Market
BTC broke the $38,000 price level last week and the new resistant level of $41700 on Monday, December 4. The current price is around $41,900, bringing us back to levels seen in April 2022, before the Terra Luna incident that started the prolonged crypto winter marked by continuous crises. The RSI indicator is also showing signs of flattening after the downward trends triggered by overbought conditions in early November. With concerns about FTX and Binance behind us and the potential approval of BTC and ETH spot ETFs creating a positive tailwind, we see the right conditions for a crypto market resurgence, indicating the beginning of a crypto summer.
Rather than speculating on the potential inflows spot BTC ETFs might attract, smart money has shifted towards crypto-related equities, with the stock prices of Coinbase (COIN) and miners (MARA, RIOT) outperforming both BTC and the broader stock market. Until a spot BTC ETF is operational, publicly traded miners remain a preferred method for investors to express bullish sentiments towards BTC. Even upon approval of the spot ETF, given the leveraged nature of the mining business and miners' strategy of hodling BTC instead of hedging price risk, miners could still offer a leveraged opportunity for BTC returns.
Ethereum has also shown signs of life in November, reversing the inflationary trend in Q3 and starting to become profitable again. According to the recent global digital asset fund flows report, TH has begun to attract more inflows in the recent month, correcting its YTD outflows..
Source: Token Terminal
While the BTC spot ETF took most of the spotlight, it's worth mentioning that we have seven ETH spot ETF filings waiting in the queue, with the earliest decision date in May 2024. Using global ETP products as a reference, ETH products have about 30% of the AUM as BTC products, indicating a meaningful allocation to ETH once spot ETF products are available.
On the macro front. Powell’s comments on the economy last Friday were balanced, consistent with his tone in the previous Fed speech. While he emphasized that inflation is still above target, he acknowledged that the tight monetary policy is putting downward pressure on the economy and inflation. The full effect is not fully seen yet due to the usual lag. The rate futures market is now pricing in more than a 50% chance of a rate cut as early as March 2023, the highest probability level seen in a year.
The US 10-year treasury rate has dropped from an ATH of 5% in mid-October to 4.2% now, alleviating some concerns about the tight financial conditions. However, the higher interest rate burden has already been felt by corporate America as the default rate picks up in the high yield sector, indicating more challenges ahead if the monetary policy remains tight for too long.
DeFi Trends
It's a favorable time for projects to launch tokens as the market warms up. Pyth, the dominant oracle in the Solana ecosystem, conducted an airdrop on November 20th and traded up 80% within a week. Compared to Chainlink, Pyth boasts high-frequency data directly from the source that is verifiable on-chain, and it supports more chains. Pyth is currently ranked as the fourth-largest oracle by Total Value Secured (TVS) and the second-largest 'general' oracle, with Winklink tied to Tron and Chronicle to Maker. Pyth is trading at 2.75X TVS, almost three times the FDV/TVS ratio for Chainlink, indicating that the market expects much higher growth for Pyth. Pyth's FDV is approximately 12.65% of Solana’s FDV, while LINK’s FDV is around 6.17% of ETH’s. It’s definitely not cheap..
Another interesting token coming to the market is Chainflip, a cross-chain DEX. It’s a Just-in-Time AMM that facilitates the native swap of tokens across different chains without incurring any bridge risk. Chainflip boasts a smart design that emulates CEXes by virtually trading assets on its own 'State Chain,' balancing accounts, and settling with the actual assets securely stored in Vaults. In contrast to Thorchain, a major cross-chain DEX, Chainflip uses USDC rather than FLIP in any trading pair, streamlining the process for users and liquidity providers. Chainflip saw a 150% price increase on the first day of trading on November 23. It currently has a FDV of $558M, which is 16% of Thorchain’s market cap. Considering Thorchain, now the second-largest DEX by market cap, is 60% of Uniswap, we believe there is room for Chainflip to grow. Thorchain has openly endorsed Chainflip on social media, indicating there is a bigger pie to grow in the cross-chain liquidity space.
Besides new token launches, existing protocols are also capitalizing on the market rally to initiate incentive programs supporting ecosystem development. Arbitrum's TVL has increased by 30% since the launch of its Short Term Incentive Program (STIP). Given Arbitrum's dominance in derivative DEX across Layer 2 solutions with GMX, 44% of the grant is allocated to derivative-related protocols. The trading volume in derivative DEXes has grown approximately 3X after the incentive program, indicating a significant increase in mercenary demand. Whether this heightened activity will be sustained remains a question, but Arbitrum has previously demonstrated organic growth after its own airdrop. We expect the STIP program could strengthen Arbitrum’s market share in the derivative DEX space as liquidity begets liquidity.
Top 7d Gainers and Losers
Top 100 MCAP Winners
ORDI (+46.63%)
IOTA (+31.84%)
Celestia (+25.84%)
SEI (+10.21%)
Theta (+9.12%)
Top 100 MCAP Losers
Bitget Token (-4.39%)
Immutable (-3.35%)
LEO (-1.62%)
Kaspa (-1.60%)
Render (-1.05%)
About Decentral Park
Decentral Park is a founder-led cryptoasset investment firm comprised of team members who’ve honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.
Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.
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