Q9 Markets | A Pizza the Action
27 May 2022
Q9 Capital: www.q9capital.com
- JP Morgan says BTC undervalued by 28%
- Terra 2.0 scheduled to launch
- 11th anniversary of “Bitcoin Pizza Day”
Bitcoin struggled to hold the $30k mark and catch a bid to the upside this week. But despite BTC’s market capitalisation declining to $552bn, its dominance vs altcoins is now at a seven-month high of 45%, highlighting its relative strength vs everything else.
However, BTC is actually probably benefiting from a flight to safety. A 7 block ‘reorg’ of the Beacon chain scared the market leading a sell off in ETH that pummeled Alts. Ethereum took a -10.6% hit, while Solana is down -16.7% and Avalanche fell -22.5%. The reorg appears to be an error (LINK), but calls into question ETH’s merge which could now be happening in August. The 2.0 upgrade to a proof-of-stake (PoS) consensus mechanism is expected to cut the issuance of ETH by about 90%. Less ETH in circulation means less supply and higher demand, which people hope pushes the price up.
Here is the definitive deep dive on Ethereum’s ambitious roadmap, “The Hitchhiker’s Guide to Ethereum”.
BTC Market Dominance
All this bearishness means less FOMO and more FUD and Bitcoin options traders are more focused on hedging exposure, shown by skews reaching new all-time highs across durations. A positive skew signals a higher demand for put options than call options, signaling that traders are leaning bearish.
Global macro trends likely mean a continuation in the current range or slight downside for crypto markets overall in the short term.
However, its not all doom and gloom… In a nod of confidence to crypto, JP Morgan says Bitcoin is currently undervalued by 28% and that crypto is now its “preferred alternative asset class”. The bank estimates Bitcoin’s current fair value at $38k. JPM also stated that it is replacing real estate with crypto assets as its preferred alternative asset class along with hedge funds, citing “potential lagged repricing” in private equity, private debt and real estate.
“The past month’s crypto market correction looks more like capitulation relative to last January/February and going forward we see upside for bitcoin and crypto markets more generally,” the bank’s strategists, led by Nikolaos Panigirtzoglou, noted.
The strategists also believe that “the trajectory for VC funding would be crucial in helping the crypto market to avoid the long winter of 2018/2019”. Andreessen Horowitz (a16z) timed this statement well with the launch of a new $4.5bn VC fund (it’s 4th). a16z believes the space is reaching a new “golden era” in which “new talent, viable infrastructure, and community knowledge” will spur rapid innovation. “We believe blockchains will power the next major computing cycle…that’s why we’ve decided to go big.”
A New Moon
Do Kwon’s plan to rebirth the Terra blockchain got approved this week. In total, 65.5% of votes supported the proposal which will relaunch the Terra blockchain and create LUNA 2.0 tokens. This will result in the creation of a new blockchain that will airdrop tokens proportionally to those affected, following the sudden and catastrophic collapse of the TerraUSD (UST) algorithmic stablecoin. The new blockchain will be called Terra whereas the current version of the chain will be renamed as Terra Classic.
Based on the details provided in the proposal, Terra 2.0 is scheduled to hit mainnet on Friday. After this launch, LUNA 2.0 tokens will be available for trading. Crypto exchanges including Binance and FTX are to support the Terra / Luna 2.0 relaunch.
Central banks and now regulators are using Terra’s collapse as an opportunity to increase their mandate over the industry. Crypto’s risks could “spill over to the wider economy” as more financial institutions engage with the sector, stated the European Central Bank this week. “Given the speed of crypto developments and the increasing risks, it is important to bring crypto-assets into the regulatory perimeter and under supervision as a matter of urgency.”
Scaling Back
The Grayscale Bitcoin Fund (GBTC) discount has been a sound indicator of institutional demand across the years, or perhaps more accurately ‘tradfi’ demand. It currently is trading at all-time low discount of over 31% below the value of underlying BTC. Investors who are using GBTC as their primary crypto vehicle probably also have a lot of equities, and that hasn’t been going well either…
GBTC Discount to NAV, 1 Year
AUM of GBTC, 1 Year
50 Degrees Below Celsius
It appears that crypto lender Celsius Network is also getting the cold shoulder from clients — the value of customer assets deposited on the platform has shrunk by 50% since the start of 2022.
Celsius, which borrows cryptocurrencies from its customers and lends them out to earn a return, had just under $12bn of assets as of May 17, according to its website, down from more than $24bn in late December 2021. However, this is not unusual with the market being down so much ytd. 24/7 pricing for your assets is not just a feature! Since March, net outflows have actually amounted to more than $1.1bn.
Celsius’s own coin called CEL is trading at just 80cents, down from a peak of $8 last June — a decrease of -90%.
Crypto lending boomed in recent years in lockstep with the broader crypto market. With prices now in retreat, companies with billions of customer deposits such as Celsius now face the challenge of navigating a crypto market-wide slump.
Try Topping This Holiday
May 22nd, this week, marked the 11th anniversary of Bitcoin Pizza Day, the holiday marking the date in 2010 when the first real-world good was bought with the first decentralized digital money.
By May 2010, Bitcoin had a very small, but growing economy — one where Bitcoin was mostly traded P2P and on some small exchanges.
Eager to push the frontier of Bitcoin commerce further, Laszlo Hanyecz, an early developer and miner, put out the call that he was willing and ready to pay 10,000 BTC for two pizzas, should someone be willing to take him up on the trade.
Bitcoin user Jeremy “Jercos” Sturdivant agreed to the terms, and two Papa John’s pies would arrive at Hanyecz’s house shortly thereafter, with history being made.
Here’s a slice of trivia about Bitcoin Pizza Day:
- 10,000 BTC was worth just $41 at the time of purchase.
- Jercos sold his Bitcoin the following year for roughly $400 for the lot.
- Those Bitcoins would now be worth around $300mn. That’s enough to buy 20mn pizzas at $15 each.
- PizzaDAO celebrated Bitcoin Pizza Day with 100 parties worldwide.
- It is the second Bitcoin holiday. The first was “Satoshi Disappear Day” declared on April 28, 2011.
- Prior to the first Bitcoin halving in 2012, each successful miner was rewarded with 50 BTC for discovering a new block. This meant one only needed to mine 200 blocks to earn 10,000 BTC, which wasn’t particularly difficult at the time.
- Jercos gave his only interview to a website called “Bitcoin Who’s Who” in 2015.
- Here is the picture of the 2x Papa John’s pizzas that were ordered:
Here is an analysis of where all the Bitcoin Pizza funds ended up. 5% of the total landed in a very wealthy wallet, which is in the top 15 wealthiest wallets in Bitcoin, having accumulated over 53,000 BTC. The total spent or sent from the wallet is 0 BTC — a certified Bitcoin hodler. Some of the funds were seemingly liquidated on a failed crypto exchange.
Express Delivery
Besides being a day for the global crypto community to come together and remind Jercos how wealthy he could have been, May 22nd is an important date and is rightfully celebrated. It’s the first time that Bitcoin “became real”.
A lot has happened since the first real world purchase using Bitcoin. Today, more than one-third of small businesses now accept crypto as a form of payment in the US alone, and the list of products and services you can buy with BTC continues growing by the day. Here’s a list of stuff you can now buy with Bitcoin, including real estate, cars, art and charitable donations.
Daily adoption and usage of crypto continues to grow and the industry is investing in and building innovative real world solutions making crypto easy and available for everyone, everywhere. You’ve got to be a holder to have a slice of the action.
In the News…
- Crypto might have an insider trading problem (WSJ)
- FTX CEO says he could spend ‘north of $100 million’ during US elections in 2024
- G7 countries urge swift regulation of crypto assets
- European Central Bank reveals 10% of Eurozone households own crypto
- South Korea may hold exchanges accountable for Terra crash
- Coinbase becomes first crypto firm to enter Fortune 500 list
- Lack of knowledge about BTC is the biggest barrier to usage
- NFT artist Beeple’s Twitter account hacked in phishing scam
Crypto Markets
- BTC fell -3.5% and ETH dropped -10.6% on the week (8am). At the time of writing the total market cap of the crypto market was shy of $1.2tln mark and Bitcoin dominance rose above 46%
- L1s were hammered the most this week with SOL & AVAX dropping -16.7% & -22.5%. Among top DeFi names AAVE and CRV rallied 10.9% & 12.1% week on week
- Seven day realised volatility (annualized) in crypto markets continued to shrink, 31% for BTC and 36% for ETH
Legacy Markets
- US Equities (SPX) rallied 4% week on week, strong earning shed off fears on the economic slowdown amid rising inflation
- The US Dollar index dropped -1.2% week on week
- 10 year US treasury yields slipped 9bps and the Gold & Silver index 1% this week
