Q9 Markets: Going for Gold

30th July 2021

Q9 Capital: www.q9capital.com

• Olympic lift for crypto markets
• Positive sentiment returns in a number of indicators
• BTC regains its title from the S&P 500 and Gold

Going for Gold

Crypto saw an almost unstoppable resurgence over the last ten days. BTC had its largest rally in months, posting a +23.8% gain over the week, with all other major digital assets hot on its heels. Since the bottom last week (on 20th July) BTC has risen 36%, ETH has risen 38%, and the total market cap of all digital assets grew by a whopping $245bn to reach $1.6tn — these are momentous price appreciations in such a short amount of time.

After many weeks of continued sideways/downward movement, sentiment quickly and significantly improved and crypto broke out of its range. Trading volumes returned providing some strength to the growth momentum. The crypto Fear and Greed Index improved and, for the first time since May 12th, it is back in the neutral zone. This week also saw the largest amount of BTC come off exchanges in over a year — another positive signal.

The majority of this crypto rally came early week. On Monday BTC gained roughly 15% in less than three hours amid a violent squeeze that drove more than $110 million in liquidations. The surge in price was likely prompted by a rumor that Amazon would accept crypto payments, but the e-commerce giant has since denied these rumors. BTC has held relatively steady since and markets seem to be taking a breather over the past few days.

The Greyscale Bitcoin Trust (GBTC) shares have narrowed their discount relative to the underlying cryptocurrency held in the fund, indicating institutional demand for the asset. Some investors may have snapped up GBTC shares in hopes that the discount will evaporate with a bull revival in Bitcoin, a subject we touched on previously. GBTC shares traded at a discount of 6.6% to NAV on Tuesday, the smallest margin since June 22. The discount had widened to 15% in mid-June. GETH has also now narrowed to around 2%.

GBTC Premium

Source: Skew

Later today a total of 42,850 Bitcoin (BTC) option contracts ($1.7 billion) are set to expire, with more call options in the money than puts, favouring the bulls. This might be the first time since the May 21 weekly expiry that bulls will be able to profit from the $40,000 call (buy) options.

Aggregate July 30 Bitcoin option open interest by strike

Source: Bybt.com

The rally this week has seen crypto regain its title medal as the year’s best performing asset class. It had recently fallen vs other macro assets but now sits back on top of the podium with a YTD gain of 38.75%. The S&P 500 has risen 17.92% and Gold has fallen -4.82% over the same period. Much has been written about BTCs similarities with Gold such as its scarcity and inflation hedge characteristics… recent performance does not appear to be one of them.

BTC takes the Gold

Source: Coindesk

While BTC was the gold medal winner (with a close photo finish), it was only in the last 24hrs that ETH et al pulled within spitting distance, rallying almost 4% overnight. So a quick glance at this week’s market gains looks like something broader than it initially was. This is probably good news for a continued rally in the short/medium term. However, it’s also worth noting that sentiment can just as easily re-shift from bullish to bearish (remember how quick we went from euphoria to fear in May?). Don’t forget, it was only just last week BTC closed a session around $29k. The Relative Strength Index (RSI) has reached 70, indicating the market may be overbought in the short term. There may be key resistances ahead, including regulatory uncertainty, and some analysts think it’s time for a pause before we go another leg higher.

A Regulatory Warren for Digital Assets

Longtime crypto skeptic Sen. Elizabeth Warren is urging the government yet again to form a regulatory strategy to “mitigate the growing risks that cryptocurrencies pose to the financial system.” In an open letter to U.S. Treasury Secretary Janet Yellen on July 26, Warren urged the Financial Stability Oversight Council (FSOC) Yellen leads to bring about a “coordinated and holistic” response to the risks of crypto. “FSOC must act quickly to use its statutory authority to address cryptocurrencies’ risks and regulate the market to ensure the safety and stability of consumers and our financial system,” the Massachusetts Democrat wrote in a letter to Yellen.

Warren cited five risks posed by an underregulated crypto market. In her words they are:

• Exposure to hedge funds and other investment vehicles that lack transparency
• Risks to banks
• Unique threats posed by stablecoins
• Use in cyberattacks that can disrupt the financial system
• Risks from decentralized finance

Read the full letter here

A short comment from the house… regulatory uncertainty is not good for business and a tone that is either negative or at least regulation heavy is obviously not great either. However, we’ll say again, when they are saying we need to make crypto part of the global framework, that’s long term good news.

In the News…

• A bipartisan infrastructure bill in Congress proposes to raise $28 billion from crypto investors by applying new information reporting requirements to exchanges and other parties. Any broker that transfers any digital assets would need to file a return under a modified information reporting regime.
• Robinhood shares stumbled out of the gate on Thursday, falling dramatically in a market debut that revealed lackluster investor demand for the popular app that brought fee-free trading to millions of Americans.
• Binance is looking for someone with a strong regulatory background to become its new chief executive, the current chief executive Changpeng “CZ” Zhao said at a press conference Tuesday. The company has recently been lashed by a series of regulatory actions across a number of jurisdictions.
• Investment banking giant Goldman Sachs has filed an application with the U.S. Securities and Exchange Commission (SEC) for an exchange-traded fund (ETF) that would offer exposure to public companies in decentralized finance and blockchain around the globe.
• Global payments platform PayPal is looking towards the United Kingdom as the next market in which to expand its crypto trading services. According to the company’s second-quarter earnings call on Wednesday, PayPal has done very well out of crypto trading for the period
• Bank of America (BofA) called central bank digital currencies “a much more effective payment system than cash”. The report comes amid surging interest among central banks. A May report by the blockchain infrastructure platform Bison Trails found that about 80% of central banks are exploring use cases involving CBDCs, with 40% already testing proof-of-concept programs.
• A new report shows that approximately 43% of Singaporean citizens hold some cryptocurrency.

Legacy Markets

The US dollar index fell -1% and 10-year US treasury yields slipped 2 bps week-on-week while the Gold & Silver index rallied +5.7%. Oil futures climbed +2.2% on declining US crude stockpiles and the SPX edged +1.2% higher on positive economic data and the Fed’s dovish comments on tapering.

Crypto Markets

• BTC/USD rallied 23.8% and ETH/USD climbed +17.6%. The total market cap of the crypto universe is just shy of $1.6tln and Bitcoins dominance crossed 47% during last week
• Among other majors BCH/USD rose +21.6% and, among large cap DeFi names, LINK rallied +20.3%
• Annualised volatility dropped in crypto markets to 22% for BTC and 45% for ETH

Flows

• Two-way activity on our client pad slightly better to buy (1.3X buyers vs sellers) with an uptick in volumes during last week
• Net buyers in ETH and even sided flow on BTC
• Net sellers in LINK and LTC on mild volumes

Q9 Capital: www.q9capital.com