wNews: How a Dogecoin Pump Upstaged the Coinbase Listing

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This week’s wNews digs into why various left-of-the-curve cryptocurrencies enjoyed some serious bullish attention. So hard did 2017’s favorite altcoins pump that the market quickly forgot about the industry’s first-ever direct listing.

Dogecoin swept headlines, but other altcoins like Ethereum Classic, Bitcoin Cash, and Litecoin all took flight this week. There are several reasons why this activity is strange and worrisome to investors.

Dogecoin’s repo on GitHub is absent of activity, and Ethereum Classic has already suffered from two 51% attacks. Neither facts suggest either project is fundamentally strong. As for the rest of the market, who knows.

Elsewhere, Bitcoin and Ethereum traded price action. Bitcoin dropped after being banned in Turkey, and a mining accident in China reduced the network’s hashrate. Thanks to positive scalability news, ETH hit an all-time high just a day after Coinbase was listed on NASDAQ. 

This week’s volatility has already spooked some traders, however. For those moving into stablecoins, this week’s Crypto To-Do List introduces readers to a convenient way to earn up to 15% on their idle holdings. 

All that and much more below.

Digging into Dogecoin, Not Coinbase

It’s perfectly reasonable in crypto that the industry’s greatest moment of validation is eclipsed by the inordinate pumping of a “meme coin.” Just as Wall Street finally perks up to crypto, market participants remind them that the sector is still growing. 

Unpacking this juxtaposition, however, does reveal several curious insights. First Dogecoin. 

Headline after headline, tweet after tweet, commentators overthought the underlying reasons as to why DOGE rose from $0.07 to $0.41 in under a week. The money-as-a-meme narrative was certainly at play. 

But there was another unexpected motor that pushed the coin to new highs.

DOGE price action from Apr. 12 to Apr. 16. Source: CoinGecko
DOGE price action from Apr. 12 to Apr. 16. Source: CoinGecko

Like all strange money matters, it involved a tweet from Elon Musk. Alongside the serial memester, the Dogecoin pump also involved a “truly exceptional” trader. 

When inspecting the top DOGE wallets, one particular address stood out last week. Looking through this account’s activity, one can see what looks like a massive campaign to lure and bait speculators. 

100,000,000 DOGE sold here, 250,000,000 sold there. With such volume, it’s not difficult for a single address to move prices. 

Dogecoin Activity
Source: Bitinfocharts

Once this information became clear to the public and Twitter threads revealed the carnage, another unusual document emerged: God.pdf

Written by another trader named Wolong, the document described the precise tactics put in play in the latest Dogecoin action. It revealed how whales could delicately manipulate price and volume in seven key steps. What’s more, Wolong was notorious for controlling the price of DOGE before disappearing. 

The first step is position building, or slowly making “microbuys” over a period and creating a large coffer of the specified token without disrupting prices. The second is price suppression. 

Here the whale quells rising prices through wave after wave of sell walls. Wolong writes, “our sell walls are usually just enough to appear as though as it’s the invisible hands of the market, minor supply over demand.”

Step four is the test pump to shake out weak hands and “ensure that [whales] have absolute control of the market.” Step five is the actual pump, like what the market saw on Friday. 

Step six is a re-allocation of the tokens, followed by step seven: “The Dump.”

After the general explainer, Wolong writes:

“By now, everyone should be very curious and if not dying to find out how I orchestrated my pumps and dumps, especially with dogecoin.” 

In another March 2020 article from the Daily Dot, his technique was explained thusly: 

“A Bitcoin trader who asked to remain anonymous told me Wolong was likely trading mostly with himself, ‘playing the part of the fighting whales’ (‘whales’ are traders with significant bankrolls). He described a pattern of trading where Wolong would make it appear that a whale was keeping the market below a certain price, and then play the part of a second whale buying enough Dogecoin to lift the price through the first whale’s resistance. Once the price broke that resistance, out-of-the-loop traders would buy more Dogecoin, hoping to see it rise even higher.” 

Because Wolong had been executing these tactics long before last week’s pump, many experienced traders quickly drew comparisons. 

With this bit of context in mind, calling “all money a meme” seems a bit silly. 

And just like on Wall Street, if traders don’t know why prices are moving the way they are, they probably aren’t looking hard enough. 

Either way, of course, retail will always be left holding the bags.

Market Action: Bitcoin (BTC) 

Bitcoin moved past the $60,000 resistance and recorded a 7.6% gain following the breakout. 

The price retested support yesterday as negative catalysts from Turkey and China put pressure on the price. The ascending triangle target of $76,500 is still in action, though. 

Bitcoin Price Action
Source: Trading View

The high funding rate for long BTC orders on Binance’s futures market suggests that fear is creeping among traders. 

For reference, on Wednesday, when Bitcoin broke above $60,000, the funding rates were above 0.1% across all platforms for an eight-hour interval or a 110% annual percent rate. 

Funding Rates for ETH and BTC
Bitcoin and Ether funding rate for perpetual contracts on exchanges. Source: ViewBase

The derivatives market saw a $1.1 billion liquidation dominated in long orders after yesterday’s crash. Overall, the market still seems bullish. 

The Coin Days Destroyed (CDD) metric, which gauges the movement of old and large Bitcoin addresses, possibly moving to sell, continued to decline in March, which is a positive signal. It suggests that long-term holders are willing to wait for higher prices. 

Monthly Sum of Bitcoin's Coin Days Destroyed (CDD)
Bitcoin CDD indicator. Source: Glassnode

However, since the top of $64,500, reports of exchange deposits of nearly 16,000 Bitcoin (worth nearly $1 billion) have emerged. 

First, analytics firm Crypto Quant reported a 5,047 BTC inflow on Thursday. 

Then on Friday, after Bitcoin’s dip to $60,500, Ben Lilly of Jarvis Labs recorded a massive inflow of over 11,000 BTC, adding to the negative pressure over the weekend. 

If the price drops further, the previous low of $55,600 will support the bulls. 

Market Action: Ethereum (ETH)

Ethereum’s native token ETH broke a new all-time high this week with positive development around the blockchain’s scalability issues

The comparison between the daily chart of ETH and BTC reveals that the second-largest cryptocurrency is, in fact, leading the market. 

Ether broke and retested the breakout from the ascending channel in the first week of April. In comparison, BTC followed a similar trajectory this week. 

ETH Price Action
Source: Trading View

The ETH/BTC also brings positive tidings as it trades above the pivotal value of 0.034 BTC. 

Before stablecoins like USDT took over, Bitcoin was the dominant exchange pair in the market. However, in 2019 and 2020, the volume of USD pairs exploded on the spot and even the futures market. 

Still, the levels of support and resistance in the ETH/BTC chart provide useful information about the change in market trends. 

The 0.034 BTC level marks a pivotal point of decoupling between Bitcoin and Ethereum.

During the parabolic 2017 run, breakout and retest of this point acted as a robust trading indicator. Over the last two years, the price has held near this level, seeing upward resistance at 0.045 BTC and 0.058 BTC. 

ETH Price Action
Source: Trading View

However, the funding rate of Ether is running hotter than Bitcoin, which is a concern for investors. 

While the target of $2,750 and $3,000 is still on, traders must not rule out the possibility of a retest of the $2,100 support. 

Crypto To-Do List: Use a Yield Optimization Tool 

Crypto is deep into its biggest bull run to date, which means some are already beginning to take profits.

In the past, this usually meant exchanging from crypto to fiat via a centralized exchange. With the advent of DeFi, however, users needn’t move holdings outside of the crypto ecosystem. 

DeFi, the majority of which occurs on the Ethereum blockchain, offers unrivaled yields, especially compared to any bank in the traditional world. This means that if and when a slump does hit, DeFi users will still be able to continue banking profits on their assets by putting their money to work. 

Yield farming,” as it’s popularly known, introduced a new layer to the crypto ecosystem, but it also added complexity. The best yield farming strategies can be difficult for casual users to find, however, and moving assets between liquidity pools can require heavy amounts of gas. Plus, as yield rates change with the number of assets deposited in a pool, it can be difficult to keep track of the best place to deposit funds. 

Most users don’t have a lot of capitalin time or cryptoto invest in yield farming alone. 

That problem has been solved with the arrival of yield optimization tools. Aggregators for some of DeFi’s leading projects, these protocols use smart contracts to find the best returns for users when they deposit their assets. 

By far, the best-known yield optimization tool in DeFi today is Yearn.Finance

Built by cult DeFi figure Andre Cronje in 2020, Yearn integrates Compound, Curve, Balancer, SushiSwap, Aave, and other DeFi mainstays. It offers a range of products, though they are designed to help users capture yield more efficiently (Cronje has said that he built it for himself). 

With Yearn’s Vaults, users can deposit an asset, which Yearn users can access to borrow stablecoins and farm yield. The yield then gets exchanged to the same deposited asset, which the user can withdraw. Earn is a similar product, designed specifically for stablecoins like DAI, TUSD, USDC, and USDT. It also supports WBTC. The protocol also integrates cover options to protect assets. 

Yield optimization tools like Yearn.Finance simplify the process of leveraging DeFi’s yield opportunities, creating new ways for users to move their assets without the heavy gas burden. Nonetheless, making a deposit and withdrawal from Yearn still requires gas. 

Moreover, yield optimization tools are highly experimental, designed for more proficient DeFi users. As such, caution is advised. 

Disclosure: At the time of writing, some of the authors of this feature had exposure to ETH,  AAVE, CRV, BTC, UNI, DPI, and POLS. 

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wNews: Unwinding the Grayscale Bitcoin Trade

Key Takeaways

  • One of the industry’s shoo-in trades was the great Grayscale arbitrage trade. Now, it’s dried up. 
  • Markets returned to local highs this week after the House passed the latest $1.9 trillion stimulus package.
  • Amid the multi-chain narrative, several Layer 2 solutions on Ethereum have been hard at work.

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This week’s edition of wNews digs into the Grayscale arbitrage trade. Understanding how this particular trade works is key to identifying its effects on the greater crypto economy. 

In short, institutional investors are making bank on high premiums from retail investors buying up Grayscale “shares.” This week, however, this premium has plummeted. 

Today’s dispatch unpacks what this means and why it’s important. 

Markets continued their upward trend after hitting a snag last month. Bitcoin is up 17.6%, and Ethereum is up 14.3% at the time of press. For reference, the leading cryptocurrency is 74% of the market cap of Google and 11% of gold’s market cap. 

Source: AssetDash

Likely much of the bullish action this week came from the latest $1.9 trillion stimulus package getting the green light. Who knows where Americans will put their incoming round of stimmy checks. 

But with death knells of the 60/40 portfolio ringing, some are likely to turn to Bitcoin. Last month, JP Morgan even backed a 1% allocation, saying

“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio.”

Finally, this week’s crypto to-do list is all things Layer 2 on Ethereum.

All that and more, below.

The Great Grayscale Trade

Before this week, the great Grayscale trade was free money for investors. Here’s how it worked. 

Grayscale created an onramp for wealthy investors to lock up their Bitcoin. In exchange for this lock-up, they receive equivalent amounts in Grayscale Bitcoin Trust (GBTC) “shares.” These shares are meant to track the price of Bitcoin. 

These shares are then sold on platforms like Fidelity, Charles Schwab, and other brokerages. 

Investors on these platforms are typically retail too. Moreover, this demographic likely prefers the GBTC product over actual Bitcoin because it removes self-custody and tax concerns. In exchange, however, they have often had to pay a premium. 

GBTC is still subject to supply and demand, which means it often leaves its peg to Bitcoin. There are only so many GBTC shares on the market at any given time. 

This has created a massive premium on the asset. The average premium since the birth of GBTC has been nearly 40%. For the altcoin equivalents, the premium has been as high as 5,900%. 

For the original investors who helped create the GBTC shares, capturing this premium has been one of crypto’s easiest, most profitable trades. 

One strategy revolves around taking out Bitcoin on loan, creating GBTC shares, selling those shares on the open market, repaying the loan, and pocketing the difference. As long as the premium is higher than the interest on that loan, the trade remains profitable. 

Despite this constant sell pressure, demand has also been rampant, hence the premium.

This week, however, the premium has finally dropped. 

At the time of press, GBTC is sold at a 1.72% discount. On Mar. 4, this discount fell as low as 11.59%. This means it is cheaper to buy GBTC than actual Bitcoin.

Source: yCharts

There are a handful of conclusions one can draw from this. Based on the above outline, this drop in premium indicates that GBTC supply has finally outpaced demand. 

And, as such, Grayscale has also halted inflows from investors looking to join in on the GBTC trade. On the same day, Digital Currency Group (DCG), the owner of Grayscale, announced that it would purchase $250 million in GBTC shares

It was unstated, but both actions are likely meant to help retrieve the peg. 

What This Means for Investors

Due to the structure of Grayscale’s crypto products, the arbitrage opportunity only works in one direction. This is because GBTC cannot be redeemed for Bitcoin. 

Investors cannot buy shares on the market and swap them for BTC to capture that difference. It is a one-way revolving door. The only way shares can refind their peg, or enjoy the same premiums, is by renewed buying demand. 

It’s not impossible, and many investors can now buy discounted GBTC shares hoping that a soaring premium does eventually return. Unfortunately, revitalizing one of crypto’s most popular, mediatized trades will be difficult.

Plus, this isn’t the only force at work here. Before the tumbling premium, several other products have entered the market. The most important entrant was Canada’s redeemable Bitcoin ETF. 

Candian firm 3iQ Corp, the creator of The Bitcoin Fund, wrote on Mar. 8: 

“The Bitcoin Fund (the ‘Fund’) is pleased to announce an in-kind redemption feature on annual redemptions of Class A Units and Class F Units (the ‘Units’) of the Fund.” 

With this move, 3iQ has created a product that allows investors to profit from both premiums and discounts should they arrive. Naturally, these arbitrage opportunities will be far less lucrative compared to the Grayscale trade.

As this particular trade dwindles, it would also appear that Grayscale will soon offer an ETF of sorts. This week, the firm posted nine different positions, all related to such a product. 

The success of this application would also mean the end of the Grayscale GBTC trust. But, as many crypto veterans know, getting approval from the SEC for such a product has been far from easy. 

And until then, a few industry analysts believe the premium is likely to return. Ben Lilly, a partner at Jarvis Labs, told Crypto Briefing:

“Our team at Jarvis Labs fully expects the premium to return in several months assuming a Grayscale ETF doesn’t change the structure of the Trust.”

As for a timeline, Jarvis said that this summer might offer another sizeable premium. He said:

SIMETRI 10x potential

“With massive sums of capital due to unlock in June, I wouldn’t be surprised if we saw a gamma squeeze in the options market as we saw in December. Only this time it’ll be around the $100K to $120K market by the end of June.”

Crypto To-Do List: Use Layer 2

Ethereum is suffering from overload. Network utilization hasn’t dropped below 94% since mid-2020, according to Etherscan, and demand for block space is showing no sign of slowing down. DeFi has become its own burgeoning ecosystem, with over $37 billion locked across protocols like Aave and Uniswap today. Meanwhile, the NFT trend has taken many by surprise, thanks to growing interest among a “mainstream” audience. 

While the demand to use the network may be long-term bullish for Ethereum, it’s caused some serious problems. Ethereum currently processes only 15 transactions per second. Gas fees are a source of complaint for almost anyone who uses the network on a regular basis, with prices increasing alongside utility over the last couple of years. 

Last month, fees briefly surpassed 1,000 gwei—that’s the equivalent of a few hundred dollars for a Uniswap trade. Ethereum hopes to find a solution in the form of Serenity, which will ultimately bring sharding to the network. 

Still, Ethereum 2.0 is potentially a few years away, but the chain needs a more immediate solution to keep processing 1 million transactions daily. The recent growth of Binance Smart Chain has shown that users are prepared to flock elsewhere to interact on-chain, regardless of centralization. Other projects like Solana are hoping to have similar success in the smart contract wars. 

Until Serenity is complete, Ethereum’s best answer to its problems is Layer 2. To understand what Layer 2 means, it’s worth explaining Layer 1 first. Ethereum is a Layer 1 blockchain. It’s the settlement layer for every transaction on Ethereum Virtual Machine. Other Layer 1 chains include Bitcoin, Solana, and Mina. Layer 2, meanwhile, is a framework that runs on top of Layer 1. 

It can help the blockchain achieve scalability by handling some of the network’s load. 

In Ethereum’s case, various Layer 2 solutions are being developed or already available to users. There are different types: channels allow for multiple transactions to be processed off-chain, Plasma leverages Merkle trees to add a new chain, sidechains connect to Ethereum through a bridge, rollups bundle transactions as cryptographic proofs called SNARKs, and Validium uses zero-knowledge proofs while storing data off-chain. 

Several projects are in use and already helping Ethereum regulars use the network at a higher speed and lower cost. 

Polygon, recently rebranded from Matic, uses Plasma and a proof-of-stake mechanism to achieve up to 65,000 transactions per block. Matic is connected to Ethereum via a bridge, which can send assets like ETH to Matic Mainnet.

By changing your MetaMask wallet to the Matic network, you can then interact with the network at practically zero fees using MATIC tokens. Polygon has attracted several on-chain games, including Aavegotchi and Decentraland. Atari also announced it would launch on Polygon, and SushiSwap just deployed its contracts onto the network. 

Another of the most prominent projects is Loopring, a ZK (zero-knowledge) rollup that groups transactions into one transaction. By creating a wallet on Loopring, you can use it to make fast transfers at a fraction of the cost of Ethereum itself. Loopring also has its own decentralized exchange. Gas is required to set up a wallet, but it’s very easy to use without spending a fortune on transactions once you do. 

Arguably the most anticipated Layer 2 solution is Optimism. An optimistic rollup solution, it’s slated to launch this month and will provide composability for DeFi by running on a side chain alongside Ethereum. 

Synthetix went live on Optimism during the team’s soft launch, and other prominent projects have announced their plans to move over in the imminent future. Once Optimism launches in earnest, Ethereum could end up surprising its doubters. 

Ethereum can be slow and expensive to use, not unlike the Internet was in the Windows 95 era. But with promising solutions here today, there’s an opportunity to improve the experience of using the network without compromising on security. When Ethereum 2.0 comes into play, it’s hard to see the “ETH killers” completely destroying the project. We’re heading for a multi-chain world, and Ethereum’s Layer 2 will be a crucial part of it. 

That’s all for this week’s edition of wNews, readers. Stay tuned for next week’s dispatch.

Disclosure: At the time of writing, some of the authors of this feature had exposure to ETH, AAVE, BTC, UNI, SNX, LRC, MATIC, and POLS. 

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wNews: Reddit Communities and The Future of Bitcoin

Key Takeaways

  • A band of cunning Redditors successfully crushed Wall Street short bettors and made global headlines all week. 
  • Bitcoin and Ethereum had a tumultuous week, especially after Elon Musk subtly endorsed the leading cryptocurrency.
  • This week’s crypto to-do list offers readers a new way to bring BTC to Ethereum.

The DeFi news category was brought to you by Ampleforth, our preferred DeFi partner

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This week’s edition of wNews unpacks how Redditors managed to bankrupt a hedge fund and inflict serious losses to others. 

The mechanics of a Robinhood-fueled short squeeze has made headlines globally. And while many crypto enthusiasts are calling for a paradigm shift, finance may just be experiencing the growing pains of Internet-scale communities. Only time will tell. 

Bitcoin and Ethereum traded sideways for most of the week, at least until the world’s richest man decided to endorse BTC on Friday. 

Finally, weekend hobbyists can learn the ropes of one of the most interesting projects in crypto. Badger DAO is bringing Bitcoin to Ethereum, with a twist. 

All that and more, below.

Occupy Wall Street 2.0

So, let’s talk about what seems to be the only story in finance these days: The WallStreetBets revolution. 

It has all the makings of a great story. There are elements of David and Goliath, Robinhood, populist revolution, and sheer mass boredom. Indeed, the narrative is eternal; this edition is just steeped in financial jargon. 

This week’s column will create a timeline of events, unpack the two dominant narratives, and, most importantly, reveal how the crypto industry will likely benefit. 

But, first, a quick explainer on the mechanics behind the GameStop (GME) short squeeze.

The Big Short (Squeeze)

In laymen’s terms, shorting a stock means you borrow an asset with the expectation that the asset will drop in value. Then you sell that borrowed asset on the open market, repurchase it with your profits once the asset drops, then return the loaned asset and keep the difference.

Here’s a quick theoretical example. 

Stock A is trading at $10, but Kaye thinks it’s going to crash soon. So, she borrows the stock from a brokerage and quickly sells it for $10. Don’t forget, Kaye still needs to return the borrowed stock to the broker eventually. 

The price then drops to $5 because Kaye is an excellent market guru. She then quickly repurchases the stock at that price using the $10 she made from her earlier sell, returns the stock to the broker, and keeps the extra $5. 

Remember, she borrowed the stock, not the value of the stock at that time. 

As a side note, when an investor asks their broker to short a stock, the broker is essentially just asking another investor who holds the stock to lend it out. Sometimes this arrangement is buried in the fine print, however. 

Now, let’s unpack what happens when the stock doesn’t do what it’s expected. 

Kaye has just sold the stock for $10, expecting it to plummet eventually. Instead, though, the stock rises to $12, and she still needs to repay that stock loan. She has two choices: She can either repurchase the stock and take the $2 loss and return the loan, or she can wait and see if the stock eventually falls to a point where she makes a profit. 

The latter option is perilous because there is no limit to how high a stock can rise. This means that Kaye’s losses could also be unlimited. 

Here’s how this is related to GameStop. 

Back in September 2019, a character named r/DeepF*ckingValue (name adjusted for press) began posting about GME on Reddit and his prayer bets on the stock. At that time, the company was also doing quite well, but the stock was underperforming relative to its health. 

Josh Gross has an excellent thread on this undiscovered backstory. 

Gross began digging into these posts and soon discovered an “insane” level of short interest (i.e., hedge funds like Kaye from above) banking on the fall of GameStop. These funds were, in fact, borrowing more shares than were actively being traded. 

They did this because they were convinced that GameStop’s bankruptcy was inevitable, so they went all-in with max leverage.

Source: Twitter

r/DeepF*ckingValue doesn’t start looking like a genius until Michael Burry, the key figure from the 2008 financial crisis, joined them and began buying boatloads of GME. 

The price then slowly began to rise as people joined the trade. “And then more people,” wrote Gross. 

The short bettors saw this and quickly bought more shares to cover their positions. This, in turn, puts even more buying pressure on GME, lifting the price even higher. Funds thus need to buy more cover. Thus pushing prices higher. And so on.

Soon, this reached a pitch once a subreddit of millions of users, r/wallstreetbets, caught on to the game. Then Elon Musk and Chamath Palihapitiya joined in, adding fuel to the flames. 

This is a short squeeze, albeit of epic proportions.

Soon, Melvin Capital, the largest short bettor on GameStop, crumbled. They even earned a $2.75 billion bailout to help close their positions. 

And Then There Were Two

Two narratives have since emerged from this debacle. 

The first is the story of the little guy against the big bad Wall Streeters. The average joe versus the establishment and so on. This narrative is currently capturing hearts and minds around the world. Some compare the events to a renewed Occupy Wall Street, others to the Capitol riots at the beginning of the month. 

“I think that the narrative is romantic, and will likely stick as a kind of justice, a Robinhood type of arrangement,” Thomas Kuhn, an analyst at Quantum Economics, told Crypto Briefing.

Assuming that the GameStop short squeeze is a revolution, it also assumes that an ideology drove the events. And though there have been samples of ideology, one must realize that personal greed, stimulus checks, and the sheer boredom of lockdown are far more logical conclusions. 

Jamie Powell of The Financial Times wrote

“So what is going on? The simple answer is: people have found a way to get rich quick, and are doing so. Nothing more, nothing less.”

What’s more, these Redditors likely didn’t operate alone. Surely, various funds and trading desks saw the same trade and joined en masse. Kuhn added that: 

“The reality is probably more complex, where, for example, on Robinhood, the free trading app has been selling its order flow to Citadel, where perhaps High-Frequency Trading also participated in this.”

It’s difficult to call these events a clear-cut paradigm shift. 

Instead, a more accurate description would be that greed, when scaled to the size of the Internet, looks an awful lot like ideology. 

When so many micro forces are performing a singular, cohesive task, onlookers will have difficulty seeing each component. Thus, what was probably just a bunch of millennials trying to make a quick buck on a trading app, now looks like the French Revolution. 

However, that doesn’t mean that these same millennials aren’t perfectly primed for a coup of sorts. Just so long as they get rich along the way. 

Market Action: Bitcoin (BTC)

Bitcoin’s price has maintained a horizontal range for the past couple of weeks. Before the next big move, the consolidation phase has primarily held within the range of $33,900 and $30,700. 

Bulls attempted a breakout above the range on Monday; however, they failed at highs of $34,900. 

The bears also had a go on Wednesday, causing a strong pullback below $30,000. Fear in the market rose to levels not seen in this bull market. 

BTC/USD 4-hour chart on Coinbase. Source: Trading View 
BTC/USD 4-hour chart on Coinbase. Source: Trading View 

Supported by Ray Dalio’s comment from last night and Elon Musk’s status update on Twitter, which now only says “Bitcoin,” the price of the cryptocurrency shot up 15% to highs of $38,077.  

Bitcoin’s Spent Output Profit Ratio (SOPR) is a robust on-chain indicator for gauging long-to-medium term market sentiments. The SOPR shot up significantly last week to levels not seen since the 2017 top. 

The metric, nevertheless, touched the pivot value of 1 after Wednesday’s correction. In an uptrend, the market rejects values below 1 and vice-versa. 

The ratio has started to pick-up again, suggesting strong hands.  

Bitcoin SOPR ratio. Source: Glassnode
Bitcoin SOPR ratio. Source: Glassnode

Bitcoin’s peak price of $42,000 is the most critical resistance, beyond the all-time high market’s bullish expectations will rise considerably. 

SIMETRI’s lead Bitcoin analyst, Nathan Batchelor, confirmed the same: 

“If BTC reaches $42,000 then a massive inverted head and shoulders pattern will form, which points to $55,000. Additionally, bears failed to closed the daily candle under a large broadening ascending wedge earlier this week, signaling bulls appetite to test higher. Again, this pattern points to $55,000 as an upcoming target.”

Market Action: Ethereum (ETH)

Ethereum’s native token ETH logged a new all-time high of $1,477 on Monday. The surge blindsided the market’s focus towards ETH. However, buyers failed to push it higher. 

ETH has since followed Bitcoin’s price action, plunging 9.29% on Wednesday and increasing by 4.8% this morning. 

ETH/USD daily price chart on Coinbase. Source: Trading View 
ETH/USD daily price chart on Coinbase. Source: Trading View 

The daily ETH chart is textbook bullish, forming an ascending triangle pattern with higher lows and horizontal resistance. ETH seems to have a clear pass above $1,390 and a high probability of bullish confirmation above the peak value of $1,480. 

The support levels for Ethereum are at $1,200 and $1,040.

Still, the funding rates for the top two cryptocurrencies on derivatives exchanges are surging, which is a negative signal. 

A funding rate of 0.1% every eight hours on derivatives exchange amounts to more than 100% annual percentage rate (APR). Such high rates make shorting a lucrative option. 

The last updated funding rate on Binance, for example, is 0.2% for BTC and 0.19% for ETH. 

Bitcoin and Ethereum funding rates on exchanges. Source: View Base  
Bitcoin and Ethereum funding rates on exchanges. Source: View Base  

While traders and investors are getting comfortable with the new hyperactive regime, risk management and avoiding over-leveraging has become more important than ever.

Crypto To-Do List: Bring Bitcoin to DeFi

Decentralized Autonomous Organizations (DAOs) have been a major talking point in the crypto space since 2016, with varying degrees of success. 

To date, DAOs have typically run on the Ethereum blockchain. The earliest and best-known DAO was launched in April 2016, less than a year into Ethereum’s lifetime. A vulnerability in the code enabled some users to steal the DAO’s funds, however, and a controversial decision was reached to hard fork Ethereum. It’s what led to the creation of Ethereum Classic. 

Though the idea of launching a DAO during Ethereum’s infancy was arguably short-sighted, the blockchain has seen significant development since then. The driving narrative is undoubtedly DeFi, with almost $28 billion locked in protocols such as Aave and Uniswap. 

NFTs are also booming. But less attention is paid to DAOs, despite their huge promise. 

One of the most promising DAOs on Ethereum is BadgerDAO. Its aim is to usher in Bitcoin as collateral across other blockchains. 

Ownership of BadgerDAO is shared, and there are several ways to participate in the project. 

BadgerDAO’s products are focused on Bitcoin. One of them is called Sett, a DeFi aggregator that takes inspiration from Andre Cronje’s venerated Yearn.Finance vaults.

Sett offers DeFi users strategies for optimizing yield on tokenized Bitcoin. It currently uses the following strategies: 

  • Curve_sbtc_lp tokens: Compounding strategy
  • Curve_renbtc_lp tokens: Compounding strategy
  • Curve_tbtc_lp tokens: Compounding strategy
  • Badger <> wBTC Uniswap LP: Compounding Strategy
  • Badger: Stake Badger and earn Badger

Sett can be used to earn BADGER, BadgerDAO’s native token. Besides a 10% supply for the founders, which will be released on a slow emission schedule, BADGER has been allocated for the community only. This encompasses liquidity mining, developer mining, the DAO treasury, Gitcoin owners, and the token airdrop. 

Rewards are paid based on how long users stake the funds for. Similar to Bitcoin, the supply is hard-capped at 21 million. The funds will be used to govern the DAO. 

BadgerDAO’s second product is called DIGG, a synthetic Bitcoin that runs on Ethereum with an elastic supply. 

The supply adjusts across all holders according to the value of DIGG relative to BTC. Users’ wallet balance increases when DIGG increases in price and decreases when the price of the token does. 

BadgerDAO says DIGG is intended to create a non-custodial version of BTC that relies on elastic parameters. 

DIGG has a supply of 6,250. It was recently airdropped to users who bootstrapped the DAO. 

Though it’s early days for BadgerDAO, it’s an interesting project that’s helping the growth of Bitcoin on Ethereum. There’s already over $1 billion locked inside the DAO. As demand for collateralized Bitcoin grows, this could well increase in the future. 

For anyone familiar with popular tokenized Bitcoin options like WBTC and RENBTC, joining the BadgerDAO could be a nice opportunity to earn yield while joining one of the first functional iterations of a DAO on Ethereum.

However, it goes without saying that many of these protocols are nascent and could fall to bugs or hacks at any time. Proceed with caution at all times. 

That’s all for this week’s edition of wNews, readers. Stay tuned for next week’s dispatch.

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wNews: All Eyes on Biden, Bitcoin, and the Future of Index Funds

Key Takeaways

  • Biden finally moved into the White House, but what does this mean for Bitcoin and the crypto industry?
  • Both Bitcoin and Ethereum took steep dives this week, dropping through key support levels.
  • The future of index funds paints a bullish picture for the unique ways blockchain technology can improve finance’s favorite funds.

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This week’s wNews column dives into the nitty-gritty of what a Biden administration means for Bitcoin.

So far, many of his appointees and cabinet members appear to be far more tech-savvy than their predecessors. Some even boast experience working directly with cryptocurrencies.

Still, renewed attention, especially amid an eye-watering bull run, may not be as positive as some hope.

Markets took another steep tumble this week, as Bitcoin bottomed out just below the key $30,000 support. Not all altcoins followed the king crypto, however. Some even appreciated during the bloodshed.

Finally, this weekend’s crypto to-do list is all things decentralized index funds.

All that and more, below. 

An Economy in Tatters

President Joe Biden was officially sworn in this week. But after a contentious Trump presidency and the crushing effects of the pandemic, the new leader of the free world has his work cut out for him.

Naturally, he won’t be alone in rebuilding the economy. 

Throughout the week, crypto enthusiasts have kept close tabs on the various appointees, secretaries, and chairpeople that Biden is putting in place. The most important roles include the Chairman of the Securities and Exchange Commission (SEC), the Chairman of the Commodity Futures Trading Commission (CFTC), and the Secretary of the Treasury. 

There is a candidate for each of the three positions, but they have yet to be voted in officially. One can nonetheless glean much from each nominee’s relationship with cryptocurrencies. 

The current nominee for the Secretary of the Treasury is Janet Yellen. Just recently, the Senate Finance Committee voted unanimously to have her fill the role. The next step is a full floor vote, which is also expected to end positively for her. 

Her stance on crypto hasn’t been the most bullish, but her recent comments suggest that she is taking an even-measured approach to the industry. 

She first made headlines for a soundbite that implied she was fully against crypto due to its nefarious use cases. But later in the week, she added a much more nuanced response. She said:

“I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system. At the same time, we know they can be used to finance terrorism, facilitate money laundering, and support malign activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems.”

Though Yellen has been balanced in her latest remarks directly related to cryptocurrencies, she has proposed an extremely contentious tax on unrealized gains. It’s mere consideration for now, but as markets head sky-high, it could be disastrous.

As Secretary of Treasury, Yellen would also play an outsized role in the United States fiscal policy. 

Already Biden has proposed another massive round of stimulus to right the economy. He’s also admitted recently that there is very little the government can do to reel in the virus’s current trajectory. 

With extreme money printing on the horizon, many institutions are turning to harder and risk-on assets. Thomas Kuhn, an analyst with Quantum Economics, told Crypto Briefing: 

“They clearly can’t allow deflation and allow debt levels to increase vs. GDP. They are happy depreciating currency to a point, but it is already having a direct impact on asset prices, which are already historically high. They want managed inflation, but it looks like it is coming along quite broadly in soft commodities and energy.” 

He added that central banks worldwide, not just the Fed, are running out of options to get a handle on the current financial environment. 

Indeed, combatting inflation has become one of 2021’s biggest consensus trades. 

In a survey of large money managers, the Bank of America revealed that the short dollar trade is one of “the most crowded trades” in the market. 

The nominated SEC and CFTC Chairpeople are also important to consider. Unlike Yellen, however, both Gary Gensler and Chris Brummer bring extensive cryptocurrency and blockchain knowledge to the table. 

Gensler taught a 12-week course at MIT Sloan, MIT’s business school, on cryptocurrencies and has been a vocal proponent of the technology. Likewise, Brummer has presented crypto to Congress on several occasions and has been an active participant in several influential fintech working groups. 

At first glance, this all-star team of crypto-conscious financial regulators seems like a dream come true for the industry. But it’s not all roses.

With so many institutions entering crypto, the ongoing Ripple lawsuit, and high-profile SPACs and IPOs, the industry will likely undergo a hefty professionalization period. 

That’s not to say that anonymous Twitter accounts won’t abound, but one should certainly expect at least a few new guardrails. 

Market Action: Bitcoin (BTC)

7-day BTC/USD chart. Source: CoinGecko
7-day BTC/USD chart. Source: CoinGecko

The biggest Bitcoin news this week was that of its calamitous drop below $30,000 on Friday. But like previous drops, on-chain analytics revealed larger investors were busy buying the dip. Even Microstrategy took the opportunity to scoop up even more BTC. 

For more insight into what’s next, Crypto Briefing spoke with SIMETRI’s lead Bitcoin analyst, Nathan Batchelor. He said:

“Bitcoin dropped below its 200-period moving average on the H4 time frame for the first time since October, causing a major technical sell-off. This should be the battleground for bulls and bears over the days ahead. BTC also broke under a broadening wedge pattern, around $32,220, so I am watching daily price closes around this area for more clues about the short-term direction of BTC.” 

Failing to hold this pattern suggests a steeper correction, but success “suggests $50,000 is still possible,” according to Batchelor.

There are a few other fundamentals to keep in mind as well. On Jan. 29, $3.5 billion in BTC options will expire, the largest ever expiration. Historically, large options expirations have signaled extreme volatility. 

OKCoin has also integrated Bitcoin’s Lightning Network for its users. This makes trading on the platform much cheaper and faster, according to the firm. 

And as the exchange completes a broad makeover of its UI and a new Earn feature, it could also become a top trading spot for the crypto-curious. 

Already, mainstream media has brought renewed focus to Bitcoin — this week, Jim Cramer of CNBC’s Mad Money recommended a 5% allocation in BTC. The program is watched by millions, most of whom are retail investors, all of which likely chomping at the bit to buy a little bit of crypto.

Market Action: Ethereum (ETH)

7-day ETH/USD chart. Source: CoinGecko
7-day ETH/USD chart. Source: CoinGecko

With only a few exceptions, whenever Bitcoin dips, so too does the rest of the market. Ethereum was no different, dropping below $1,100.

Since then, however, the number two cryptocurrency has clawed back to over $1,300. 

Alongside Ethereum, many popular DeFi platforms and their respective tokens enjoyed positive price appreciation. 

Synthetic (SNX), Uniswap (UNI), and Aave (AAVE) are all officially top-20 cryptocurrencies, according to CoinGecko. Kuhn suggested that platforms like these will be the primary engine for further ETH gains. He said:

“I think that decentralized platforms like Ethereum get bid for most of the year – now that DeFi has been proven as a concept, it comes back to these platforms as the next leap forward.”

There are several other fundamental drivers to keep in mind, including hashrate and ETH 2.0 staking, but DeFi is undeniably the most interesting sub-niche of late.

That and, of course, the booming NFT space. This week, Rick and Morty’s creator sold over $1 million in artwork minted on Ethereum.

Crypto To-Do List: Decentralized Index Funds

For those just entering the crypto space, separating the winning picks from the losers can be difficult. The same issue plagues traditional finance too. This is one of the primary reasons behind investing in a set-it-and-forget-it index fund. 

Index funds are “bundles” of top stocks, bonds, commodities, and cryptocurrencies.

When investors purchase these kinds of funds, they’re essentially purchasing a small slice of the top-performing assets within the fund’s sector. In traditional finance, the Vanguard 500 Index Fund (VFINX) tracks the largest 505 American companies’ equities’ performance. 

In crypto, there are several types of crypto indices on offer. 

Grayscale, the leading centralized asset management firm in crypto, offers the Grayscale Digital Large Cap Fund of four top cryptocurrencies. 

Grayscale Digital Large Cap fund weighting. Source: Grayscale
Grayscale Digital Large Cap fund weighting. Source: Grayscale

Crypto Briefing also offers a helpful educational tool for setting up an index fund for ten of the leading cryptocurrencies on Coinbase Pro. The CB10 is much more hands-on, however. Users need to purchase each asset as well as rebalance the portfolio manually. 

If one narrows down into the DeFi space, in particular, there are a ton of new index funds that users can purchase. The list of providers currently includes:

Like traditional indices, these six let investors buy one asset and earn exposure to various DeFi-centric cryptocurrencies. The key differences between each of these indices revolve around asset allocations, token selection, centralized vs. decentralized, and how the funds are rebalanced. 

FTX, for instance, is the primary arbiter of its index’s allocation, whereas a much larger community of token holders decide allocations for the decentralized versions. Each has its advantages and disadvantages. 

With crypto, however, a few other unique experiments are happening in the DeFi world. 

First, if an index has a governance token, then the community of token holders decides on the index’s future. “The difference with a centralized index like from FTX is that a decentralized index is governed by $NDX holders,” said Lito Coen, Indexed Finance’s growth lead. Adding: 

“Imagine you could decide the policy of the Vanguard index. This is made possible by DeFi.”

Second, each of the underlying assets in the decentralized varieties can be active rather than passively sit in the index. With DPI, Index Coop’s fund, users can yield farm with the token to earn extra profits. 

Source: Index Coop
Source: Index Coop

Indexed Finance goes one step further in this regard. 

Instead of idly appreciating, the underlying assets are also kept in a Balancer pool to generate fees similar to traditional liquidity providers (LPs). Coen said that since the project’s inception, it has generated over $100,000 in fees. These fees go directly to holders of Indexed’s DEFI5 and CC10 index holders. 

For more information on Balancer and how this project operates, readers are advised to read Crypto Briefing’s Project Spotlight feature on the subject.

Indexed also leverages these same pools to adjust for any changes in market conditions and weightings when it comes to rebalancing. Coen said: 

“The price and market cap data comes from a Uniswap price oracle. This triggers the AMM pool to set new target weights in the pool which changes the price gradually over time. This creates small arbitrage opportunities that external traders profit from. They buy the tokens we want to reduce our exposure from and sell the ones we want to increase our exposure to. Governance is not required at all for this process.”

Essentially, the pool adjusts its weightings, and lets arbitragers rebalance. It’s a win for the index holders, as well as traders. 

That’s all for this week’s edition of wNews, readers. Stay tuned for next week’s dispatch.

Disclosure: At the time of press, the author held BTC, ETH, POLS, DPI, and WBTC.

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