Q9 Markets: Clash of Coins
17th September 2021
Q9 Capital: www.q9capital.com
- Renewed interest in BTC from institutional investors
- Solana drops following major outage
- Ethereum challengers battle it out for supremacy
Another action-packed week in crypto-land saw most digital assets posting positive returns, Solana and Arbitrum experiencing major outages, MicroStrategy adding another 5k Bitcoins, Cardano launching smart contracts, quant trading firm Jump Trading and major hedge fund Brevan Howard significantly expand their crypto operations, Walmart not entering a partnership with Litecoin, and much more…
Bitcoin jumped 3% over the week with the latest breakout backed by renewed interest from large investors, blockchain metrics show. Data tracked by analytics firm IntoTheBlock shows aggregated daily volume measured in USD from on-chain transactions, where each transaction was greater than $100,000, surged to a record $480 billion on Wednesday. In BTC terms, the so-called large transaction volume hit a two-year high of over 10 million BTC. However, even though Bitcoins price is increasing, its dominance has now faded below 40%, highlighting the significant outperformance of “everything else”.
SOL Searching
Solana had an abysmal week, tanking -21.3% following a major outage. On Tuesday, Solana’s high-speed blockchain suffered downtime as “resource exhaustion” on the network brought blockchain validation to an 18 hour-long halt. As such, activity across Solana’s multibillion-dollar DeFi and non-fungible tokens ecosystem came to a grinding halt. Recently launched Arbitrum, which scales Ethereum by leveraging Optimistic rollups technology to increase transaction speed and lower fees, was also knocked offline.
Solana and Arbitrum’s outage was bad optics for Ethereum alternatives in general.
Ethereum still remains the gold standard for smart contracts and blockchain-based apps. Yet, there are a number of new Layer 1 protocols vying for Ethereum’s crown as the #1 destination to develop DApps and other decentralised projects. Ethereum has notable issues with speed, gas fees and scalability (which it is aiming to solve through moving to a proof-of-stake mechanism and other network upgrades). Projects such as Cardano, Solana, Polkadot and many others are now offering exciting value propositions, each aiming to solve some of the issues with ETH in their own way, but they must also prove capable of attracting a wide enough user base to allow for mainstream adoption and success.
Many of these new protocols are giving up decentralisation as a trade-off for delivering a speedy network. They cannot be both fully decentralised and fast. “Events of today in crypto just go to show that genuine decentralization and well-designed security [like Ethereum] make a far more valuable proposition than some big transaction throughput [speed] numbers coming from an exclusive and closed set of servers,” Gavin Wood, computer scientist and founder of Polkadot, Kusama, Ethereum, Parity, Web3 Foundation, tweeted on Tuesday following the SOL outage.” If you can’t run a full-node yourself, then it’s just another bank.”
While there certainly is a network effect for ‘world computers’ like Ethereum, it’s probably consensus at this point that there will be several if not multiple viable alternatives in the future of crypto. However, this is a demonstration that the market often has simpler metrics (like speed) than what the real world demands of winners. Look at user growth, security, usability and reliability (as well as speed of course!) and do your homework. The space is growing fast and we will soon see.
Investors rotated out of SOL (down -21.3%) and into Ethereum and Ethereum based ERC-20 tokens such as SUSHI (up +35.9%), UNI (up +12.7%), ZRX (up +7.5%) and LINK (up +6.6%).
Supermarket Sweep
Litecoin also had a rollercoaster of a week. The asset gave up a 20% gain and tumbled back to earth following a fake press release sent out by GlobeNewswire that referenced a partnership with Walmart. The news release said that Walmart, the biggest retailer in the US, would accept cryptocurrency for payments from shoppers using LTC. GlobeNewswire said that a fraudulent user account was used to issue the release. Other crypto assets were relatively unaffected by the rumour.
Litecoin Price, 7 Days
Plain Sayling
MicroStrategy has added an additional 5,050 bitcoins to its balance sheet. The company now holds 114,042 bitcoins, currently collectively worth around $5.1 billion. MicroStrategy stock has become a kind of Bitcoin proxy investment for some investors, providing a way to gain exposure to the crypto without the hassle of buying and holding bitcoin directly. MicroStrategy made buying Bitcoin its official corporate strategy in 2020, with its CEO, Michael Saylor, calling the move a defence against the US dollar’s potential devaluation.
Shares of MicroStrategy have surged by almost 359% in the past 12 months, in lockstep with Bitcoin, whose value has surged by 314% in the same period. Since MSTR appreciation has outpaced Bitcoin’s price growth, some analysts believe that owning shares gives investors easier exposure to the benchmark cryptocurrency market through traditional infrastructure.
Currently, 109 ETFs have exposure to MicroStrategy, with 17 including the stock in their top 15 holdings. The value of MicroStrategy’s massive BTC holdings has also surpassed what most S&P 500 companies hold in their cash treasuries.
In the News…
- Democrats eye expanded rules for cryptocurrencies as part of trillion-dollar tax and spending plan. Politico reported that Richard Neal, chairman of the House Ways and Means Committee, wants to include a series of measures to pay for the spending package, which could weigh in at as much as $3.5 trillion.
- The European Union is reportedly looking to bolster technological development in the region with a planned $177 billion investment war chest.
- Cardano launches smart contracts after successful hard fork. Cardano has completed its Alonzo hard fork to introduce Plutus-powered smart contract scripts. Coinbase, the largest cryptocurrency exchange in the United States, is planning to raise $1.5 billion via a debt offering, the company officially announced.
- Jump Trading, one of Wall Street’s most secretive high-speed trading firms, no longer wants to keep mum about its multi-billion dollar crypto operation. “We’ve been in crypto for six years now in various capacities,” said Kanav Kariya, the recently appointed president of Jump Crypto.
- Major UK hedge fund Brevan Howard launches crypto division, seeking to “significantly expand” its digital asset operations. The firm also hired former CMT Digital CEO Colleen Sullivan to lead private and venture investments in crypto.
- Fidelity Investments privately prodded the US Securities and Exchange Commission (SEC) last week to approve its Bitcoin ETF, according to recent filings. The financial services giant urged the regulator to approve its fund, citing increased investor interest in crypto.
- Opensea, a NFT marketplace has introduced policies to ban insider trading, after an executive at the company was discovered to be buying artworks shortly before they were promoted on the site’s front page.
- The Bank of Russia sees the digital ruble as a key project. The Russian central bank’s deputy chairwoman sees no obstacles to the launch of a CBDC.
- Zimbabwe’s finance minister urges citizens to invest in Bitcoin.
Legacy Markets
Oil futures rallied +6.8% while the SPX drifted -0.4% lower from the previous week’s levels. 10-year US treasury yield rose 4bps and the US Dollar index advanced +40bps. The Gold & Silver index dropped -4% over the week.
Crypto Markets
- BTC/USD and ETH/USD rose +3% and +4.2% respectively. The total market cap of all crypto stayed north of $2.1tn and Bitcoin dominance continued to stay below 40%
- Among other majors, EOS/USD advanced +4.3% and SUSHI/USD was the outperformer among DeFi names with +35.9% rally
- Annualised volatility subsided in crypto markets to 54% for BTC and 85% for ETH
Flows
- Two way flow on client pad slightly better to sell (1.02x sellers vs buyers)
- Net buyers in BTC and sellers in ETH
- Mild two way activity in EOS and LTC
Q9 Capital: www.q9capital.com
