board, as well as sophisticated institutions. As Bitcoin markets mature, they are becoming more similar to the traditional world’s markets, not only in financial products but also in increasing demands for regulatory compliance. Bitcoin is closer than ever to going to the moon, but it will become increasingly clear to holders that they must leave the cyberpunk vision behind if they want to cash out.