CryptoAM: The OTC Explosion, Another Tether Take, and Fidelity's Vision

Monday, October 15th

Good Monday to the crew!

“This weekend has been short on both news and action. Here’s hoping to a more adventurous week.”

Is what I wrote last night before I woke up today. Thankfully, Tether answered my prayers and more. We’ll be discussing the craziness of the past few days below.

For those New York based AM’ers, I’ll be here for the next three days. Drop me a line on Telegram, or hit me up at the Battle of the Cryptos event!

3 things you need to know:

One: Circle claims to be processing over 2B a month in OTC volume

Claire Wells, the head of legal & business affairs at Circle confirmed in an interview with CryptoGlobe that Circle is still doing about $2B a month in volume even as exchange volumes have declined dramatically since the start of the year.

“We are still in a bear market but out desk is doing well and average is still over $2 billion a month.”

OTC desks have become the preferred method for whales to buy and sell Bitcoin, as the desks allow for the large movements of crypto without incurring significant slippage issues. According to a TABB group research group, OTC desks now account for the majority of BTC volume.

“This week, TABB Group claimed that the OTC market of bitcoin is at least two to three times larger than exchange market. Given that the bitcoin exchange market processes around $4 billion worth of trades per day, if the TABB’s assessment is accurate, the OTC market of bitcoin is processing more than $12 billion worth of trades on a daily basis.” - CCN

Some large OTC desks worth mentioning:

Go deeper: Read Claire’s full interview transcript

Two: Fidelity launches a new digital assets company focused on custody and trade execution

The title may seem routine…however the reality is anything but. Fidelity announced a an operational project (and an entirely separate company) that will focus on giving institutional investors access to top notch trading and custody solution for digital assets. They’ve fittingly named the company “Fidelity Digital Assets”.

Fidelity has been dabbling in the digital asset space for quite some time, with their CEO confirming last year that they have been mining Bitcoin since 2014. Fidelity has also made numerous statements in support of the future of digital assets (and cryptocurrencies, more specifically).

  • In the words of Fidelity CEO Abigail Johnson:

    “Our goal is to make digitally native assets, such as bitcoin, more accessible to investors, we expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use.”

Why this matters: Fidelity is massive company, managing over $7 trillion in assets for retail investors and institutions alike. They are also one of the biggest 401k providers in the U.S, and offer many different financial products they could theoretically incorporate Bitcoin and other assets into. It’s abundantly clear Fidelity is making large investments into the digital asset space — and that this isn’t just a PR play.

One thing that I’ve always found interesting is the recreation of traditional finance but in the cryptocurrency world. There are many people in crypto who have never had any real experience in the world of finance, and as they build solutions for the “new world”, they often end up replicating traditional finance without actively realizing it. My reasoning for this is that there are generally good reasons for why the system is the way it is. There is obviously room for upheaval, and change — but often the system is built that way for a reason! So it always provides a little solace to me, when titans of the finance industry enter the world of crypto, and decide it is a good place to be.

Go deeper: Read the reasoning behind Fidelity’s push

Three: Week two of the Tether / Bitfinex Saga — a lesson of vice, greed, and digital tokens

As if anyone needed another take on Tether. Well anyways — here I am giving you the goods. Over the last week, we’ve seen pretty massive depreciation of Tether value, with Tether now trading at 10% discount to USD on Kraken and has continuing to decline against new stablecoin competitors as well, trading at a 12% discount to both Paxos and TrueUSD, the second and third largest stablecoins respectively.

  • Last night BTC ripped upwards at about the same time that Tether crashed, fueling speculation that the wick was caused by a flight from Tether to BTC — and sending the crypto-markets into full blown confusion mode (more than normal).

  • It’s likely the premium is being fueled by American Bitfinex whales who currently cannot access their funds, and are exiting to BTC (or XRP for fast withdrawals) to move their capital to another, less risky exchange.

The Bitfinex (and tether exchange) premium has continued to rise, reaching an almost 10% premium up from around ~1% last week. Bitfinex put out a clarification today, noting that all BTC/USD trading on their exchange which makes the premium suspect, and a great opportunity for arbitrage if you believe the insolvency risk of Bitfinex is low.

  • Unfortunately, Bitfinex is not processing USD deposits or withdrawals at the moment, likely due to banking issues with their prime bank HSBC. In their clarification note today, Bitfinex claims they will have all USD functionality back to normal by Tuesday, October 16th. So, tomorrow. We will wait and see!

The big takeaway: If you don’t own your keys, you don’t own the coin. Unless Tether begins the process of getting regulatory approval, it’s days are numbered. I would caution those with current Tether exposure to consider moving into a regulated stablecoin or just moving back into fiat for the time being. Often when there is confusion and uncertainty, the best move is to wait.

Also in the news:

Market Outlook:

Quick Take

Direction: We broke out the range with a strong bounce (as predicted), but wicked down strongly from 6800 to 6400. The Tether situation is making the charts difficult to trade, so I’d suggest just going off the Coinbase charts to avoid any issues. We broke both resistance levels and have now turned the 6380 resistance into short term support. I’m expecting BTC to channel for a few days, but after that I’m really not sure (sorry) where it’s going.

Key Support:  6380

Key Resistance: 6500

Actions: I’m currently just holding spot BTC, and not taking any leveraged positions as it’s unclear where it’s going.

Altcoins: Alts were hammered by the BTC upswing. Now that BTC is stable, I expect selected alts that are now back at their price floors to begin moving. I’m looking at ICX specifically.

Fear & Greed

Here’s a reminder of what these criteria mean

CoinSavage: Truth in Crypto

There’s a big problem with crypto trading. Too many fraudulent actors. People actually take trade signals from random people in twitter— with no way to vet anything.

CoinSavage is the platform to change all of that. They have built a fantastic (and free) platform where all portfolios, trades, and ideas are open sourced and timestamped. No more hindsight TA, now you can actually see for yourself if people are performing, and prove to your audience you know what you’re talking about.

Around the corner:

What I’m thinking today:

How To Think About Crypto Investing, For Institutional Investors by a16z

Tl;dr: Diversify your assets, choose the assets that people are building on top of. There are a ton of different applications of decentralized networks, spread your roots!

“Think about all the internet-based applications and services we have today, and about what it took to get here — layers of infrastructure, storage, compute, native apps, more — and now, imagine a decentralized version coming for each of those.”

My take: Don’t diversify, concentrate your wealth. I think a16z is fundamentally flawed in their approach here and overestimates the ability for tokens to derive meaningful value (only a few will actually accrue value). It’s unclear if any assets besides SoV assets and Platform (gas) assets will actually accrue value over time. Many things are better decentralized, but most are seemingly not. Many different approaches will be proven and unproven over time! Also, cryptoassets are insanely correlated, so diversifying among tokens in the short term (especially in a bear market) is not a great idea! Institutions that claim to have long time horizons, and will claim entries don’t matter. All I can say is — you can always do better.

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CryptoAM is a Ledger Group project. We offer consultancy, advisory and research services for established companies and start-ups interested in the blockchain & digital asset space.