Q9 Markets: When Good News is Good

23rd July 2021

Q9 Capital: www.q9capital.com

• BTC closes flat following a week of positive news
• ETH up as Musk, Dorsey and Wood opine on all things crypto
• SUSHI jumps 22% on Trident AMM news

A rash of positive news saw crypto markets bounce off recent lows, but finishing the week mixed overall, with bellwethers up and alts mixed/down. Flagship Bitcoin was the poster boy for all things crypto once again. Sliding early this week below $30k and erasing all the previous gains made over the whole of 2021, it found its footing after Wednesday’s near 10% rise, the biggest gain in over a month (since July 17th). Perhaps market sentiment received a boost from FTX’s record $900mn fundraise at an $18bn valuation? Or was it anticipation of Elon Musk returning on Thursday to participate in a live discussion with Jack Dorsey and Cathie Wood?

JPMorgan analysts also gave BTC a thumbs up this week, stating that it could rally as high as $146,000 in the long term as it competes with gold as an “alternative” currency. JPM said that Bitcoin’s volatility would need to drop substantially before it can match gold in terms of market value. It’s market cap currently stands at more than $575bn but would have to climb by 4.6 times to match the $2.7tn of private sector gold investment. One could be forgiven for taking such analysis with a grain of salt. JPMorgan was bearish only recently writing on how the GBTC unlocks could cause a sell-off. We weren’t so bearish, as we wrote last week and thought the GBTC discount is an opportunity at this point. Cathie Wood also thinks so.

ETH jumped 6% this week largely driven by a 12% rally on Wednesday. Although the currency was already rallying on the day, it touched its high of the session after the ever-unpredictable Elon Musk returned his attention to crypto and stated that he owns ETH, BTC and (naturally) Dogecoin. BTC and ETH both rose by over 3% during Musk’s panel discussion with Cathie Wood and Jack Dorsey, and then fell back to being unchanged by the end of the virtual conference. The tech entrepreneur and provocateur said that he is ultimately a supporter of Bitcoin and cryptocurrencies despite his scepticism towards proof-of-work concepts. Musk revealed that SpaceX holds BTC, Tesla would likely start accepting BTC again (after some due diligence on improvements in the energy mix used in mining), and he would like to see BTC succeed.

The B Word

Watch the full discussion at the B Word Live with Elon Musk, Cathie Wood and Jack Dorsey here.

DeFi tokens were, overall, a bit of a mixed bag this week with YFI down -5%, COMP up 4.1%, and ZRX down 3.9%. However, SUSHI leaped a whopping 22% on the news that it is preparing to launch another automated market maker (AMM) called Trident that it claims is a “next-generation product.” SushiSwap revealed in a blog post that Trident will be focused on capital efficiency and cryptocurrency volatility protection. The new product addresses several “pain points” for DeFi users which have previously made transactions expensive, confusing, or both, resulting in costly and irreversible errors. The launch should happen “within the next couple of weeks.”

Maybe good news was actually good news this week and the market got a lift, or maybe this is all random. What is sure is that the mainstreaming of crypto continues which can be seen both in the constant and significant institutional money that is finding its way to crypto and the acknowledgement by regulators that they must include and not ignore digital assets in their future plans (as discussed below). Like many have written, if this is to be a real thing, then it’s probably going to be a much bigger thing.

Banking on Crypto

The world’s largest bank, JPMorgan, hit the crypto news a second time this week announcing it will provide all wealth-management clients with access to Bitcoin and other crypto funds. Advisors at JPMorgan’s $630bn wealth management division can now accept orders to buy and sell five crypto products including Grayscale’s Bitcoin Trust, Bitcoin Cash Trust, Ethereum Trust, Ethereum Classic products, and Osprey Funds’ Bitcoin Trust. Notably, these offerings are not themselves “crypto investments”, but investments in trusts based on the performance of crypto assets. JPM is also only authorising its advisors to process these orders if they come from clients themselves, barring the advisors from presenting crypto-based funds… but this is certainly a major step in the right direction and we expect to see other banks and wealth managers join JPM soon in offering crypto products to their clients as rich individuals are increasingly looking to make bets on crypto.

This sentiment is further backed up by a new Goldman Sachs survey that found nearly half the family offices the bank does business with want to add digital currencies to their stable of investments. The bank reported 15% of respondents (over 150 family offices worldwide) are already invested in crypto and another 45% are interested in diving in to the space as a hedge for “higher inflation, prolonged low rates, and other #macroeconomic developments following a year of unprecedented global monetary and fiscal stimulus”.

Stablecoins, a fundamental element in the digital asset marketplace, were in the firing line this week as top US officials including Treasury Secretary Janet Yellen said they expect to issue recommendations on stablecoins in the coming months. Yellen “underscored the need to act quickly to ensure there is an appropriate US regulatory framework in place” at a president’s working group on financial markets she convened on Monday to discuss the tokens, according to details released from this meeting. “The group also heard a presentation from Treasury staff on the preparation of a report on stablecoins, which would discuss their potential benefits and risks, the current U.S. regulatory framework, and the development of recommendations for addressing any regulatory gaps,” the readout said. The UK government has followed a similar line on stablecoins, previously stating they will focus on regulating stablecoins rather than cryptocurrency in general. Ahead of the announcement, the Fed and Yale researchers this week laid out 2 possible regulatory frameworks for stablecoins.

In the News…

Cryptocurrency exchange FTX has raised $900mn at an $18bn valuation, the largest funding round in crypto history. The deal shows that investors’ still have huge amounts of enthusiasm for the digital currency space. Participants in the round included SoftBank, Sequoia Capital and Third Point; Mastercard announced it will enhance its card program for cryptocurrency wallets and exchanges, making it simpler for partners to convert cryptocurrency to traditional fiat currency; Rothschild Investment Corp shared in a new filing that it has more than tripled its Bitcoin exposure through GBTC over the past quarter; BNY Mellon has joined a consortium of six banks behind the launch of London-based digital asset firm Pure Digital. The step suggested that normally staid and conservative custodians, which safeguard assets for some of the world’s largest asset managers, are fielding increasing interest from clients about trading digital currencies; The Alabama Securities Commission asked crypto lender BlockFi to show why it should not be required to stop selling unregistered securities in the state. The news comes immediately after New Jersey ordered BlockFi to stop offering interest-bearing accounts.

Traditional Markets

Oil futures rose +0.5% and the SPX drifted +0.2% higher in a week of mixed earnings and mixed economic data. 10-year US treasury yields slipped 2bps and the US dollar index rose +0.2% while the Gold & Silver index dropped -4.1%.

Crypto Markets

• ETH/USD climbed 6% while BTC/USD drifted +1.7% higher. The total market cap of the crypto universe crossed the $1.3tln mark and Bitcoin continue to hold its dominance held just shy of 46%
• Among other majors EOS/USD dropped -2.5%. SUSHI rallied +22.9% largely driven by announcement of the Trident automated market maker
• Annualised volatility picked up in crypto markets, rising to 72% for BTC and 98% for ETH

Flows

• Muted pad but aggressively bid (only buyers) over the last week
• Buyers in ETH and EOS contributed to majority of pad volumes
• Mild buying activity in BTC and LTC

Q9 Capital: www.q9capital.com