Welcome back and thanks for bearing with us while we sorted compliance issues. The fund I’m working with is now official an RIA which means that we need to get internal reviews done.
In other news, as you may or may not have noticed, Bitcoin experienced it’s largest 4hr candle (%wise) since December 2017.
This is very much unlike the quick runs that we experienced in Feb, Apr, Jul and August 2018 that eventually led to significant and further downturns. This market rebound comes after a massive capitulation candle (where sellers enter the market en-masse after a break of significant levels), and was the continuation of printing of higher lows on the charts. Along with the rest of the world, I’m fairly confident that we saw the bottom at $3,200 BTC and that we’re looking at a renewed interest from a variety of players — both retail and institutional.
As always If you’d like to continue the conversation, come hang out in our telegram room.
3 things you need to know:
One: ICO’s are falling by the wayside
According to a recent report by the Wall Street Journal, ICO’s are failing to garner interest from retail investors and have fallen by the wayside. Only $118 million has been raised via initial coin offerings in Q1 of 2019, over 58 times less than $6.9 billion, the amount raised during the same period in 2018.
The report itself argues that investors have been scared off by regulators’ actions against non-compliant ICOs, as well as by the general bear market over the past year. I’d agree with this assessment and also note that many high quality projects are opting for private capital as it seems that retail investors are less likely to engage now.
My thought bubble: Private markets are still flush with cash, and retail investors are scared. This is not a cryptocurrency only phenomenon — take a look at Lyft. Flush with private capital, but it’s tanking on the open markets.
Two: Consensys announces strategic partnership with Security Token Advisory Firm
In an interesting contrast with the ICO announcement, Consensys last week announced a partnership with the Satis Group, a New York-based Security Token Advisory Firm. The partnership will in particular improve the advisory capacity of Consensys Digital Securities, the company’s security token focused arm.
What this means for both parties: Consensys gains a partner that can help it bring in more security token advisory work. In addition, Satis will also work to assist Consensys spokes such as OpenLaw and Alethio. Satis gains the ability to leverage the Consensys global network and its technology offerings to expand its own reach and opportunities.
The announcement reflects Consensys’s pivot away from traditional initial coin offerings and towards regulated STO offerings along with everyone else on my LinkedIn newsfeed. Just one year ago Joe Lubin was singing the praises of its spoke Token Foundry, which advertised itself as a platform to conduct regulated ICOs. Token Foundry today is now a ghost ship according to departed former CEO Harrison Hines.
What a difference a year makes.
Three: Ethereum core dev -”Ethereum governance has failed”
Ethereum core developer Lane Rettig tweeted over the weekend about Ethereum’s governance structure, arguing that it had become a “de facto technocracy.” He later went on to correct himself and say that while ‘failed’ was too strong, there were serious questions and that the project risked becoming stuck.
Rettig, who helped oversee Ethereum’s Constantinople upgrade in February, argued that core Ethereum developers were the ones who ultimately decided what happened to the protocol. Dismissing the Ethereum Foundation as ineffective, he went on to identify 5 possible options moving forward:
Give up on governance and be like Bitcoin (hard decisions won’t get made)
Replace the current system with a plutocracy where ETH holders take control of decision making
Accept capture of Ethereum governance by elites
Admit that decentralized governance doesn’t work and give up on Ethereum
Fall back on centralized governance until decentralized governance models are more mature
Governance is messy and often ideals don’t match up to reality. 99% of decisions made by projects tend to come from small engaged communities (that’s a 100% scientifically backed figure but you get my point). This is usually a necessary reality for projects starting out to gain momentum. But for those more mature projects with larger communities, educating communities and soliciting participation in decision making is an ongoing issue.
Even MakerDAO only had 37 addresses out of a possible 9,668 participate in a recent stability hike decision. Imagine what the numbers on other projects are like. Actually, you don’t have to imagine. Read on below and find out.
Also in the news:
One last thing: Tron & Ethereum announce partnership
April fools ;)
Market Outlook:
Quick Take
Direction: The direction is relatively clear, and the answer is — up! I’d like to take some time to discuss the timeline of this run, the exchanges this run happened on and the reasons for it (and how you may be able to play next time).
No, it is not due to an April Fools joke about the Bitcoin ETF…as some are reporting. It was purely a technical move, and at the end of that the simplest answer is the best: more buyers than sellers.
The price action from 6000->3000 was swift, rapid and unexpected by most, a great sign for a capitulation candle. Bitcoin had been posting higher lows for the first time since 2017, and the sentiment in the markets was shifting bullish. Altcoins began posting large gains, and the overall market began increasing. This inspired confidence in the overall market and contributed to the run from 3800->4200.
Here’s where is gets interesting. Most large buyers were short gamma, which effectively means that they were buyers of Bitcoin if Bitcoin dropped to a reasonable level from 3800 but were also willing to chase if Bitcoin went higher.
4200 was the number often quoted by these large buyers as a level that if broken would indicate to them that there was a sustainable upwards trend and 2800 was the level quoted by these same buyers for buying if Bitcoin dropped.
Once Bitcoin hit 4200, large buyers likely had systems in place to start bidding up the price.
The bids were aggressive and triggered a lot of shorts who were likely shorting at the 4000 level as that was resistance. Average leverage on Bitmex is ~8.6x (which is unreasonably high) meaning a liquidation for a short initiated at the 4000 level would have at the 4400 level.
If you look at the charts, the candle started climbing faster at 4200 likely due to short covering and then really accelerated at 4400 which is where I’d expect most shorts to get liquidated.
The thing you need to know about the Bitcoin markets is that they are heavily influenced by margin traders on Bitmex. Bitmex commands large amounts of volume, and with volume comes power. There was approximately $3.5B in volume compared to $500M in Bitcoin volume from the second biggest Bitcoin exchange (Binance). So liquidations on Bitmex can do crazy things to the price of Bitcoin.
The thing about Bitmex is that the way the site is built actively contributes to increased volatility in times of duress. How so? They actively show liquidation orders. In addition to that, the way the engine works is it posts the liquidation orders for a short time, see how much gets filled and then pulls the order and waits for more liquidity.
There is also the issue of Bitmex’s trading engine getting overloaded during times of duress, meaning that shorts couldn’t exit their positions effectively as they weren’t able to complete their trades.
The fact that Bitmex shows liquidations allows people to front run these liquidations, driving up price but knowing that there is liquidity on the buy side to exit their positions (during a short liquidation). Liquidations and front running were the main driver of Bitcoin from 4500 to the peak of 5100. If there was no margin trading in Bitcoin, I expect that this run would have had a plateau around 4500.
During the run from 4200->5100, there were $500M worth of liquidations that the Bitmex engine had to process…which was the main reason for the absurd candle printing.
Overall Market: As noted previously, the run will likely start with Bitcoin and move towards others assets. Generally Bitcoin runs lead to alt losses, as people pile into BTC from their alt coins. The flow of profits from this recent rally will likely shift toward mid caps, and opportunity will likely be found in assets that have fundamental value but were also hammered hard by the bear market. Generally protocol coins capable of supporting applications have appreciated the most in the times after Bitcoin price appreciation, so I would be looking to assets like Ethereum, Tezos, Cardano, EOS to appreciate the most in the near-mid term. With alt ratios battered, the pricing in Bitcoin of these assets are attractive.
From there, you’ll see a spillover of profits to low cap coins. They key is to pay close attention to the volumes of coins based on market capitalization, and move over portfolio allocations when you see a second order increase in volume (not first order!). You should be tracking how quickly the volumes are moving over to other coins. Safe trading out there!
What I’m thinking today:
Governance, governance, governance.
It’s possible the section above satiated your trading needs and maybe now you’re interested in learning about the actually fundamentals of what makes cryptocurrency tick. If not I apologize in advance.
Here’s a tweet storm by my colleague Roy Learner about the trials and tribulations of governance in crypto. Highly suggest checking it out along with the associated medium article.
Some of my thoughts: Personally have always been a skeptic of complex governance models because the more complex the governance models the easier it is to find unknown exploits.
I think formalized governance processes are important and having just PoW miners have a say or PoSers is probably not the best way of doing it but I’m not clear if a fool proof way of governing this without gaming has occurred yet. The safest governance process to me seems like it is still BTC, because there is no formal governance process so only the most ideologically invested in the platform can really push things through (they’re the only ones that know what’s going on…).
If everyone gets a say in how a platform is built, you may find yourself surrounded by people who would rather extract value quickly than have a payout happen long term. It’s important to cultivate an ideological following, or to design a process that focuses on both long term success and short term gain (very hard).
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