In This Issue:
This week’s major crypto events:
BitMEX found Arthur Hayes’ replacement, hiring Alexander Hoptner this week to lead all operations at the derivatives exchange.
Ethereum 2.0 moved a step closer to completion as the Beacon chain went live earlier this week, enabling staking for those who deposited to the 2.0 contract address.
This week’s major legacy events:
Nonfarm payroll will be released this Friday at 1:30 PM UTC time – With expectations coming in short at 500k, expect the usual Darth Maul-like volatility around this data release.
- Canada will release its monthly employment numbers for November, and with COVID restrictions ramping up, expectations are that unemployment figures will remain high at 8.9%.
Institutionalization comes in many forms, but a clear signal is the transition of the old guard to the new guard. As we look back on the early days of the crypto space, and all the wild-west like behavior that ensued, including the Twitter-led pump and dumps, no KYC checks for any exchanges or services, and Titanic-sized exchange hacks, it is more evident of how much this space has changed. These changes were necessary to move the industry forward, especially from the top-down approach that has very significantly impacted Bitcoin.
As an inventor, you can have a vision of how people will interact with your product, but once it is out in the wild, that original vision rarely goes as planned. The individual sovereignty experiment for Bitcoin has come to an end unless there is a hard push for additional (optional) privacy features to be worked in – which we do hope comes – but in the short term, we won’t be holding our breath.
With 2021 shaping up to be a big year for regulatory crackdowns around the reporting of crypto assets relating to taxable income, it is important that people get their ducks in a row before the hammer falls. For example, the Canadian Revenue Agency is pushing exchanges to release all their client information to them in order to track down those who didn’t pay their dues to the taxman. Following the COVID-driven debt expansion, countries will be desperate for taxable income from its citizens. The other important developments to follow will be those from the OECD (Organization for Economic Cooperation and Development), which is putting together the framework for a globally coordinated plan around transparency and reporting policies for crypto users and exchange/service operators. This is set to go live sometime in 2021, but the developments will be significant and warrant attention as we come to the end of this calendar year.
BTC/USD – W (BNC:BLX)
POINTS OF DISCUSSION
S = $16,600, $15,700
R = $19,500, ATH’s
1) Bitcoin remains bullish in the short term while holding above $16,600 and must now close above the $19,200 to signal bullish continuation.
2) Keep a close eye on exchange inflows vs outflows as an early signal of possible sell pressure as prices have begun to breach some ATH levels.
What a volatile week it has been in the Bitcoin market! Prices have been swinging in $2,000+ moves like a hot knife through butter, ushering in a period of trader euphoria as 30-day volatility hit nearly 4% this week. Bitcoin dropped sharply right into our first key daily support level at $16,600 and price action from that level was incredibly positive, going on to sweep the former highs before coming back down below $19,000 again. The trend is firmly bullish, but as funding rates have crept up to yearly highs and OI has ballooned, it’s clear that what was once a primarily spot driven rally for the majority of November, has shifted to a more leveraged rally as traders look to capitalize. The consequences of this are a more volatile market, which investors dread, but day traders rejoice as the ranges have expanded drastically. For now, bulls will need to hold the $16,600 level to preserve the current bull momentum – a drop below that level would open up the next daily support at $15,700 and weekly support at $14,000. Bitcoin has moved up so aggressively, that a 20-30% drawdown from recent highs would leave the market structure still bullish! Bitcoin would need to be trading below $12,500 to signal a bearish trend reversal, which given the strong buy-side demand from the likes of Grayscale and other institutional players, seems very unlikely. A key metric for traders will be monitoring the exchange inflows vs outflows – a sharp rise in inflows is historically indicative of increased sell pressure, and thus, caution is warranted when we see these metrics spike.
ETH/USD – W (GEMINI:ETHUSD)
POINTS OF DISCUSSION
S = $555, $485
R = $625, $720
1) The deployment of the ETH 2.0 Beacon chain has been completed, with deposits continuing to stream in.
2) No big range expansion trades until Ethereum moves above the $625 weekly level or closes below the $445 bullish throwback. A very wide and volatile range for traders will create plenty of short-term trade opportunities.
What an amazing run Ethereum has enjoyed these past couple of weeks. To pat ourselves on the back, price abruptly halted its upwards march at our $620 weekly resistance mark and then dumped down to $485 and sprang right back above $600. In true crypto fashion, the price topped just as the ETH 2.0 contract address hit its full requirement of 525,000 ETH deposited, which enabled the Beacon contract to be deployed live in the past 24 hours. Veterans of the space are keenly aware that institutional product launches, such as the Bakkt + CME futures going live marked majors tops in the market. Major milestones in the crypto space such as ETH 2.0 now have generally had a similar path, when looking at price implications. ‘Buy the rumor, sell the news’, as the saying goes, which is especially true in the crypto space. Moving forward, the next long set up and confirmation of the bull trend continuation will be a daily close above $620, with the next major weekly resistance at $720ish. Bulls will need to hold the market above the $480 mark to maintain the current bullish market structure, otherwise, risk a retest of the $445 level. The buying pressure into 2.0 has slowed considerably, so a period of consolidation before the next range expansion makes sense in the short term, but if prices do move out of those ranges mentioned above, be prepared to capitalize on the range expansion moves. Overall, the 2.0 deployment is still one of the most bullish fundamental factors for Ethereum going into 2021, and buying any deep dips to form a long-term swing position is a strategy that we will be pursuing. Upwards and onwards!
US DOLLAR – W (FX:USDOLLAR)
POINTS OF DISCUSSION
S = 11850,11700
R = 12000, 12100
1) USD broke down early this week, signaling a likely continuation down to the untested support at 11,700.
2) Wait for a retest of the bullish throwback levels at 11,650-11,700 before taking any fresh long positions. If this level fails, it will be a break of multi-year support and signal a case for continued depreciation of the USD.
The U.S. dollar started the week with a range break to the downside as the weekly support at 11,850 was unable to hold as new stimulus measures are likely once the new U.S. administration is in place in the White House come late January. Many governments are committing to additional rounds of quantitative easing (inflation of money supply), which will have downward pressure on most fiat pairs that engage in this practice.
COVID was a spark for Bitcoin specifically, as it was the trigger for the unprecedented amounts of inflation we have seen in the money supply this past year, and the longer the pandemic goes on, the greater the downward pressure on fiat, as supply expands. From a technical point of view, the USD can fall to 11,650 and still maintain its long-term bullish market structure, and we expect a bounce back up to the 11,850 level at a minimum once the bullish throwback levels are tagged. This is a multi-year support level, so we do not anticipate price slicing through it without a bounce.
SPX500USD – W (OANDA: SPX)
POINTS OF DISCUSSION
S = 3500, 3400
R = 3650, price discovery
1) Equities will continue to perform well in the global pandemic setting as QE is bullish for asset prices, and markets are expecting more rounds of it in 2021.
2) Bulls are in control above 3,500, with the only bearish narrative going into year-end being the ‘end of year tax selling’.
What goes up does not necessarily mean it will come down – a lesson learned the hard way for many U.S. equity bears, as the life support cord is close to being yanked. The market is pushing new all-time highs going into the final month of the year, as many are anticipating additional rounds of QE in 2021, and with Yellen taking the helm at the U.S. Treasury, early market and investor sentiment about the nomination has been positive. Small businesses may continue to suffer, and the credit crunch will continue for the retail folks, but this will have little effect on the equities markets, as access to markets has only been getting easier (thanks Robinhood), and the effects of additional QE are bullish in the short term. Of course, there will be a large correction at some point, but timing those can be difficult, so it’s better to go with the trend, instead of trying to predict the exact reversal.
As prices move into price discovery territory once more, there is no previous data to analyze, so we must use measured moves and fib extensions to get a sense of where things could go. The previous range was about 10.2%, so if we expand that from the current range, this gives us a target of just shy of 3,900. We anticipate some price reaction at the 4,000 psychological barriers as well, but in current conditions, the trend is firmly in the bulls’ favor. Dips will be bought unless there is some drastic policy change or another black swan event.
XAUUSD – W (OANDA: XAUUSD)
POINTS OF DISCUSSION
S = $1,800, $1760
R = $1,945, $2,000
1) The bullish throwback level has been tagged and bulls must now hold above the $1,760 to keep the bullish market structure intact.
2) Fundamentals are all in bulls court as fiat inflation risks grow after the Fed’s recent policy shift, but this will most likely take time to develop
Have you ever seen such a beautiful chart – no? That is because there is none. We have been waiting for this retest of the former multi-year resistance level at $1,760 for months and we finally got it! Price action has been positive at that level, bouncing back above the $1,800 handle, but to confirm a bottom, the price will need to reclaim the breakdown level at $1,855. Bulls will need to defend the $1,760ish level with great zeal to preserve the bullish market structure. A dip below that would signal an early shift to confirming a bear trend, with next support at $1,680 – not a place any gold bug/bull wants to see this year.
We will continue to monitor ETF inflow/outflows, which have proven to be reliable metrics for determining market direction over the years. With the next generation of investors being familiar with a completely digital lifestyle and economy, it is possible that gold will lose some of its long-standing narratives as THE asset to buy to preserve wealth and weather dark storms. Early data shows that the younger generations much rather prefer Bitcoin over gold, which could set up some really interesting long-term implications moving forward. This is something that will play out over the next decade, but we could be witnessing the start of a new trend and investor mindset, not seen in literally hundreds of years.
The total market capitalization (TMC) continues to hold above the 500B mark as institutional money continues to be deployed in the market, with Bitcoin being the main beneficiary.
To anticipate where institutional capital will be deployed, other than into the Bitcoin ecosystem, keep a close eye on any major legacy infrastructure developments around secondary crypto assets. This is often the horse in front of the carriage and will help you in positioning yourself to capitalize on this inflow of liquidity.
The TMC continues to make upwards progress, recently tagging the $600B mark for the first time in over two years. With the influx of capital from institutions, we expect this figure to continue to trend up throughout 2021 and beyond. The state of the crypto markets is extremely healthy, and while the upwards movement has been a rollercoaster, with its ups and downs, the dial continues to be moved forward. The TMC is signaling that we are still in ‘buy the dip’ mode across most crypto assets and taking large short swing positions likely will not be the most profitable strategy in 2021.
One of the most interesting trends to be following closely will be the deployment of institutional money. So far, the brunt of that has benefited Bitcoin, as it has the longest history and infrastructure developed around it, and we expect this trend to continue and accelerate. However, it is only a matter of time before we start seeing more institutional cash deployed into other crypto assets such as Ethereum. The key developments to watch for when trying to predict where that money will land comes down to legacy infrastructure solutions, and network security. One of Bitcoin’s biggest advantages is that it has ten years of uptime behind it and has proven to be antifragile, resisting many internal and external attacks over the years. Other crypto assets will need to shore up their network security and scalability if they want a slice of the institutional pie.
Gem Hunters (Extended)
It’s essential to be able to put yourself in the shoes of those who haven’t had the same exposure to the crypto space, and lack critical pieces of information, which will work against them when making financial decisions.
When the next retail-driven bubble really kicks in, look to front-run the FOMO by purchasing the ‘cheaper’ coins, as history tends to repeat itself with retail lacking key pieces of information.
We have touched a lot on identifying trends, how to use data analytics to perform various tasks and derive vital insights, but we have been so far pretty light on the psychological tendencies of people. Understanding how the average user is going to view and engage with a product is critical when it comes to being able to predict that behavior. As charts are just a visual representation of human behavior within a market, these concepts can translate over to actionable material. The above image is the first slide that users see when logging in on Coinbase, and their immediate thinking is usually ‘what looks cheap?’. We’ve seen this behavior play out in the 2017 bull run when many people were complaining that Bitcoin was simply too expensive (not knowing that you could buy a fraction of a Bitcoin), so they went with the cheaper alternatives – XRP, LTC, etc. Fast forward three years, and now we have seen the influence of TikTok explode, and there have been numerous videos circulating drawing the conclusion that ‘If Bitcoin can reach 19,000, then why not one of these coins?’. While this seems insane to people with more information than a new user, particularly around the understanding of how market capitalizations are calculated, many people do not understand this and make financial decisions without all the information they should know before making said decision. This is what helped send Doge to the moon earlier in the summer, and the same FOMO pattern repeated with XRP most recently. So how can you translate this psychology-driven information? When the next retail cycle truly begins, you can bet that the majority of new users will follow this path, so front running the next retail wave by purchasing tokens that are A) accessible on major exchanges and B) perceived as cheap, will give you a leg up on the competition, as we can predict where a good % of that new retail capital will end up.
The DeFi space is continuing to grow at an impressive rate and going into 2021, we expect this pace only to accelerate. The next key vertical will be the development of slick UI’s and UX’s, which will enable scaling to a greater audience.
The large DeFi incumbents such as Yearn will continue to make acquisitions to shore up their market dominance and expand their product offerings to attract new users and consolidate the ecosystem.
The TVL in the DeFi space hit nearly $15B this past week, as liquidity continues to pour into the space as positive yields continue to attract new investors, speculators, and most importantly, new capital. Given the current environment in the legacy and crypto space, we expect this trend to continue to move upwards going into 2021. Once the DeFi incumbents can figure out how to create beautiful UI/UX’s that can scale out to the legacy space, we anticipate a surge that dwarfs what we have seen to date, as it will signal that the DeFi attack on the centralized financial service industry has begun. Betting on DeFi at these levels is a no-brainer, and as the ecosystem matures, we expect that we will see a consolidation period to a few key platforms.
The market still has space for new entries into the ecosystem, especially around secondary lending, and insurance products. The next natural step is for the larger DeFi projects to begin acquiring other companies to improve their own offering. A great example of this has been the acquisition spree that Yearn Finance has gone on. Most notably, announcing their intentions to integrate and work with the Sushiswap platform, which as you can see in the chart, the market loved. Expect more of these types of moves and subsequent market reactions going into 2021!
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document. Past performance is not indicative of future results.
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