Q9 Weekly | God Save the Coin

9 February 2023

www.q9capital.com

God Save the Coin

• BTC nears ‘golden cross’
• DCG sells Grayscale shares, reaches agreement with Gemini
• UK sets out plans for CBDC, London named most crypto ready city

BTC is nearing a bullish ‘golden cross’ technical indicator that could signal a price breakout. Most previous instances of a golden cross have resulted in favorable returns for Bitcoin, and many have occurred at critical long-term inflection points — the pattern occurred before bull runs in 2020 and 2021.

A golden cross happens when a shorter-term moving average (ie: the 50-day) crosses above a longer-term one (ie: the 200-day), displaying a near term price acceleration. It has only happened six times since 2014 for BTC and three times for ETH. No single technical indicator should ever be taken in a vacuum, but it’s a good sign coupled with various other tailwinds.

BTC 50-Day Average Close to Topping 200-Day Average

Source: Bloomberg

The broad crypto rally continued into another week with high beta metaverse, DeFi and Layer-1 tokens outperforming BTC (which was down -3.3%). The Sandbox’s SAND token surged 11.6% following an announcement that the Saudi Arabia Digital Government Authority would be partnering with the platform. ALGO (+15.5%), SHIB (+14.7%), REN (+12.5%), BAT (+10.2%), MATIC (+9.1%) also outperformed.

…and its not just crypto. Tesla (TSLA) shares are up almost 100% from their lows of a month ago and ARK Innovation ETF (ARKK) rose 40% in January.

The IMF raised global growth forecasts boosted on resilient US demand, China reopening and falling gas prices. GDP will likely expand 2.9% in 2023, 0.2 point more than forecast in October. While that’s a slowdown from 2022, the IMF said it expects growth will bottom out this year before accelerating to 3.1% in 2024. However, interest-rate hikes and Russia’s invasion of Ukraine will continue to weigh on economic activity this year amid a protracted inflation crisis the fund said.

IMF Raises World Growth Forecast for 2023

Source: IMF

However, Layer-2 gas consumption has seen a correction in the last few weeks after several months of continuous increase.

Source: Dune Analytics

Under the Spot-light

Binance’s dominance of crypto trading continues to grow as the exchange scooped up more than half of global volumes as digital assets rebound. The exchange processed 55% of spot crypto trading in January, according to CryptoCompare.

Binance’s remaining rivals have struggled to keep pace. Since FTX’s collapse, Coinbase increased its spot share by less than one percentage point to 6.5%. Kraken and Crypto.com witnessed declines during the same period. At its height last summer, FTX controlled roughly 5.6% of the spot market.

Binance’s dominance of crypto trading is certain to draw the gaze of anti-trust bodies and global regulators.

Crypto Spot Market % Share

Source: FT / CryptoCompare

In the DCG House

DCG, the distressed crypto conglomerate, has offloaded Grayscale shares to raise capital. The firm has begun to sell its positions in several of its most prized crypto funds, at a steep discount, as it seeks to raise capital to pay back creditors of its bankrupt lending arm, Genesis.

The company has reportedly sold a quarter of its Grayscale Ethereum Trust (GETH) stock to raise as much as $22mn.

Grayscale is an important business for the group: it earns hundreds of millions of dollars a year in lucrative fees for managing large pools of BTC, ETH and other digital assets in funds that can be bought via traditional brokerage accounts.

Its flagship Bitcoin trust holds about 3% of all Bitcoin, worth $14.7bn, from which Grayscale earns a 2% fee. It earned $303mn from fees on the Bitcoin trust in the first nine months of 2022. Grayscale also earns a 2.5% management fee on the 3mn ETH in the trust, equating to $209mn in the year to end September.

GBTC Discount to NAV, 1 Year

Source: YCharts

GETH Discount to NAV, 1 Year

Source: YCharts

However, the group has been forced to sell some of these assets whilst attempting to repay more than $3bn to its creditors and has been embroiled in a public dispute with Gemini over the debts.

On Monday, after months of negotiations, DCG reached an agreement with Genesis’ main creditors, including Gemini. “This plan is a critical step forward towards a substantial recovery of assets,” said Cameron Winklevoss.

DCG has also moved to sell down smaller blocks of shares in Grayscale’s Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund.

Britcoin

The Bank of England has officially thrown its hat in the digital currency ring, putting forward a consultation paper on how a digital pound might be issued before the end of the decade.

The proposed digital currency would be issued solely by the central bank, with households and businesses able to hold the currency in a digital wallet accessible via smartphones or cards. According to the proposal, wallets would be anonymized on the central bank’s ledger to address privacy concerns and the digital currency would be non-programmable, meaning authorities can’t control how people spend their money.

BoE and Treasury Consolation Paper on a Digital Pound

But don’t expect anything in the way of lightning-fast developments, the unveiling was a preliminary move. Politics and public sentiment will shape the project’s long-term trajectory. Across the English Channel, the ECB is still weighing whether to go live with a digital euro of its own.

Deputy BoE Governor Jon Cunliffe said a digital pound ‘’could complement and support new forms of private digital money and payment services’’ and help drive down transaction costs charged by credit card and other payment merchants. He also flagged the high costs of sending money overseas, something new digital currencies could bring down.

London Calling

The UK has been on a recent tear around digital assets. Last week, the government outlined a licensing regime for crypto service providers and builds on Prime Minister Rishi Sunak’s ambition to center the country as a crypto and fintech hub.

London was also crowned this week the world’s most crypto-ready city for business according to Recap Research (Hong Kong, which was positioned as the most crypto-ready country in 2022, fell to seventh place in the research).

Source: Recap

The BoE also published a separate working paper this week on technological design considerations such as privacy, security and resilience.

These are all big steps. The UK wants to become a leader in crypto and blockchain technology on the global stage and the new policy initiatives aim to make the country’s financial sector more competitive and unique following Brexit.

But regulation takes time. It will likely take years before the measures are approved by Parliament. The Financial Services and Markets Bill, which would recognize crypto assets as regulated products, is still making its way through the lower house. Nonetheless, even the simple display of being seen as taking action is important as the UK and London shape up against other crypto hubs. It’ll be a tough fight, but London is well positioned as a global financial centre with developed infrastructure, talent, a progressive regulator, a crypto friendly government, and a proven ability to innovate and implement.

In the News…

• Forbes Blockchain 50 2023
• Why are AI tokens surging?
• FTX wants politicians, PACs to return donations — and may sue to recover funds
• SALT raises $64.4mn to resume operations
• Decentralized identity network Space ID raises $10mn
• Binance signals a full audit remains some way off
• The biggest risks to fintech companies this year
• Can the pioneer of blockchain gaming survive the crypto winter?
• Dubai mandates licensing for crypto companies as it sets out regulatory requirements
• CZ acknowledges bad UX as Binance suspends USD transfers
• BAYC creator Yuga Labs settles trademark infringement lawsuit
• Revolut to offer returns on crypto holdings via staking
• How decentralization is transforming the real estate industry