Bitcoin thrives, Jefferies likes BTC, SNX rallies: In-depth crypto & DeFi outlook on Dec 23, 2020
Hi Frens,
as always, the newsletter is split into three parts: Bitcoin outlook by Joseph Young, DeFi recap by Nick Chong, and on-chain analysis by Cole.
Tl;dr:
The U.S. SEC filed a lawsuit against Ripple
Michael Saylor and MicroStrategy bought $650 million worth of Bitcoin
Investment banking giant Jefferies recommends pension funds a Bitcoin allocation
Wirex becomes a principal member of the Visa Network in Europe to be able to issue Visa debit cards.
Exchange heatmaps show $24.2~$24.4k as the big resistance, $22.2k~$22.5k as support.
The selling pressure on Bitcoin from miners has been declining.
Synthetix (SNX) has been performing strongly.
A dive into BadgerDAO, a DeFi derivatives protocol
A look into SBF’s address and his Badger sell
We will be releasing an exclusive interview with the CEO of a leading cryptocurrency analytics firm this week for our subscribers. We also have some upcoming research/deep-dive pieces for our subscribers!
Treat yourself to a Christmas present and get a subscription to Alpha Alarm for $14.99 a month or $139.99 a year.
Bitcoin outlook by Joseph Young
Michael Saylor, the CEO at MicroStrategy, bought another $650 million worth of Bitcoin.
This is indicative of how Bitcoin has been throughout the past week. FUD-silient despite various negative events.
Institutions are continuing to purchase large amounts of Bitcoin, which is buoying the price of Bitcoin.
Jefferies, the investment banking giant, recommended pension funds to obtain a Bitcoin allocation in its recent note obtained and shared by Delphi Digital’s Ail Lulla.
“If there is a drawdown in bitcoin from the current level, after yesterday’s historic breakout above the US$20K level, the intention will be to add to this position,” the note from Jefferies reads.
But, JPMorgan strategists believe once Grayscale inflows slow down, it could raise the probability of a correction.
“A major slowdown in those flows would boost the risk of a Bitcoin correction akin to the one in the second half of 2019, they said,” a Bloomberg report citing JPMorgan strategists reads.
Another major news is the U.S. Securities and Exchange Commission (SEC)’s bombshell lawsuit against Ripple.
The SEC described XRP as an unregistered security and prominent lawyers in the space say this is “quite bad for Ripple.”
Moving onto a positive, the crypto debit card operator Wirex is becoming a principal member of the Visa Network in Europe.
Personally, I believe this has been overlooked due to other major industry developments, but the implications of this move are big.
In previous years, every time a crypto company tried to offer Visa debit cards to retail users, the efforts were blocked.
For instance, Xapo was instructed by Visa to shut down their debit card system in 2018. A stable debit card service from Wirex, alongside the likes of Binance, Crypto.com, and Coinbase, is a boost for overall mainstream and consumer-level adoption.
News Recap
Anthony Scaramucci, White House communications director for President Donald Trump, reportedly plans to launch a Bitcoin fund under his hedge fund.
Coinbase asks FinCEN to delay the comment period on the controversial self-hosted wallet rule.
Publicly-listed Bitcoin mining firm Riot buys 15,000 ASIC machines from Bitmain.
Coinbase, the biggest crypto exchange in the U.S. that intends to go public, is swiftly expanding into Canada.
Crypto in Asia
The biggest story in Asia this week for me is the continued confidence in investors in cryptocurrency exchanges in India.
CoinDCX, India’s biggest cryptocurrency exchange, raised a $13.9 million Series B funding round led by Block.one.
In March 2020, the Supreme Court of India lifted the ban on cryptocurrency trading imposed by the Reserve Bank of India. This brought some clarity into India’s crypto market, but not enough.
In September 2020, reports about regulators in India preparing to ban cryptocurrency trading surfaced again. A bill to outlaw crypto trading is expected to be discussed by the federal cabinet, according to local reports.
The continued investments in crypto exchanges in India, particularly the top platforms by volume, suggest investors expect crypto trading to remain unbanned in India.
Market Analysis
Bitcoin is starting to show two key trends.
First, it is establishing $22,000 as the major support level, with $22,500 as the secondary support.
Second, it is establishing a clear range between $22,000 and $24,250.
There are several potential reasons why Bitcoin is showing less volatility to the upside in this ongoing range.
As the newsletter discussed above, Grayscale inflows have started to slow down slightly. If this is indicative of slowing institutional buying, there is less short-term firepower to take Bitcoin past its new highs.
But, stablecoin deposits into exchanges are continuing to increase. It shows that sidelined capital are moving back into BTC, which is an optimistic sign.
Let’s take a look at the exchange heatmap below.
Source: Tensor Charts
The Bitfinex order book identifies the following levels as the key technical levels.
Resistance: $24.4k, $24.2k, $23.8k
Support: $22.2k, $22.5k, $23k
The key in the near term is for whale inflows to refrain from seeing extremely high spikes and the stablecoin inflows to keep increasing. For now, these two trends are being sustained.
The chart below is the deposits of Bitcoin from whales into exchanges. When it spikes, it means more whales are likely selling.
Source: CryptoQuant
For now, the whale deposits are high, but they are not high enough to trigger a large crash, based on historical data.
What Popular Bitcoin Traders are Saying / Thinking in the Short Term:
Alex Wice: [Top trader on FTX leaderboard] “Let me teach you how to bid,” continues to bid BTC on dips
Ki Young Ju: [CryptoQuant CEO] Aware of dumping risks due to high whale inflows, but still not short, in fact low-leverage long. “I'm not short on $BTC since the buying power is so strong now. I punt long with low leverage.”
Kyle Davies: [Three Arrows Capital co-founder] “Mewn,” referring to the Bitcoin Dominance Index. Expecting Bitcoin Dominance Index to rise further, possibly to 75%.
Peter Brandt: [Futures trader since 1975] Still macro bullish, big Litecoin breakout
Bitcoin Jack: [Predicted $4k bottom, called $19k rally] Scalp long set up from $22.7k.
CL: [High ranking trader on Binance Futures leaderboard] buying up ETH sub $600. ETH is now $620.
Market X-Ray by Cole Petersen
Bitcoin has seen some relatively mixed price action over the past week, with the selling pressure at $24,200 marking this as a local top for the cryptocurrency.
There appear to be a few factors that have contributed to this level being a local top. However, a look into whale flows seems to suggest that the benchmark cryptocurrency is forming some strong support just below its current price level.
This mounting support, coupled with dwindling selling pressure from miners seems to suggest that BTC may be forming a strong base upon which it can begin seeing decent growth.
This theory is further supported by the possibility that USDC whales on Coinbase are gearing up to stack buy-side orders — a phenomenon elucidated by one key data metric.
Tracking the Ebb and Flow of Bitcoin Miners
As discussed in last week’s newsletter, the selling pressure placed on miners has been tapering off throughout the past few months, which has given rise to the massive surge in BTC’s price.
From a macro perspective, whale outflows to exchanges are still trending lower, and are down significantly from where they were earlier this year around the time of the mining rewards halving event.
From a micro perspective, miners did sell a heightened amount of tokens between December 16th and December 18th, which came about just a day before BTC printed its local top at $24,200.
Source: CryptoQuant.com
Because this was an anomalous spike — as are seen quite often — there’s a strong possibility that BTC will now have room to rise higher in the coming days.
Let’s Go Whale Watching
Bitcoin’s whale activity seems to bode well for bulls, with data from Whalemap suggesting that the cryptocurrency is forming a strong base of support just a hair below its current price level.
As seen on the below chart, the key support levels to watch in the near-term sit around:
$23,000
$22,800
$22,600
Source: Whalemap.io
In the unlikely scenario that Bitcoin sees a dire trend reversal, it has massive support between $19,100 and $19,400.
The same map also suggests that there is resistance at $23,600, which is around where Bitcoin’s price peaked during the recovery seen earlier this morning.
What USDC Whales on Coinbase Could Mean for Bitcoin
A bullish trend that is underpinning Bitcoin’s market dynamic are a few massive spikes in USDC inflows into Coinbase — indicating the emergence of new whales into the market.
Ki Young Ju, the CEO of CryptoQuant, explained recently that these types of USDC inflows to Coinbase typically act as fuel for Bitcoin — alluding to the possibility that upside is imminent.
“I think USDC whales on Coinbase know how to play. Whenever these whales deposits to Coinbase, the BTC price is likely to go up. There are deposits from USDC whales recently. I think it could be one of the bullish signals.”
Source: CryptoQuant.com
DeFi by Nick Chong
DeFi Recap (Top News)
The overall DeFi market continued to consolidate this past week despite both bitcoin and ethereum pushing to fresh year-to-date highs.
Where bitcoin gained 20% over the past seven days, leading decentralized finance coins such as YFI, AAVE, and COMP actually lost 3-5%.
By and large, gains appear to be consolidating to bitcoin, which has outpaced 85% of the tokens in the top 100 over the past seven days, per CoinGecko.
This is par for the course in previous bull runs, where during large bitcoin moves higher, it was BTC that was outperforming altcoins, not the other way around. From what I’ve seen, altcoins only act as high-beta BTC when bitcoin enters a period of consolidation or sees smaller moves.
Of note, there is a growing narrative within some industry circles that investors should not be surprised to see decentralized finance coins actually trade uncorrelated with bitcoin. As YFI, SUSHI, and other coins are reaching a point where holders are entitled to cashflows, they may be seen more like equities than commodities. Further, when you add a farming dynamic, with Pool 2’s, certain trends like reflexivity come into play.
As I mentioned in Alpha Alarm’s last full edition, not all DeFi coins are perpetually underperforming.
Synthetix (SNX) is the clear winner of the past week, having gained 25% in the past seven days. SNX is one of a few DeFi coins to have come within a few percent of its previous all-time high. Behind the rally is a number of trends:
Coinbase Pro recently listed SNX after months of anticipation, giving investors without knowledge of or access to Uniswap and other exchanges the opportunity to obtain exposure to the coin. Unit bias (e.g. low nominal price) may see retail investors prefer SNX over “alternative” DeFi investments like YFI or AAVE.
Potentially related to SNX, SNX volumes have shot through the roof over recent days, with Binance, OKEx, and even decentralized exchanges like SushiSwap seeing large increases in volumes for the coin. SNX is often seen as a DeFi coin that is “slept on,” and may thus be rallying as the market corrects itself.
“Smart money” addresses have begun to buy SNX, which is adding to the buying pressure.
SNX chart from TradingView.com
Certain smaller-cap DeFi coins and new entrants have also enjoyed strong gains over the past week.
API3, a decentralized API provider with a focus on DeFi and Web 3.0, has gained 25% in the past week. While it’s too early to tell, there is a growing sentiment that API3 could be a competitor to other API solutions out there.
RIF Token, a token in the RSK ecosystem (Bitcoin sidechain), is up 20% in the past week. It may be rallying as a result of the launch of Sovryn, a Bitcoin-focused decentralized finance platform based on RSK.
While it’s not reflected in the price, Empty Set Dollar (ESD) is up over 50% in the past seven days due to a large influx in interest in the algorithmic stablecoin. Unlike Ampleforth, those that want to obtain exposure to ESD’s increase in supply have to “bond” their tokens in the DAO or as a Uniswap LP.
This increase in interest may be partially related to the launch of Basis Dollar, a Basis Cash fork (which itself was a fork of Basis). Basis Dollar allowed users to stake ESD to earn BSD with extremely high yields.
Finally, The Graph (GRT) launched this past week. Early GRT holders enjoyed a strong rally as the market realized the need and potential in a decentralized indexing protocol.
What I’m Watching This Week
The most exciting thing in DeFi this upcoming week—at least in my opinion—is the launch of BadgerDAO’s DIGG.
BadgerDAO was launched near the start of December, branding itself as an Ethereum-based DeFi platform to get Bitcoiners into this fledgling space. To help with distribution, BadgerDAO airdropped BADGER tokens to many users who have participated in DeFi (governance, minted tokenized bitcoin, etc.).
While BadgerDAO’s only product right now is its “Setts,” through which users can earn yields on deposits of tokenized bitcoin, DIGG is expected to launch shortly.
DIGG will be an algorithmic stablecoin airdropped to those that earned BADGER. Why I find this so interesting is that the past few weeks have seen a renaissance in “rebasing” and algorithmic tokens after the initial Ampleforth craze this past summer.
DIGG, at least in my opinion, will be pure speculation, but I think it could do very well in the current environment where rebasing tokens and tokens in this broad basket are performing as they are.
More on DIGG can be found here.
Term of the Week: MakerDAO
MakerDAO is the platform through which DAI, the leading decentralized stablecoin is issued.
Users of MakerDAO can deposit a variety of collaterals, including centralized stablecoins and ethereum, to mint DAI. Users then have to pay a stability fee on their collateral to maintain this debt position. DAI gives users with collateral the opportunity to leverage their position, to trade, yield farm, and more.
The DAI price is pegged to $1.00 through monetary policy. Holders of MakerDAO’s MKR token can vote on monetary policy changes such as the stability fee, the collateral types, and more, to help peg the token to $1.00.
Watching Whale Addresses in DeFi
One thing that jumped out to me this past week is that an address affiliated with Alameda finally cashed out of BadgerDAO.
Due to the large amount of WBTC that Alameda has minted over recent months, it received a large BADGER airdrop valued at hundreds of thousands of dollars at the BADGER price peak. Alameda staked their airdrop, as the pool at that time was offering literally hundreds of percent APY paid in BADGER.
Three days ago, Alameda exited the position and sold their BADGER on Uniswap for a large sum of Wrapped Bitcoin.
This caused a strong drop in the price of BADGER due to the size of the firm’s holdings in the coin.
Thanks to our data partners: CryptoQuant and WhaleMaps.
About Us:
Joseph Young is a cryptocurrency analyst who has been in the space since 2014. He contributes to Forbes, CoinTelegraph, and a host of other top crypto news sites. Over his 6+ years in the space, he has built countless connections with industry leaders and has amassed over 100,000 followers on Twitter.
Nick Chong is a passionate crypto researcher who specializes in identifying and extracting conclusions from trends within the rapidly emerging DeFi-space. He has been involved in the crypto markets since 2016, and sources deals for a Vancouver-based crypto venture fund.
Cole Petersen first learned about Bitcoin in 2013, and began working in the space in 2017. While on a gap year as a student at the University of California, Irvine, He now leads LINKPAD, a DAO-owned venture capital fund, and does part-time work as an associate at BlockVenture.
Pepe of the Day:
Today’s featured Pepe is: “Pepe Lightyear,” Colorized, Artist Unknown, 2020. We feel this fine Pepe acutely represents the hopes, dreams, and ambitions of crypto investors far and wide.
Thanks for the update, team. Lots of new info for me. I'm looking forward to the forthcoming subscriber content.