Tradecraft Capital
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Tradecraft Capital

Tradecraft NOVEMBER Newsletter

The crypto market was up big for the month of November. At the end of the month, bitcoin is trading well above its 200-day moving average which is a bullish sign from a technical perspective. Market structure changed in the month of October with more of the entire crypto asset universe moving up. Global risk has come down over the past month which has risk assets, like stocks, bitcoin and other crypto assets, moving higher — with bitcoin making a new all-time high (ATH). There was a brief period where it traded over $20k. Once the next stimulus package is approved by Congress, we expect bitcoin to trade much higher. I expect the platform and DeFi crypto assets to move higher towards January.

In November, the Fund spent most of the time set opportunistically in the discretionary portfolio. We’re in the middle of a strong move higher as more institutional players come into the market. This is the beginning of the long bull market run we’ve talked about the past year.

Bitcoin Chart with Trend

Fundamental Indicators

Fundamental Analysis

These 9 metrics — 5 indicators and 4 ratios — are used for fundamental analysis. The indicators give us a window into the network utility of the Bitcoin network which we are using as a proxy for the overall crypto market. The ratios give us a view into relative value. For the fundamentals to show value, we want to see each “Ratio” is green. This will occur when the Indicators are green for a long enough period of time.

Long-term Relative Valuation Ratios (These ratios track long-term relative value.) — This month is indicating that long-term value is present, and indicators show major long-term value is present.

Current Valuation Ratios (These ratios track current relative value.) — The current valuation looks attractive. The NVT Ratio is showing value and the MVRV Ratio is showing value as present.

Current Indicators (These indicators measure direct network usage and utility.) — These indicators are positive. Usage (Unique Addresses) is yellow but trending green, Utility (Transaction Volume) is in the same trend and the Profitability is bullish in trend as well.

Directional Indicators (These indicators show continual direction of 2 major short-term indicators.) — The Directional Indicators are mixed; however they previously showed a new trend may have begun in late-October

Outside the Fundamental Factors, the TFA Model is showing: the Macro environment is green, meaning that global macro risk is low; Technical Analysis of bitcoin is green, meaning t’s bullish based on technical indicators. The Trend and Momentum indicators are green as well.

DeFi Sees High Growth

Decentralized finance (DeFi) is growing; however did see a major retracement in October. November has seen these assets come back and with velocity. The total value locked is up over $14B. The DeFi space is retracing with asset prices moving higher. This will continue to be an important theme developing in the crypto markets. For more detailed information, check out https://defipulse.com/.

Global Macro-Environment

The global macro environment is calming. With a president-elect decided, we are just waiting for the states to send their electors and vote on December 14. This will move more uncertainty. We are also waiting to see when a stimulus package will be passed by Congress and what size it will be. Finally, the coronavirus is continuing to see a large uptick.

We are seeing the VIX, the volatility index, back in the normal range. The US Dollar Index is falling which means the US Dollar is losing value relative to other currencies. Now, we are seeing gold price rise a bit. Once all the uncertainty is resolved, our base case is that volatility drops, and risk asset prices rise. We expect this trend to continue.

In Closing

Bitcoin, in particular, is getting a lot of exposure from the traditional financial markets. It wasn’t just politics moving bitcoin’s price higher, as PayPal’s crypto arm went live. With over 300M users now able to buy, sell and hold select crypto assets on PayPal, we believe retail adoption is imminent. Not surprisingly, it is suspected that PayPal has actually bought 70% of new bitcoin since it opened up this service in late October.

The crypto markets saw all sectors rise. While bitcoin traded much higher during the month, crypto assets that focus on DeFi marched higher as well.

While all the attention is on bitcoin let’s not forget that its acceptance, adoption and growth paves the way for other crypto assets which provide different value propositions. This month, while we’ve seen a great run in bitcoin, we’ve also seen other crypto assets like ether (the token for the Ethereum blockchain) up almost 60% and YFI (the token for the DeFi product Yearn.Finance) up a whopping 122%. Other crypto assets are going to start to outperform bitcoin.

Our position is that we monitor global macro risk for any big headwinds. It appears that we’re seeing a slight uptick in inflation expectations. That changes the game in our favor if we’ve finally moved from secular deflation to inflation. We are optimistic about the crypto markets in December.

Regards,

Jake Ryan

Tradecraft Capital CIO

By Jake Ryan, Founder and CIO, Tradecraft Capital

Author of the upcoming book Crypto Asset Investing in the Age of Autonomy. Get a copy today!!

AgeOfAutonomy.com

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Jake Ryan

Jake Ryan

CIO at Tradecraft Capital & Author of Crypto Asset Investing in the Age of Autonomy, published by Wiley