ISSUE NO. 35

In This Issue:

MACRO

This week’s major crypto events:

  • Putin signed into law requirements for public officials to declare their cryptocurrency holdings or face a 10% fine on their incoming/outgoing transactions.

  • Mass Mutual, a 169-year-old insurance firm announced a $100M purchase of Bitcoin, furthering the institutional incursion into the digital assets space.

This week’s major legacy events:

  • The U.S. Fed will announce its interest rate decision this Wednesday, with expectations that rates will be held at 0.25%.

  • With negative interest rates becoming the new normal, the Bank of Japan is expected to maintain its negative rates at -0.75% this Thursday.

Many early movers into Bitcoin and the digital asset space thought they would be free from the grasps of authority, but as Bitcoin’s individual sovereignty experiment comes to an end, governments are quickly unveiling new measures that would seek to track and tax all transactions in the digital assets space. So what good are rules without enforcement? Putin’s strategy is to force all public officials to disclose their holdings or face the music – which in this case, is a 10% fine, or if you read between the lines, a tax. The ‘fine’ would be levied against all incoming/outgoing transactions and applied to whichever of the two were greater in monetary terms. For the rich and powerful, a layer of financial privacy is valuable for many reasons, so the idea of Russian officials not declaring anything and risking getting caught, with the only punishment being monetary, seems like a risk potentially worth taking. 

We are expecting a wide crackdown in 2021 around self-custody, with the focus of the upcoming regulations being around minimizing the illicit transfer of funds, as well as tax evasion, which is the primary reason for the crackdowns. With many economies either in stagflation or deflation and surging deficits to subsidize their population through the lockdown periods, the only new sources of income will come from higher or new taxes. Crypto is low hanging fruit in this regard, and with the vast sums of wealth being generated and transferred, it has gotten too big to ignore any longer.

 

BTC/USD – W (BNC:BLX)

https://www.tradingview.com/x/YW76Ik4i/

 

POINTS OF DISCUSSION

SENTIMENT
Bullish

KEY LEVELS
S = $16,600, $15,700
R = $19,500, ATH’s

HIGHLIGHTS
1) Bitcoin remains bullish in the short term while holding above $16,600 and must now close above the $19,400 to signal bullish continuation.

2) Keep a close eye on exchange inflows vs outflows as an early sign of possible sell pressure as prices have begun to breach some ATH levels.

Market volatility is back in a big way for Bitcoin, with price oscillating in a 10% range, between daily support at $17,500 and weekly resistance at $19,400, presenting many trading opportunities for short term traders playing ping-pong on the daily range levels. Bitcoin, at this point, has an amazingly simple analysis path – utilizing on-chain data, we need only watch the inflow vs. outflow data to provide an actionable edge on determining the current trend. As long as institutional buy power continues to exceed daily issuance, the price will naturally gravitate upwards, unless there is a large inflow from whales/miners. Exchange inflows have been at yearly highs around these nearly ATH price levels, which provides a good shake out point for older holders looking to realize gains or the unfortunate souls who held from the previous rally in 2017 and have now finally returned to break-even. The next move on Bitcoin for traders is an easy one – if you are more of a swing trader, it is prudent to exhibit patience and wait for expansion from the current range. A move above $19,400 will provide the next long signal to retest the ATH levels, and if we close above those, we will likely enter a parabolic ascent to new levels. Bears will need to close price below the $16,600 level to indicate any type of strength, but given current inflows and growing institutional FOMO, any dip will aggressively be bought back up. Remember, when you are selling your Bitcoin, you are directly selling to Grayscale or some other large institutional entity that is happy to take the coins off your hands.

ETH/USD – W (GEMINI:ETHUSD)

https://www.tradingview.com/x/V9IC5qOg/

POINTS OF DISCUSSION

SENTIMENT
Bullish

KEY LEVELS
S = $555, $530
R = $625, $720

HIGHLIGHTS
1) The deployment of the ETH 2.0 Beacon chain has been completed, with deposits now closing in on nearly 1.5M ETH.

2) No big range expansion trades until ETH moves above the $625 weekly level or closes below the $445 bullish throwback. Expect holiday price shenanigans, as is the tradition in the crypto space.

Following the successful deployment of the Ethereum 2.0 Beacon chain contract, inflows have been steady, with total deposits now approaching 1,500,000 ETH, which can be seen as a huge vote of confidence from the Ethereum community in the future of ETH 2.0 and its path to scale. We were looking for a period of consolidation following the major news event, and sure enough, the price has continued to hold its current daily range between $480 and $625, with a notable series of higher lows, which underpins the point that dips are for buying. Currently, there is no swing trade to be had until the price closes above $625 or below $480, $625 is the current major weekly resistance level, and if broken, the price will be teleported to the next major weekly block at $720. Bears, while on life support, still have a little life, and if they are to come out of hibernation early, they will need to close the price below $480 with some significant volume. The latter of the two seems less likely, but anything is possible, especially depending on the price action we see going into the holidays. As the larger cap digital assets are being traded by more sophisticated individuals with legacy backgrounds and institutions, we expect volatility to cool down over the holidays, but also will not rule out some Christmas shenanigans. So, while you’re around the Christmas dinner table, reminiscing on the year that has been 2020, devious market makers will likely take advantage of your absence at the screen to orchestrate some holiday move when people expect it least. However, this is not our first rodeo, and we know better, so our advice to you, our beloved readers, is to keep those price alerts on a device nearby.

 

US DOLLAR – W (FX:USDOLLAR)

https://www.tradingview.com/x/5Mjnn8s7/

POINTS OF DISCUSSION

SENTIMENT
Neutral

KEY LEVELS
S = 11850,11700
R = 12000, 12100

HIGHLIGHTS
1) USD price now trades into a key yearly support level between 11,600-11,700.

2) While we expect stimulus to continue to flow in 2021, putting downward pressure on the USD from investors that fear inflation, a short squeeze at the yearly support levels is expected, which will put risk-on assets on notice.

U.S. dollar bears have been getting loud again as price approaches the multi-year support level between 11,600-11,700. While a break and close below these levels would be indicative of an acceleration to the downside on the USD, the probability of a short squeeze from these levels back up to the bearish throwback level and previous breakdown point at 12,000 is more likely, given the current positioning in the market. One key force at play will be the size and delivery time of the next large U.S. stimulus, which will certainly have long term inflation implications, but people need to dampen their expectations of a rapid inflationary event in the short term. While it may seem like we are headed to the end of times, we are not there yet! We will not be able to call the U.S. dollar trend reversal unless we are seeing price closing above that 12,000 mark, which would open up additional upside into the critical weekly pivot at 12,150. If the dollar begins trading above that level, it is safe to say that the majority of people would be out of position, with risk-on assets taking a likely beating. For now, sentiment remains neutral/bearish, but the time to short has passed and we will be looking for a bounce and squeeze from these yearly levels sometime in early 2021.

SPX500USD – W (OANDA: SPX)

https://www.tradingview.com/x/O82hfmJJ/

POINTS OF DISCUSSION

SENTIMENT
Neutral

KEY LEVELS
S = 3600, 3500
R = 3750, price discovery

HIGHLIGHTS
1) We anticipate equities to continue to do well in the long run as long as stimulus continues to flow from the Fed. Stocks are at absurd valuations, but there are few good options for investors to put their money for the time being.

2) Bulls are in control above 3,500, with the only bearish narrative going into the end of the year being the ‘end of year tax selling’ event.

The bulls have remained in control for the past couple of weeks, with prices briefly clipping 3,700 for the first time in the market’s history. Valuations on stocks are far beyond the roof, but with seemingly unlimited amounts of stimulus, and no real good choices of where to park money, U.S. equities will continue to trend higher as long as current conditions remain as they have been. Of course, with the end of the year nearly upon us, the tax selling narratives are revving up, but with the knowledge of further stimulus being provided in early 2021, we may see this potential selling easily absorbed. The 4,000 level is still the key magnet for price going into Q1 2021, and will also serve as a strong psychological barrier, but the path of U.S. equities has generally been up, and we anticipate this historical trend will continue, with dips being a gracious ‘buy the dip’ opportunity for investors and traders. If bears are woken out of their coma, they will need to close price below 3,500 to signal any real strength and continuation of a downside move back to the daily support at 3,400. We expect volatility to die down going into the holidays, so we will be looking for better opportunities in the crypto markets, where volatility is always high.


XAUUSD – W (OANDA: XAUUSD)

https://www.tradingview.com/x/v8uHWzmr/

POINTS OF DISCUSSION

SENTIMENT
Neutral

KEY LEVELS
S = $1,760, $1,680
R = $1,945, $2,000

HIGHLIGHTS
1) A strong bounce off the bullish throwback at $1,760 but bulls need to close above $1,945 to signal bullish continuation.

2) Gold is now in a tight range between the weekly levels, but with a short-term bearish bias below $1,945

Keeping up with our high strike rate across our TA segments, gold had a strong bounce off the bullish throwback level at $1,760 but has so far failed to close above the critical pivot at $1,945. What we have now is a good ol’ fashion range between the bullish throwback level and bearish throwback level, meaning that the next expansion trade is very blatant now. If we see the price close below the support at $1,760, it will indicate to us that there has been a momentum reversal on a higher time frame, and we will be targeting downside exploration into the weekly support level at $1,680. People are indeed dropping gold, as Grayscale had hoped and encouraged, but the primary buyer of gold is nation-states and central banks. They have been accumulating for years with a recent surge over the past year and a half, indicating that gold favor isn’t a dead fad just yet – calm down, Barry. If bulls are to flex their might, they will need to muster the strength to close the market above $1,945, which would confirm the generational bottom and we would be expecting a high momentum rally to $2,000 and beyond. Until either of these two levels are breached, traders will need to sit on their hands or look for opportunities in other markets that aren’t in a short-term range bound situation.


Gem Hunters

Key Points

  1. 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.

  2. Capital flows into the DeFi space will comparatively be much quicker than the time it took them to balloon into Bitcoin. People learn from experience, and regulators will move swiftly to open the DeFi space to the institutional liquidity train.

This week’s review of the TMC is another positive one, as the market has held up above the $500B mark for a number of weeks now, with Grayscale continuing to report large inflows of fresh institutional cash to keep the market afloat. It’s important to remember that miners are naturally large sellers, providing a supply of fresh coins to the market, so when demand is doubled, their outflows create a clear supply/demand imbalance, which is what Bitcoin has been experiencing since around April. As long as this imbalance persists, the price of Bitcoin will continue to rise, and a rising tide lifts all boats. 

Generally, people catch on to new trends in tech once they have been exposed to the ecosystem, and we expect this will be no different in the digital assets space. It took nearly ten years for institutions to catch onto the concept and value of Bitcoin, which has been melded to fit their needs, but the underlying point here is that they get it, and the time it takes for them to grasp new technologies and opportunities, such as those in the DeFi space, will decrease. With this logic, we anticipate that regulations will be deployed swiftly, much quicker than what we saw in the Bitcoin space, which will give the regulatory clarity and green light for that sweet, sweet institutional liquidity to blow up the TVL (Total Value Locked) even further in the DeFi space. Investors will not be naive this time around and will look to deploy capital feverishly in 2021. The trend is your friend, and the trend for capital inflows is truly clear here. All aboard the 2021 liquidity train!

 

Gem Hunters (Extended)

Key Points

  1. Taking a shotgun approach to this new trend and ecosystem is an ideal strategy to take in the early days, as it ensures exposure, but diversifies the risk between the early leaders and largest network effects.

  2. Monetary sovereignty is once again restored with the construct of truly decentralized, algorithmic stablecoins. This trend is incredibly early and comes with high risk, but the rewards are equally as high and the value proposition is one of the strongest we have seen over the years of being in this space.

We pride ourselves on being able to leverage our extensive experience and networking capability to identify trends in the digital assets space very quickly, allowing us to get in on the ground floors of the trends that will capture a high amount of TVL, and it is becoming evident that decentralized, algorithmic stablecoins will be in the glow of a spotlight going into 2021. Governments are beginning to crack down on the illicit flow of money within the digital asset ecosystem, particularly in stablecoins, in which the total volume dwarfs all of the top 20 crypto assets combined. The problem is that governments want to restrict issuance and access to stablecoins and ensure every transaction is KYC compliant to avoid any potential illicit activity, including potential tax evasion or capital flight. 

Centralized stablecoins are becoming more and more censorable, as the issuers are beholden to the authorities and governments who wish to restrict, monitor, and control the flow of all funds. Decentralized, algorithmic stablecoins have all the benefits of stablecoins but come with none of the problems that are current or coming down the pike. With no central issuer for governments to manipulate and no ways to enforce censorship, we anticipate a significant amount (if not all) of illicit money flow will move to these networks. Capital flight worries will only grow as nations face further currency devaluations in 2021, which will further drive home the narrative and demand for these networks. Combine these networks with a privacy layer and widely distributed network hosting, and we will once again have a network(s) that enable the sovereign individual. Do not let the institutional moon boys blind you – not having these technologies will only secure the technocrats’ dominant position and increasingly authoritative governments control over their subjects, which are bonded to them through debt slavery. Projects that are currently trailblazing this trend are Empty Set Dollar and Dollar Protocol, which both offer up unique monetary policies and incentive tactics that create the stability of the $ peg and ensure continued network expansion. As this trend is near and dear to our personal ideology with the importance of empowering the sovereign individual, we will be doing a deep dive on these solutions in the next issue, so stay tuned, but we highly recommend you start your research now before everyone catches onto this trend.

DEFI CHECKUP

 

Key Points

  1. Decentralized governance, while it has a nice ring to it, is still just a nice narrative to push with no real substance behind it as most governance systems in the DeFi space are highly centralized.

  2. Once regulatory clarity is put in place and gives the green light to institutions to invest more actively and aggressively in the space, we expect a significant mark up for the DeFi blue chips and a surge of new projects as founders look to capitalize on the fresh funding channels.

The idea of decentralized governance sounds almost as good as Bitcoin holders being their own bank, with no fears of persecution or restrictions being put on them by the governments and power-hungry institutions. However, we know these narratives have been proven false at this point, as the majority of governance systems in the DeFi space are extremely centralized and are further made inefficient as low participation rates due to user apathy have followed the trends of regular democracies. Voter apathy and lack of participation add to the dangers of centralized governance because it enables those who are active to have a greater weight at the table, and a lot of early holders of governance tokens are prone to voting in blocks to further their own agendas. A solution to this will be further incentives to increase governance participation from a wider group of people, but incentive mechanisms can take time to tinker with before the sweet spot is found, so we anticipate there will be a lot of unique experiments to solve for this issue. That issue aside, capital inflow into the DeFi space continues to move in the upward direction and we anticipate this trend to only accelerate in 2021, as regulations are made more clear, opening up the institutional flood gate.

 

Disclaimer:

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.

©2020 by Hxro Labs

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