The Elon Musk Candle
Efficient Frontier’s biweekly cryptocurrency derivatives and markets newsletter
Originally published on Efficient Frontiers Substack on January 30th
The Bitcoin markets have been relatively quiet in the last two weeks, Bitcoin’s price sliding from $35,000 to a bit under $29,000 then back to $34,000 before slumping again to $29,000, testing the price floor. Excitement for Bitcoin was definitely lacking while DeFi and Ethereum outperform the digital gold, as the attention of the internet turned to WallStreet and Reddit. But last night that flipped when WallStreetBets’ energy came to Dogecoin and a few hours ago one Tweet by Elon Musk sent Bitcoin’s price straight up to $37,000, now back around $34,00. The tweet came, coincidentally or not, an hour after Bitcoin’s options expiry.
This flash rally caused a liquidation of $550 million worth of short positions, the biggest short liquidations since Bitcoin broke through its former all-time high prices to $23,000 per-Bitcoin, which triggered a liquidation of $650 million.
Bitcoin perpetual swap funding rates, representing long or short pressure, are back to normal, for now, after reaching euphoria levels at the beginning of the month, though rising slightly after this morning’s rally.
“In the derivatives market, bitcoin funding rates for swaps continue heading towards zero, particularly on venue FTX, which currently has the lowest rate, at 0.0318%. This signals leveraged demand to go long is dissipating.” wrote Coindesk
Another interesting metric that has been heading out of positive territory is SPOR. SPOR shows the average profit or loss of Bitcoin moving on-chain (assuming moving on-chain means the Bitcoin moved to new owners). As seen below the SPOR is getting closer to the negative zone. Historical charts of SPOR show that it never dipped for long into negative territory during the main parts of the last two Bitcoin bull runs, meaning that if we’re still in a bullish phase the SPOR won’t go negative for more than a short time. The SPOR was 1.02 on January 22nd it rose this morning to 1.07.
Another slump occurred in Grayscale’s Bitcoin premium to NAV chart, which reached this week 1.1% above Bitcoin’s price, which is the lowest it has been since March 2017.
“This week’s publication on Tuesday officially showed BTC overtaking US Tech as the hottest consensus trade in the market. While we’re not at all expecting a crash similar to 2018 this time, we see this as further evidence that the exponential Wave 3 move has ended and price is likely to be capped at least until the end of Q1,” wrote QCP.
Other metrics that paint the picture of an intermission in a bull run is the MVRV, which according to GlassNodes chart rejected the euphoria blue zone as it did in summer 2017.
The MVRV Z-Score above shows the same pattern.
We can’t end the market wrap without addressing GameStop stock, listed Wednesday for cryptocurrency traders on FTX and yesterday on Bittrex, after users memed GameStop stock to rise 600%, aiming to crush a short Wall Street fund, making headlines across the English speaking world and inspiring the latest Dogecoin price run and perhaps Elon Musk. The above chart compares $GME performance over the last two weeks to Dogecoin, Bitcoin, Ethereum and the FTX DeFi Index, proving that the cryptocurrency isn’t crazy — it’s the world that’s crazy.
Central bankers talk fiat and coin
Warming up the printers
During Janet Yellen’s confirmation as the Treasury Secretary of the United States on Monday, she spoke about how her family history made her empathic to the plights of the American working class and emphasized the need to support minorities, women, workers and small business by bringing them financial relief. This financial relief would be sourced by “acting big” and going more into debt, AKA money printing, while interest rates are low, despite US government debt being currently estimated at $27 trillion, more than 100% of GDP. Yellen explained that the need outweighs the downside, and that she is aiming to keep people safe until the pandemic period is over.
Though Yellen is a highly regarded and accomplished academic, this statement is still concerning according to Paul Singer, founder of Elliott Management Corp., an investment management company with over $37 billion in AUM, which according to Bloomberg magazine has one of the best track records in the hedge fund industry. “Economists don’t have a good history in predicting inflation…or understanding it,” he explained in a recent interview, detailing his disagreement with central banking policy.
Reality check
“Sound money is central to our market economy, and it is central banks that are uniquely placed to provide this,” said Carstens, the head of BIS, the international central banking organization, in a speech to the Hoover Institute on Wednesday. “If digital currencies are needed, central banks should be the ones to issue them.” He commented, peculiarly, but continued with an impressively informed analysis: “Investors must be cognizant that Bitcoin may well break down altogether, because the system becomes vulnerable to majority attacks as it gets close to its maximum supply of 21 million coins,” he explained, warning towards an event set to occur in 2140.
The regulatory worries were present as well this week in Yellen’s written confirmation answers where she wrote on digital currencies. “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. I think we need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities.”
Though central bankers are more informed than ever before about Satoshi Nakamoto’s invention, there is yet more to be learned. Yellen’s comment contrasted with Chainalysis’s report, published last week, showing that in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume, or roughly $21.4 billion worth of transfers. In 2020, the criminal share of all cryptocurrency activity fell to just 0.34%, or $10.0 billion in transaction volume. Chinalysis found most illegal activity was due to scams, darknet markets and ransomware, with other alleged uses so obscure they don’t show up in the charts.
News & links
- New Hollywood film to depict the story of Ross Ulbricht and the Silk Road
- From Brazil to Nigeria: Leigh Cuen interviewed cryptocurrency users from emerging markets
- BlackRock, world’s biggest asset manager, authorized two funds to trade Bitcoin futures
- Ray Dalio: What I think of Bitcoin
- Iran’s government seized 45,000 more unregistered Bitcoin miners
- Yale, Harvard and Brown endowments are quietly purchasing Bitcoin, Union Square Ventures to invest $250 in cryptocurrency startups
- From Fiat gains to scarce assets: Bill Gates, becomes the largest farmland owner in the US
- Podcast: CEO of Tether’s bank in the Bahamas goes on record
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