LFG
Weekly Recap
It was another week of green candles across the crypto ecosystem as bitcoin flirted with its 200-day moving average for the first time in several months.
Like last week, the more speculative sectors outperformed the prior 7-days, with the once-beleaguered DeFi sector continuing to turn some heads.
Source: Messari
Below we examine some of the reasons we think that this relief rally mirrors those seen in late 2021 and why this rally might have some legs on it.
No Signs of Overextension
A good barometer of whether a rally is sustainable or not is how traders are positioned. While every trade has a long position that counters every short, we can reasonably ascertain whether the market is positioned “net-short” or “net-long” using funding rates for perpetual futures contracts as a proxy for demand for a particular side of the trade.
As a reminder, high funding rates indicate increased demand for long positions – longs are paying shorts to take the other side of the trade. Conversely, negative rates indicate increased demand for the short side of the trade.
Below, if we plot rolling 30-day daily returns with rolling 30-day average funding rates, we can see a somewhat predictable pattern emerge where consistent daily returns result...Reports you may have missed
How the US Could Adopt BTC as a Strategic Reserve Asset, Look for ETH to Bottom Within Next Few Trading Days
POLITICAL PREDICTION MARKETS PROVIDE PARTIAL RATIONALE FOR PAUSE IN RALLY We see the recent pause in the July rally driven by two factors:General Degrossing Across All Asset Markets: The past couple of days have seen degrossing across all asset markets, including the crypto markets. This is less crypto-specific and more of a function of the market rotating out of strategies (like the long MAG 7) that worked in the first...
BTC AS A POSSIBLE STRATEGIC RESERVE Last week, we discussed the rising political tailwinds affecting crypto. Despite events earlier in the year that might have suggested a changed stance from the Democratic Party, the political divide over the issue has grown stronger. The GOP has become the party that is undoubtedly more favorable to the industry. The attempted assassination of former President Trump, juxtaposed against a Democratic Party seemingly in...
Gox Wallet Movements Still Present a Risk, But Macro & Politics Keeps Us Allocated Here (Core Strategy Rebalance)
DISCUSSING THE SUPPLY CONCERNS On balance, macro conditions have moved in our favor thus far in early Q3. We have received soft jobs numbers and softer ISM reports, and cooler inflation figures, which have sent rates and the DXY lower. Unfortunately, the mere reveal of imminent sales from the German BKA and the solidification of the Mt. Gox disbursement timeline were not enough to put a bottom in for bitcoin....
LESSONS FROM OPEC We have witnessed a significant market panic partially related to formerly locked BTC hitting the order books. The major sources of supply include:Mt. Gox – 141,686 BTCUS Government – 8,100 BTCGerman Government – 50,000 BTC At current prices, this would equate to over $12 billion in supply. This threat, combined with an inhospitable macro backdrop (rising DXY, higher rate expectations, hawkish Fed), has brought BTC down to...
