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Efficient Frontier

Institutional FOMO thesis

Welcome back to Efficient Frontier’s biweekly newsletter!

Published March 25th on Substack

In the last two weeks Bitcoin’s market was quieter than usual, caught in the range between $37,300 to $43,333 before breaking out yesterday to $4,400, now at $44,137.

However, the last week weren’t free of shenanigans. Falling trading volume gave rise to strange price activity such as the above pattern, the infamous “Bart Simpson” as it’s been nicknamed in the crypto world. As seen above, At 2 AM UTC on March 16th Bitcoin’s price and volume jumped and in 30 minutes Bitcoin jumped by $2,200. The rise held for one hour before falling back to the $39,000 range. As we wrote previously: “Some see it as hinting at market manipulation.”

FOMO Thesis

The Bitcoin market has been depressed despite positive narrative development and a suspected jump in institutional investors. Let’s review these points in more detail:

Depressed markets

  1. Funding rates and basis reflect demand for Bitcoin long positions.Funding has been negative to neutral for weeks. This week Bitcoin futures in Binance, crypto’s largest exchanges, traded even slightly lower than the price of the underlying Bitcoin, reaching backwardation and signalling extreme lethargy.
Left:Perpetual funding rate. Source:CryptoQuant. Right:Binance futures basis. Source:TheBlockCrypto

Split Capital pointed out that taking dollar inflation into account Bitcoin futures have been backwardated since January.

2. Low interest from the public and a low number of new participants can be seen in many internet metrics including the slump in new Twitter follows and crypto Reddit posts

Social media activity. Source:TheBlockCrypto

3. Crypto Fear & greed index is showing fear with a score of 40/100 and has been in ‘fear’ for over 21 days.

4. Grayscale’s exchange traded Bitcoin fund is at -27% to BTC, close to an all time low against the underlying Bitcoin. (This could actually present a buying opportunity at the risk that an approval of an American spot ETF would make the price of GBTC collapse lower, as it does no yet have an approved redemption mechanism.)

GBTC vs BTC. Source: TheBlockCrypto

Positive narrative

On March 7th, Credit Sussie, the 12th largest investment bank in the world, published an article by geopolitics analyst Peter Zahan titled Breton Woods III. The now widely circulated document speculated that Bretton Woods II ,or what we know as the current global dollar monetary order, is close to its end.

Source: Google trends

The dramatic piece ended with the following line: “After this war is over, ‘money’ will never be the same again…and Bitcoin (if it still exists then) will probably benefit from all this.”

This only added to the growing ‘narrative’ case for Bitcoin and crypto: Events in the last 60 days in Canada, Ukraine and Russia also served to boost understanding of Bitcoin’s use case — money that can’t be easily seized as easily as a bank account by a nervous prime minister, a sovereign state in a monetary emergency or even a forgen government.

Institutional interest

After months of lukewarm on-chain information, something big is brewing!

Bitcoin addresses with over 1K Bitcoin. Source:GlassNode

For the first time in over a year, one of our favorite metrics, the number of accounts holding over 1,000 BTC (or over $40 million today) jumped by 138(!) from February 27 to 28th and kept going up.

In previous years sharp jumps in this metric usually came in down markets, which is a trademark of institutional buying.

Are institutions buying in anticipation of the price catching up with the narrative? Are they suffering from FOMO?

As Avi Feldman wrote “This has the potential to be very similar to a March 2020 scenario, where you look back in time and think to yourself, ‘well of course it was the right move to be giga long’”

If you like it or not, traditional financial institutions are in Bitcoin and here to stay. Announcements ranging from BlackRock, to Charles Schwab to State Street, Goldman Sachs (check out their homepage by the way!) to JP Morgan BNY Mello have all gotten involved in Bitcoin and cryptocurrency markets. So the may also be placing bets on its price.

Number go up

To end on a positive note, here are 4 metrics in crypto that keep going up:

  1. The World’s Largest Digital Asset Lender, Genesis Trading, keeps enjoying a record demand for cryptocurrency loans. Genesis lent $50 billion in Q4 2021 and ended the year with $12.5 billion in active loans.
  2. The number of dollar stablecoins keeps climbing, now with $182.6 billion in circulation.
  3. Gold backed tokens have seen lately a sharp growth, reaching $550,000 in circulation
  4. On-chain trading has continued to grow since 2020. Despite still being at an experimental stage, trading in decentralised and distributed spot exchanges has reached 15% of centralizes spot trading volume.
Source:TheBlockCrypto

News & links

  1. Bridgewater, the world’s largest hedge fund prepares to invest in crypto
  2. Kazakhstan authorities shuts down over 100 crypto miners due to pressure on electricity grid
  3. India’s parliament to discusses its proposed heavy tax on cryptocurrency traders
  4. Dubai’s new crypto regulator grants licence to FTX and Binance
  5. Time Magazine interviews Ethereum founder Vitalik Buterin for their cover article, New York Times publishes “The late comer’s guide to crypto”.

Efficient Blog

This week we share on our blog the ultimate (and simple) explanation of market making:

Read here

efrontier.io

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With over 12 years of high frequency and algorithmic trading experience, our technology powers weekly over $1 Billion of trade. We’re passionate about digital assets and our mission is to bring professional, trusted technology that adds value to the industry and the markets.

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