Q9 Markets | Beating the Street
2 June 2022
Q9 Capital: www.q9capital.com
- BTC dominance continues to rise vs everything else
- Institutions and whales accumulating on weakness
- Luna 2.0 tumbles on launch
Summary
Crypto markets started the week with a relief rally but gave it all back and finished the week lower. Bitcoin was the outperformer again, faring better by posting +0.8% gains week on week.
ETH and other major altcoins have continued to underperform BTC, who’s dominance now stands at 46% — further reiterating the risk-off sentiment among investors. Cardano (ADA) was one of a few exceptions to the rule with a 7.6% rally. Aave (4.6%) and Curve Dao Token (+3.3%) also held strong this week.
Open interest in BTC futures and perpetuals now account for 63% of the open interest in the crypto futures market, up from 50% in April. This suggests speculative interest in altcoins is diminishing vs BTC. Alts have had a rough run and a lot of liquidations and de-risking has taken speculators out of the market.
Moreover, new data shows that institutional investors are buying on weakness and taking advantage of low prices to accumulate more digital assets. Crypto investment products enjoyed inflows nearing $90mn last week, with Bitcoin taking the lion’s share, pushing year-to-date inflows just past the half a billion mark to $0.52bn. For the first time in over one month, both the North American and European regions saw digital asset institutional investment product inflows.
Following the UST collapse, a major worry amongst traders was the Luna Foundation Guard (LFG) being forced to sell their large BTC reserves and collapse the price. However, LFG have now offloaded almost their entire treasury to the market in an attempt to relaunch Luna, with little effect on the price of Bitcoin. One thing less for us to worry about.
Bitcoin’s correlation to equities has dropped from 0.9% to 0.7%.
Spring Awakening
Yves Lamoureux, the president of macroeconomic research company Lamoureux & Co, believes that the ‘crypto winter’ has come to an end and the next bull run will extend till 2025. Lamoureux projected that Bitcoin is about to embark on another rally that will culminate in the asset hitting a value of $100k by the end of 2023. He believes that the rally will run until 2025.
He noted that the next turning point in Bitcoin’s price will be the halving event scheduled for 2024. According to Lamoureux, with decreased Bitcoin supply, the asset would mirror historical price movement where it will appreciate.
“It’s always the same way. It goes up before the halving, kind of pauses, and then shoots up, so there’s two phases to it… “When there’s euphoria, I get out, and when I see a lot of despair, negativity, like now, then I re-enter”.
Au Contraire
A chart by the team at JP Morgan hints that Bitcoin IS currently acting a lot like Gold (Au) — to the contrary of what many skeptics are reporting. The chart below shows the ratio of the three-month and six-month realized volatilities of Bitcoin versus that of Gold.
The report also forecasts that the total market cap of Bitcoin and Gold could eventually equalize as they serve the same purpose… But BTC’s current volatility is an impediment to it reaching the market cap of Gold in the near -term and will need to subside before large institutions will be able to allocate — however, in a self fulfilling prophecy, as more investors allocate to Bitcoin its volatility will naturally decrease, meaning more institutional investors are willing to invest, and so on…
Building ADAgio
Cardano’s ADA token led gains among crypto majors with a 7.6% rise to trade over $0.55 at the time of writing. Fundamental catalysts include a rise in the issuance of native assets on the network — over five million assets have now been minted on Cardano, data shows, and the upcoming Vasil hard fork, a network upgrade expected in June that would increase scaling capabilities.
Cardano’s development activity has hit an all-time high as ADA’s team worked on innovating and attracting new projects while prices were suppressed.
Cardano Dev. Activity & Network Profit/Loss
Deja Vu
Luna relaunched on Saturday but what was billed as a “revival” looked more like a redux as new LUNA tokens were issued and promptly plunged in value. “Investing” in this ecosystem is now really nothing more than gambling.
Many projects built on Terra are abandoning the chain and jumping ship. Polygon (a side chain for Ethereum), for example, is taking advantage of the collapse by launching a multi-million dollar fund specifically to help Terra projects move onto Polygon.
In Seoul, financial and securities crime investigators have reportedly subpoenaed all employees of Terraform Labs, the crypto startup behind failed algorithmic stablecoin UST.
Investigators have reportedly secured a statement claiming some Terraform Labs insiders were opposed to launching LUNA and UST, after internal modeling of the protocol ultimately failed. Prosecutors are now also probing whether local crypto exchanges adhered to proper listing processes for UST and LUNA, as well as potential price manipulation.
The UK Treasury has also set out to bolster stablecoin protections following the Terra crash.
One Up on Crypto Street
May has been an awful month for most market participants. Three weeks after the crypto market’s capitulation, Bitcoin has found itself in a sideways market and altcoins are off their lofty heights.
In theory, everybody wants to buy at low prices and sell at high prices. But almost everybody forgets that lower prices occur during gloomy and painful periods, while higher ones occur during periods of hype and euphoria.
This chart shows conversely that retail investors have been doing the opposite and buying at the top whilst selling the bottom as fear gripped the market.
This is not the case for professional investors. On-chain data shows that whales are buying BTC each time it dips below $30k, institutional crypto products are now seeing net flows, and large crypto corporates are scouring the market for M&A bargains. Institutional investors understand investing for the long term and taking advantage of discounted prices.
Investing legend, former manager of the Magellan Fund and author of investing bibles One Up on Wall Street and Beating the Street, Peter Lynch, succing puts it: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”.
Crypto may yet go down in the short term but it pays to be a contrarian and buy when the market’s not hot. But it’s important to remember that cryptocurrencies are not lottery tickets. There’s a company or an idea behind every token and a reason each token performs the way they do. So don’t invest blindly, do your homework.
Peter Lynch may be the most successful investor of all time, beating the markets by huge margins, outpacing the S&P 500 11 out of 13 years, and averaging over 29% average annual returns. It’s worth following his maxim:
In the News…
- What meltdown? Why crypto could still find favour with U/HNWIs
- China Supreme Court calls for mass blockchain adoption in judicial system
- Portugal’s parliament rejects Bitcoin and crypto tax proposals
- Hedge fund manager Alan Howard explains why he’s investing across the entire crypto ecosystem
- Solana’s blockchain clock loses track of time, now running 30 minutes behind
- Blockchain analytics firm Elliptic announces JPMorgan joined its $60mn Series C
- Argentines turn to Bitcoin amid inflation worries
- Aptos revealed as PayPal Ventures’ first layer-1 investment
- Mazda joins MOBI blockchain alliance
Legacy Markets
- BTC inched +0.8% higher while ETH fell -6.2% respectively on the week (8am). At the time of writing the total market cap of the crypto market was above the $1.2tln mark and Bitcoin dominance rose above 46% (highest YTD).
- Among other majors, SOL plummeted -16.1% while ADA rallied +7.6% this week. Among top defi names AAVE continue to outperform gaining +4.6% week on week
- Seven-day Annualized realised volatility in crypto markets saw a mild contraction, dropped to 39.4% for BTC and 47.7% for ETH this week
Crypto Markets
- Among risk assets Oil futures rose +2% and US Equities (SPX) rallied +3.1% week on week
- The US Dollar index rose +0.5% week on week
- 10 year US treasury yields climbed 14bps and the Gold & Silver index dropped -1.4%
Our Flows
- Our client pad was skewed towards sellers (4.3x sellers vs buyers) during last week
- Flow dominated by sellers in BTC & ETH and APE buyers
- Buying activity in ADA and AXS on modest volumes
