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The Yampocalypse — Harbinger of the Bull

Welcome to our 11th edition! Including a summary of the Yampocalypse, charts of record breaking Ethereum stats, and musing on the shape the next bull market will take.

The big buzz lately been the widespread calls for cryptocurrencies entering a new bull market, something we have been calling for since April. On August 8th Arcane Research published 7 reasons they believe Bitcoin is in a bull market: Institutional investors coming in, the OCC ruling, PayPal and Visa Bitcoin solutions, strong retail demand but no hype yet, DeFi as a catalyst and the halving effect. The volumes in the regulated exchanges have reached all-time highs in the amount of money on the line, with no headlines from the corporate media, another sign Bitcoin has time for a price run up.

Source: Why bitcoin’s price usually falls during the halving by Soona Amhaz

The biggest mistake that can be made right now is being impatient and getting shaken out by the volatility, either due to emotions or taking too many risks, as many ‘true believers’ have over previous cycles. Dovey Wan from Primitive Capital explained that “this time the bull might not be as fierce as 2017, but can be a slow, patient and robust bull.” Meanwhile Dan Matuszewski of CMS Holdings refused to make a colorful prediction of Bitcoin taking over the planet, saying “we can’t even get an ETF… it’s so hostile for vanilla, old-school products,” but also agreed that “there’s clearly demand worldwide for assets that are specifically shielding [investors] from their own governments in some capacity, and I don’t see that trend going the other direction any time soon.” Both these takes fit with the above chart by Soona Amhaz, showing that each halving’s effect was slower than the previous one. Nothing goes up in a straight line (beside a blow-off top) so making sure emotions are in check will help in not ending up like “the public”. As Blockware describes, “ Top after top and bottom after bottom the Retail Investor is on the wrong side of the trade, regardless of the asset class.”

The following chart comes from Willy Woo who extrapolated that each price cycle influenced by the halving will create a price impulse with less strength:

Each red dot is a mining reward halving, each section represents an ‘impulse’ “Eventually the scale of halvenings become insignificant [and] Bitcoin’s 4 year cycle will start to transition into the resonance of traditional markets (which is about 10 years long).”

A big difference in the cryptocurrency markets of today, in comparison to 2016, is the magnitude of lending and easy access to high yield from lending, circumstances that might make this cycle longer (but also the next down cycle). Genesis Global Trading’s report shows their lending book is growing quickly, alongside Block-Fi’s retail lending services:

Genesis’ lending: From $44 million to 1.417 in two years

According to Genesis a lot of the lending is done for basis trading/carry trading. “The three forms of yield generation most prevalent are spot lending, call overwriting, and most recently, liquidity mining. There are risks and rewards inherent to each, but there seems to be an insatiable appetite for all of them.” So what are some of the specific trades and themes so far? The Hunt for Yield — Lending, Call Overwriting and Liquidity Mining.”

“A major theme in Q2 was the demand for yield on crypto assets. Yield drives markets in crypto and in other asset classes, but the last three months seemed specifically yield-centric.”

Genesis’ lending book

The futures trading markets, which are using a lot of this lending, are also going through changes. “The infrastructure, maturity, and general interest in BTC/USD markets relative to altcoin/USD markets is much greater and we don’t see that trend redirecting any time soon,” CoinMetrics wrote, detailing the differences in each future exchange’s price index compositions and how often funding payments are made and adjusted, showing the lack of uniformity between different futures contract in the cryptocurrency space. “What’s more, the leveraged products provided by derivatives exchanges create a large monetary incentive for malicious actors to tamper with their index prices by manipulating the underlying spot market.” These quirks of the futures markets are likely to be increasingly gamed as Bitcoin draws more attention.

The reduction of Bitcoin production and the past effects of the halvings, the macroeconomic environment, as well as the positive developments in liquidity, human capital and regulatory landscape are all signaling there are good things ahead for the cryptocurrency market.

Midnight flash crash

On August 2nd Sunday morning at 4:10 UTC Bitcoin’s price reached an 11 month height at $12,075 on the XBT index.

Shortly afterwards, while European and American traders were sleeping, in the ten minutes between 04:35 and 04:45 UTC, Bitcoin dropped $1540(!) to $10,555, due to a cascade of de-leveraging of $1.225 Billion worth of trading positions of (extra-bullish) traders across the Bitcoin markets. Ethereum and other altcoins suffered similar shocks, ETH crashed by $80 during this time, liquidating long positions worth $233 million before recovering.

When the market recovered from the shock, Bitcoin’s price was close to its level 24 hours prior around $11,300; perhaps this is why it didn’t affect the markets sentiment. Alternative’s sentiment index, which factors in market data combined with social media and search trends, is still showing the bright green “Extreme greed”. Since then Bitcoin’s price has risen slowly back to the $12,00 level, whereupon it hit resistance and returned down to $11,121 and is now currently settling around $11,500.

While the trading volume across most exchanges has dropped off since July 27th breakout from the $10,000 range, it’s encouraging to see the amount of money on the line (open interest) is at a all-time high in the regulated exchanges futures venues (CME and Bakkt).

Binance’s liquidity looks like it’s catching up with BitMEX:

The open interest or amount of money on the line in the Bitcoin futures markets touched back to it’s all-time high on July 31st when Bitcoin’s price somewhat stabilized above $11,000, reaching a total position worth $5.505 billion across major exchanges:

And Open interest in Ethereum blew past its all time high reaching more than $1.76 billon.

The Yampocalypse

The breaking news Thursday morning concerned the experimental project Yam Finance. This mini-financial system was built in 10 days using copied code from other open-source projects and hosted on Ethereum’s network, launching 2 days ago. Amused and enthusiastic users drove the $YAM governance token’s price to a $60M million market cap, with the total locked value of vested tokens receiving $YAM tokens as ‘farming’ yield, peaking last night at $600 million. Unfortunately, the unaudited code contained a critical bug. This bug created an unlimited amount of inaccessible $YAM ‘governance’ tokens and deemed another $750,000 worth of LP-yCurve stablecoins permanently inaccessible. In the minutes after James Prestwich broke the bad news, the market cap of the token crashed to 0, and the $YAM token is currently no longer being traded. The vested tokens are currently being gradually drained out of the Yam contracts.

Source: CoinGecko

Blowing off gas

“I’ve got Arthur pumping bags, I’ve got CZ pumping my bags, I’ve got Justin Sun pumping my bags. These guys are working for me now, it’s a good time to be alive” commented a trader nicknames NeedACoin Tuesday night on the “S***coin Talk” 4 year old ‘exotic’ cryptocurrency trading podcast, reflecting the euphoria in niche coin trading, this time favoring coins using Etheruem’s ‘DeFi’ programs.

The heightened activity on the Ethereum native exchanges (including Yam farming) brought fees paid to use the network to an all-time high yesterday at over $6.87 million, according to CoinMetrics. The previous record of $4.55 million for fees in one day was set over two years ago in January 2018.

News and links

1. Bitcoin at 100k? That already happened, not in my dream but in Binance
BTCUCD September contract.

2. Why financial advisor Lyn Alden is bullish on Bitcoin.

3. Hackers manipulated TOR traffic to steal Bitcoin from Darknet consumers.

4. Analysis: 51% mining attack on Ethereum Classic leaves attackers with
a loot of 807,000 ETC coins worth $5 million.

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