The Weekly #243
Market valuations have cooled since the Ripple court ruling but relative indicators are showing early signs that momentum has shifted down the risk continuum.
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The Grind Higher, Not Without A Fight
Price action last week was largely positive, buoyed by headlines surrounding the favourable ruling by a court in the Ripple-SEC case. Overall, markets gained 3.07% last week, reaching a higher of $1.24T - the resistance zone found between the 14th-19th of April 2023/high of 2023.
BTC had yet another stab at breaking the $31.4k on the day of the Ripple court ruling and partially won by reaching a new marginal high this year of $31,818. The next day, markets retraced the entire move.
On the Ripple Ruling
The key point to note from the Ripple case was that certain sales and distributions of XRP tokens by Ripple and its executives were not investment contracts. Specifically, those offered to retail at the time as those investors did not have reasonable expectations of the profits efforts of Ripple as a company.
This marks a key ruling in favour of crypto-native firms offerings tokens against a regulatory body that has been clamping down on the industry in quick succession.
XRP gained 60% last week with investors putting the top at $0.93 (ascending channel).
So why the quick correction in the markets the day after? It likely reflects investors recognising a combination of factors:
First, the ruling is a signal but not final as it needs to survive a potential appeal.
Second, the SEC may take this as supporting its continued views that a large majority of these tokens were offered as unregistered securities and need to enforce its strict views on the industry.
Third, it may be not possible to extrapolate the Ripple ruling to other (more recent) token offerings that were structured and marketed in different ways.
Regardless, it at least puts some doubt that secondary sales of tokens on exchanges (e.g. Coinbase) constitute the sale of unregistered securities - a key position the SEC has taken in recent months.
Investors also start pricing in the outcome with COIN with Coinbase already having the tailwind of being a key toll keeper with a large number of asset managers and exchanges entering a surveillance-sharing agreement with the exchange…
So how did the alt market fare?
ETH/BTC bounced off its low summer low where the RR started to look attractive as we stated in June. Realized vol spread between the two assets suggests more vol spikes were also on the cards…
This move is unsurprising - ETH is likely to outperform BTC if investors deploy down the risk continuum.
And for some of our classic alt measures, things are shaping up to be more constructive longer-term.
Perhaps the most important chart of all. Total market index excl. BTC and ETH had broken its bullish wedge to the upside last week, using its 200w as resistance.
But relative ratios are what really matters. DeFi/ETH has reclaimed its support…
SOL/BTC. Same thing. Reclaimed its 200d MA after growing calls for forced-selling in June following the SEC’s charges against Binance/Coinbase. “When most fearful be most greedy.”
The price/MA ratio flipping positive for several days last occurred in early 2021 which signalled the start of more intense capital rotation from beta into alts.
Adjusting for stablecoins, the broader altcoin market broke through key resistance (prev. support) last week.
Conversely, Bitcoin dominance has cooled off from its 2023 peak of 52%. Interestingly, this also comes at a time when regional bank equities gain (KRE inverse) as the sector shrugs off crisis fears for another day.
With interest rates where they are, regional bank risks are still there and a KRE <35 is when backstop mechanisms are likely to be introduced again by the Fed. In other words, BTC’s dominance may be somewhat capped in the high 50s as crisis prevention only drives more liquidity and risk down the curve.
So what about on-chain price models? For Ethereum, there initially appears to be a continued bearish divergence between price and Metcalfe law-type valuation models…
But as I’ve highlighted in my previous work, we need to revise the model inputs as the underlying infra evolves. In Ethereum’s case, its L2s which once we adjust for those, ETH continues to be tracking its on-chain user set remarkably well…
Positive Momentum Is ‘Sticky’
And many are calling for a correction for tech growth stocks to track closer to liquidity measures…
And while equities are likely due for a correction over the coming weeks/months, it is this ‘wall of worry’ is that continues to drive stocks higher as investors wake up to the idea of inflation not as ‘sticky’ as originally thought and there are clear signals like dollar that highlight that positive momentum is what likely turns out to be ‘sticky’.
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ICYMI: Market Note - The Bitcoin Spot ETF
Global Market Cap
$1.17T; Markets gained 3% last week hitting the resistance zone of $1.24T but still above its 200d MA (constructive>not constructive). No technical divergences to note.
Alts (DeFi)
$40.34B; DeFi MCAP gained 6% last week but the sector still oscillates around the $40B mark since mid-2022. We see a break >$50B and/or higher high as when the real fireworks start.
Trader Positioning
BTC OI weighted funding rates suggest full reset in trader positioning on Friday following the Ripple headline as BTC from $31,600 to $30k. Positive FRs at 0.0064 suggest traders taking a predominantly bullish stance.
For ETH, no full reset happened with traders taking less bullish stance on ETH as spot hovers at ~$1.93k.
We can see that short liquidations (~$185m total) surged around the Ripple headline with a larger number of shorts being caught. Late longs the day after were then caught out equally.
Grayscale Trusts
GBTC discount to NAV hovering around 28%. Small impulse following the Ripple headlines. Appears that investors are unlikely to take the discount below 30% unless a Bitcoin spot ETF is rejected.
ETHE discount to NAV perhaps more revealing. ETHE printed its lowest discount since November 2022 (37.52%). Investors may be bidding up ETHE using the same framework as GBTC whereby the Ripple ruling has been the signal that ETH is unlikely to be a security offering which may eventually pave the way for an ETH spot ETF (and conversion of ETHE trust). Yes, lots of hops and ifs.
BTC/USD Aggregate Order Books
Order books look fairly even. Heavier resistance up to ~$30.8k (pretty much same as last week).
Miners
Bitcoin hash rate down slightly over the past week but still up 51% YTD.
Hashprice cyclical analysis points to positive ROC for BTC/USD. Hashprice likely bottomed in January 2023.
Top performers are a mixture of alt L1s and blue chip DeFi names with bottom performers being predominately alternative L1s:
Top 100 (7d %):
1inch (+69.6%)
XRP (+58.7%)
Kaspa (+34.6%)
Synthetix Network (+32.7%)
Solana (+32.2%)
Bottom Top 100 MCAPs (7d %):
eCash (-9.1%)
Bitcoin SV (-7.4%)
Bitcoin Cash (-6.1%)
Kava (-3.1%)
KuCoin (-1.5%)
> Landmark Ripple & SEC Case [Empire]
> Hash3 [Scenius Capital]
> Weekly Roundup [On The Brink]
> The Crypto/Macro Setup with Raoul Pal [Real Vision]
> Is This An Inflection Point for Crypto? [Bell Curve]
> Bitcoin Price-Based Adoption Curve Estimate [Timothy Peterson]
> zkSync’s Boojum release [zkSync]
> Great chain consolidation [Sam Padilla]
> Polkadot rethinks the economics of parachain auctions [Blockworks]
> It’s GHO time: Aave stablecoin passes community governance vote [Blockworks]
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> Decentral Park Research Hub
> Decentral Park Market Pulse
> Decentral Park Website
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