Weekly Alpha Leak: Rally, Narratives, Forced Sellers & a Bullish Perspective
Bulls are Back? Echo Bubble? Bear Market Rally? Degen Season?
January 9-13, 2023
Bulls are seemingly back for now! We’re watching DCG who may become a forced seller, meanwhile narrative plays have been printing, coins are pumping, and the bond market may offer a bullish perspective. Could “degen season” be back?
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In this issue:
Current Narratives Recap
Potential Selling Pressure - DCG
Bullish Perspective for 2023 - Bond Market
The Return of “Degen Season?”
Top Crypto Highlights of the Week
Useful Tools and Resources for Unlocks and Tokenomics
Data Highlights
There has been a shift in the wind and bullish momentum is seemingly back! Narratives are taking off, coins are popping, NFT volumes are spiking. Echo bubble? Bear market rally? Did we truly finally bottom? Let’s not forget that the Fed is still committed to fighting inflation and that may drag on for some time into this year so we’d like to see some more finality in that department before we call anything official, however let’s recap what’s been moving lately and some things to consider.
Current Narratives:
Narrative rotations are a popular occurrence in crypto. They come and go. Think back to the L1 rotation trade (FOAN, SoLunAvax), metaverse gaming coins, OHM ponzis, curve wars, move to earn, etc etc. Now that life is being breathed back into the crypto scene, let’s look at what fresh narratives have risen up recently.
Liquid Staking Derivative Tokens:
There’s a lot of noise around the upcoming Ethereum Shanghai upgrade, set to occur in March 2023, and it has CT buzzing when it comes to LSD coins. Currently staked ETH withdrawals aren't available to be withdrawn which leads to skepticism among market participants when it comes to staking their ETH. When this hurdle is removed with Shanghai, more market participants may feel safer staking and may be inclined to choose liquid staking so they can use their crypto in DeFi protocols. So naturally, liquid staking derivative tokens have been performing well in anticipation. A counterpoint to consider: will ETH stakers dump their tokens on the open market once they’re unlocked, or will they double down and stake more, leaving a reduced supply available to sell. Some protocols currently in the limelight include: Lido, Rocket Pool, Stakewise, Frax Finance, Ankr, PSTAKE
Some others to be aware of now and in the coming weeks/months for rotations:
AI narrative:
AI coins have been performing strong recently and this narrative has the potential to capture the imagination of people the way metaverse coins did in 2021. Most of those coins had terrible tokenomics but none of that mattered because they were hot and in season. ChatGPT has recently gotten incredibly popular among crypto people and further interest in AI coins is a possibility.
Chinese Coins:
Right in time for the Chinese New Year.
Arbitrum Season:
Arbitrum ecosystem coins have been popping off as many market participants are likely aiming to get a nice airdrop when Arbitrum token finally drops. Transaction and user metrics have been performing well. This is another one to keep an eye on.
L1 Resurgence Trade:
People like familiarity and many of these are already well established in the public’s mind. Just this week for example we saw Avax post impressive gains on news that they were partnering with Amazon. If the rotation returns then be ready. Recall: Solunavax and FOAN. Avax, Solana, Fantom, One, Near, Atom.
Upcoming zkEVM
Polygon Miden & Hermez, Scroll, zksync, Starkware
Modular Blockchains:
Polygon Avail, Celestia, Fuel
NFTFi:
Unlocking NFT's liquidity & turning them into productive assets. Perpetual futures, fractionalized exposure to NFTs, NFTs as collateral for loans
Narratives can come and go quickly so make sure to stay safe and always manage your risk. For more on developing narratives, you can read more here, 2nd, 3rd, 4th, 5th.
Potential Selling Pressure - DCG/Genesis
Digital Currency Group has been limping along since the FTX collapse and recently Gemini crypto exchange has been in a dispute over $900M in assets that were deposited by customers of Gemini's yield-generating Earn accounts. The funds were loaned to Genesis, a DCG unit, which made loans to institutional investors to create the yield. The main issue at stake is whether Genesis fairly stated its balance sheet to Gemini in mid-2022 conversations and the Winklevoss brothers have called for Silbert's removal from his seat at the head of DCG. The court filing shows that the master loan agreement between Gemini's Earn customers and DCG's Genesis has been dissolved which should force Genesis to return outstanding assets to Gemini. A $1.1B promissory note is at the center of the dispute. The question of how Genesis will pay back Gemini if the debt is not callable remains unanswered. Most recently it was reported that Genesis owes creditors more than $3B, prompting its owner DCG to explore selling assets in its $500M venture portfolio to raise money.
Why does this matter? We care about entities that could become forced sellers and DCG/Genesis is one of those susceptible players along with other funds hurt by FTX. We want to know ahead of time if they’ll be dumping. Hard to see how they’ll get out of this so that’s why this is worth keeping an eye on.
Bullish perspective for 2023 - The Fed doesn’t own the bond market? The bond market owns the Fed?
Here’s an interesting bullish perspective to be aware of. Everyone has been focusing on the Fed’s fight against inflation, however bond yields, specifically those of US Treasuries, suggest that interest rates will peak at below 5% this year. The market is saying that the Fed's base rate may not rise much higher than its current level, which is between 4.25% and 4.5%. This is due to the fact that treasury yields are currently trading below the Federal Reserve's official range, indicating that the market does not anticipate an increase in official rates. This suggests that the US central bank may begin cutting rates again as 2023 progresses which would be bullish for speculative risk assets such as crypto, as lower rates make higher return assets more attractive to investors, and signal an expanding money supply. Some argue that bonds provide a more reliable indicator of future interest rates than hints and informal comments from Federal Reserve officials. However, it's important to note that the outlook for the crypto market also depends on other macroeconomic factors.
Long story short: The market is not buying and selling bonds with higher rates because it doesn't, on average, believe that the Federal Reserve will actually raise its own rates. The bond market is in control?
The Return of “Degen Season?”
So, we’ve experienced a bullish rally within a greater bearish market trend. Narratives are popping off, the bond market may be giving hints that the worst is actually behind us, NFT volumes have begun to surge again, especially related to Yuga Labs projects - could all this mean the return of degen season? If liquidity floods back into the market then we could definitely see degens do what degens do best. Call it an echo bubble, a bear market rally, whatever you want, if the momentum is strong, do not fight it! Enjoy free money while you can and most importantly, make sure to manage your risk. We’re not completely out of the woods yet.
Top Crypto Highlights of the Week
Monday:
More than 55M shares of Robinhood stock worth over $450M owned by FTX co-founders SBF and Gary Wang seized by the U.S. Department of Justice
Federal prosecutors in New York, along with the SEC, are investigating Digital Currency Group (DCG) for internal transfers at its lending subsidiary Genesis
The timeline for Mt. Gox financial details registrations and repayments has been pushed back by two months to Sept. 30 from July 31
Crypto payments firm Wyre cuts withdrawal limits to 90% of funds, CEO has stepped down and the firm is exploring strategic options to survive the bear market
Ethereum’s upcoming Shanghai upgrade, which lets users unstake their ETH, is the likely catalyst behind liquid staking derivative tokens rally. Devs planning to release a public test network for Shanghai by the end of February
Huobi Korea is set to sever corporate ties with crypto exchange Huobi Global and run its own business
OpenSea adds support for Arbitrum Nova
Tuesday:
After several years of development, Apple’s first major step into the metaverse—a high-end, mixed-reality headset, the Reality Pro headset - to be unveiled this spring
Gemini co-founder Cameron Winklevoss called on shareholders of Digital Currency Group to remove Barry Silbert as CEO for allegedly defrauding Gemini earn users
The brother of a former Coinbase employee was sentenced to 10 months in prison after pleading guilty in September to a wire fraud conspiracy charge, in the first insider trading case involving cryptocurrency
The CFTC joins the Justice Department in filing a case against Avraham Eisenberg over alleged manipulation of decentralized swaps markets
Microsoft in talks to acquire a 49% stake worth $10B in ChatGPT owner OpenAI
Coinbase lays off another 950 Employees, bringing the total number of cuts at the exchange to over 2,000 since June
WOO tokenomics revamp: will burn over 705 million WOO tokens, about 24% of the max supply, all burning mechanisms will be stopped
Yearn Finance will allow users to create their own vaults to accrue yield and deposit proceeds to earn even more token rewards and charge 10% as performance fees
Wednesday:
Gemini terminating customer loan agreements with Genesis Global Capital as it winds down its Earn program
Bitvavo rejects offer from DCG to repay 70% of its debt arguing they can make the full repayment
Binance US bid to buy bankrupt crypto lender Voyager's assets allowed to advance. Will allow customers to recoup 51% of the value of their deposits
FTX recovered more than $5B in different assets
Gala Games deleted a tweet announcing a partnership with Hollywood stars Dwayne "The Rock" Johnson and Mark Wahlberg
Twitter developing a new feature that will allow users to give each other “Awards” using “Coins” that can be purchased with fiat currency using Stripe
ConsenSys, the developer of the crypto wallet MetaMask, plans to lay off 100 staffers or more
Binance CEO plans to continue to scale in 2023, with headcount growth goals of between 15% and 30%
Crypto.com delisting USDT for users in Canada after the Canadian Securities Administrators committed to stronger oversight
Game of Thrones’ NFT launch sold out despite delays and art criticism
Thursday:
Crypto broker Genesis owes creditors more than $3B, prompting its owner Digital Currency Group to explore selling assets in its $500M venture portfolio to raise money
SBF releases his version of an FTX Pre-Mortem Overview
Amazon chose Avalanche to bring scalable blockchain solutions to enterprises and governments. AWS users can launch Avalanche blockchain nodes
BAYC is launching a MINT game Dookey Dash. Users need to hold a Sewer Pass and aims to gamify the process of minting NFTs
The U.S. Department of Justice is investigating Ian and Dylan Macalinao, the two brothers behind the Solana protocol Saber Labs for using a web of 11 pseudonymous identities to build an ecosystem of interlocking financial products around Saber and inflate TVL
Four months after Ethereum’s Merge, 16M ETH has been staked, which is 13.28% of the total ETH supply and represents nearly $22.38B at current prices
Polygon developers proposed the launch of a network hard fork on Jan. 17 to target reducing the impact of transaction fee spikes and chain reorganizations on Polygon
Web3 domain provider Unstoppable Domains is teaming up with digital avatar creation platform Ready Player Me to make digital identities interoperable in the metaverse
Reasoning behind Gala Games deleted tweet: “overzealous” representation of a business partnership
Friday:
The SEC charged both Gemini and Genesis with unregistered offering and sale of securities to retail investors, some of who were in the U.S
Ethereum released a new developer network, called "devnet 2," to help client teams prepare for the upcoming Shanghai upgrade
MetaMask Staking launches, plugging into Lido and Rocket Pool liquid staking
Wyre secured a new source of funding, allowing it to drop its recently introduced 90% customer withdrawal cap
USDN stablecoin pivots to Waves Ecosystem Index Token (WIXT) for improved stability and liquidity - will no longer be pegged to the dollar
Azuki official launch of the virtual city Hilumia - The crossroads of the Garden. A growing city shaped and built by the community
Gala to introduce pay-by-burn of all $GALA when a purchase is made on the platform
Useful Tools and Resources for Unlocks and Tokenomics:
Data Highlights:
Crypto Market Cap: ~$900B. Gradually creeping upwards.
Stablecoin Exchange Reserves: $28.3B. Low, not yet rising.
DeFi TVL: $42.5B. Low, not yet rising.
Exchange Volume: ~ $131B. Low, not yet rising.
Dex Volume: $13.7B. Low, not yet rising.
NFT Volume: ETH: $321M. SOL: $56.5M. Solana NFTs are popping.
Revenue: Weekly revenues are generally up
Treasuries: Treasuries seeing a general increase
Daily Active Users: Solana seeing a strong uptick in users
Conclusion: Despite prices rising, a lot of other metrics have not yet caught up to indicate meaningful change of conditions. Stay safe out there.