Update on Cryptocurrencies June 18th, 2023 By, Nolan Loxton

Nolan HeadshotIf you would like to read this article in a downloadable pdf format, click here.

In July 2021, the S&P Cryptocurrency Broad Digital Market (BDM) Index (Ticker: SPCBDM) launched with the objective of being a broad investable digital asset universe benchmark. The index launched on July 13, 2021 but has a 10-year calculated history based on the index methodology.

1158 CU Chart1

Courtesy of S&P Dow Jones Indices, spglobal.com

The index had a notable peak in May 2021 of 5,547 and then dropped significantly until July 2021. On November 9th, it set a new high of 6,215.99 and slid down to November 2022 with new lows at 1,331.38. In December 2022, the market failed to fail further and during February 2023 there was a minor retest followed by higher highs. The March 2023 dip was met by buyers.

You can see the recent price action below in the YTD chart. The index moved higher from March 9th, 2023 and tested the August 2022 highs at 1. Price traded sideways for a while but notice how price has left the range at 2. Will price run to just below 3 to create some willing sellers at lower prices before heading higher? Or has crypto rolled over for a bigger decline?

1158 CU Chart2

Courtesy of S&P Dow Jones Indices, spglobal.com

Market Summary

a) Market Type

The BTC Market SQN score has been pottering about the “Neutral” SQN zone for the last month. Statistically, the least surprising move we were expecting would have been a bounce—even a small one. This lack of a bounce where expected is the market leaving footprints in the snow. Will we have a delayed bounce later in the summer or are we seeing a honey trap attracting bears?

1158 CU Chart3

Volatility continued to ebb and flow in the “Normal” range below but notice how it has contracted during every meander. Volatility is a rubber band so keep this in mind as the range continues to contract.

1158 CU Chart4

2023 continues to be a strong year with BTC up 59.7%. Notice how BTC gains have started to pull away from ETH again with a 15% gap at the moment.

1158 CU Chart5

Courtesy of Coin360.com

b) Super Trader Bitcoin System

The objective of the system is to outperform a bitcoin buy-to-hold while sleeping easy.

Currently, the system is in cash but a break and close above $28,100 would reopen long exposure. I’ll keep you updated in the crypto update.

1158 CU Chart6

c) Discussion: The One That Got Away

I like a fine hat.

Recently, I was speaking at a forum which was the equivalent of a special senate committee. While attending the forum I noticed one gentleman wearing a particularly striking hat in an otherwise hatless gathering. The hat was highly noticeable because it was made of a fine Springbok gazelle skin.1158 CU Chart7

As luck would have it, his delegation ended up sitting one row behind me and we shared a common language. In a country with 11 official languages, the odds for sharing a language other than English stands at 8%.

I struck up a conversation while admiring the fine hatmanship in its full glory. As I was being promised the contact details of his hat maker, I noticed the stark contrast between his admirable hat and his plain “Inspector Gadget” overcoat.

The committee commenced and our conversation was cut short before he could produce the contact number.

1158 CU Chart8About 15 minutes later, my brother-in-hats took the microphone in grand style. He walked up to the speaker’s booth and proceeded to drop his grey overcoat. He was standing in front of the audience of a thousand people in a traditional leopard skin cloth. He was in fact a king of a local tribe and the hat was his traditional crown.

The king chose to address the gathering in his mother tongue instead of English. This automatically entitled him to an English interpreter at the end of his allotted three minutes.

The king let rip with a very spirited performance. His very first words made clear that he was on a mission. He shouted for the full duration of his animated speech until the microphone was automatically turned off at the end of his allocated time.

Apparently, kings aren’t used to getting cut off mid-sentence like the rest of us and he protested vocally for a while until the meeting chair indicated that security would remove him from the premises. This prompted him to comply and he got back to his chair just in time for the start of the interpreter’s interpretation of his performance.1158 CU Chart9 1

What does it mean?

The interpreter exceeded all expectations in a performance of her own. Surely, this must have been one of the top five interpretational acts of her career and worthy of an Oscar nomination for “Impromptu Excellence”. She delivered the message in English, with the same vigor and emotional impact as the king, with virtually no preparation time.

“BUCKLE UP! BUCKLE UP I SAY! CHANGE IS COMING!!” she roared across the room.

With the message in English, the crowd came alive and the affair turned hugely enjoyable.

The king, however, either didn’t expect his constitutional right to an interpreter to be enforced or he didn’t like the interpreter’s performance. He stormed out of the hall in a great huff and puff.

In that moment, it pains me to say, I dared not pursue him for the number of his hat maker.

What does this have to do with making money in crypto trading?

The Committee is the equivalent of a White Paper for a cryptocurrency.

What is a White Paper? Coin creators previously likened a White Paper to the prospectus for a stock. Given the SECs intense clamping down at the moment, that analogy has become unpopular.

1158 CU Chart10 2The White Paper, in purest possible terms, is the actual math behind the coin and why it will add value. Interested parties can read the BTC White Paper, written by the anonymous Satoshi Nakamoto, and decide if it’s a coin they would like to buy, or mine or if Mr. Nakamoto mixed up his math and they should steer clear.

How important is a White Paper? Well, in a recent “Ask Me Anything” session on Reddit, the Secret Service confirmed the BTC white paper is mandatory reading for agents tasked with guarding the USA’s financial infrastructure. So . . . it matters.

Funny enough, an anonymous pro-Bitcoin Apple employee hid a PDF copy of the BTC white paper in every copy of MacOS shipped since 2017. It’s buried in the Image Capture Utility function called “Virtual Scanner II”. (Image Courtesy of Apple)

Relating my recent experience:1158 CU Chart11

The Chief is all of the buyers, miners, marketers, exchanges and other parties involved in pushing and profiting from the process of change we are all buckling up for.

The Interpreter is the mirror for everyone—the market. Once the chief has danced the dance, this is where the rubber hits the road, and the winners are separated from the losers by the invisible hand of market forces.

Your ability (and mine) to stare into the mirror and exercise mental control is what determines our crypto profits and losses.

What do you see when you look into the mirror?

A young trader wearing the fine crown of constant learning and profitability OR an enraged old king storming out when the market doesn’t do what he says it should?

d) News Map

Context is all important and to add some context around recent news events we focus our attention on the five main types of players and the games they play in the crypto space.

We are leaning on a key Tharp Think principle here: “The map is not the territory. The better my map represents the territory, the better I will function in the world.”

We are not trying to explain the extremely complex non-linear open crypto system but rather we are looking for a useful lens to identify what may be important changes affecting the ecosystem and, ultimately, supply and demand.

What is “useful” for a trader? Tools that help make money.

On our map the main players and games are:

The HODLers:

These are mostly retail speculators with no trading systems or buy-and-holds with no stoploss. The early adopter HODLers have done quite well and with many who are still whales today. Many whales pivoted into other categories. The late adopters haven’t fared quite so well, they may be whales but their average BTC cost is underwater. For HODLers, 1 unit of risk (1R) represents their total capital committed—it’s basically an all-in bet. HODLers have no cash flow day to day without selling/staking the holdings.

The Traders:

These are large speculators such as hedge funds as well as systematized disciplined retail traders. Their cash flow is dependent on the gains/losses in the underlying positions on positive expectancy systems. The common denominator amongst traders is a position sizing approach to capital allocation as well as a risk to reward approach at a trading strategy level (usually a minimum of 2:1 risk reward). For this reason, private equity and venture capital is also included in the Trader category as they have definite entries and exits as well as strict position sizing rules.

Business, Big and Small:

This includes the major commercial players who design blockchain infrastructure, have already adopted blockchain or are actively in the process of integrating blockchain and its related products and opportunities into their business models. Their cash flow originates from their usual business activity. Blockchain offers operational efficiencies improving cash flow and customer experiences.

For the small business, blockchain offers the opportunity to level the playing field (or should we say “paying” field) to unlock cash flow.

The Market & Makers:

This represents the market makers, brokers & exchanges (both traditional and DeFi), banks and asset managers. Cash flow is ongoing from volume in its various shapes of trading, spreads, commissions, assets under management and even order flow payments. The makers of new coins, aka the miners, are also included here.

The Sheriff & Co.:

This represents governments as well as any free market interventions in its various shapes, sizes and forms. The profit of all other players is their tax base and therefore cashflow plus or minus the impact a couple of trillion depending on the state of the printing presses.

Now that we have our main players categorized, let’s look at some noteworthy news items by category.1158 CU Chart12 1

  • BTC purists argued that a software “spam filter” to block Pepe and other meme coins on the BTC blockchain should be deployed to stop meme coins from disrupting BTC’s primary use case as a payment and store of value. Miners likely don’t mind the revenue-driving congestion that meme coins bring so keep an eye on where the argument ends up.
  • The SEC currently has active lawsuits against the following coins either directly or they are named in the Coinbase and Binance lawsuits:

ADA,

ALGO,

ATOM,

AXS,

BNB,

BUSD,

CHZ,

COTI,

DASH,

FIL,

FLOW,

ICP,

MANA,

MATIC,

NEAR,

NEXO,

SAND,

SOL, and

VGX.

  • Interestingly, when we chart the coins, XRP and NEXO have shown impressive strength while the rest have collapsed substantially over 30 days. What does this tell you?

1158 CU Chart13 3

Courtesy of Tradingview.com

Traders:

  • Venture capitalist crypto funding has dropped sharply in the last quarter, to the slowest level since 2020, despite a lot of rebranding from crypto firms to web3 firm
  • 1158 CU Chart14 1s. A large chunk of the funds has switched to AI investments. NVDA keeps on winning.
  • Venture Capital giant Andreessen Horowitz (a16z), which focuses on blockchain, crypto and Web3, is opening their first foreign office in London later this year. They have a significant holding in Coinbase. To quote cousin Avi: “Yes, London. You know: fish, chips, cup ‘o tea, bad food, worse weather, Mary Poppins, FCA not SEC, LONDON.”
  • A16z has been lured by the UK’s emerging crypto framework. Significantly the UK Financial Conduct Authority (FCA) has indicated that, from a retail consumer point of view, it is only responsible to provide appropriate risk warnings on crypto and then people must decide if they want to proceed. This is a stark contrast to the SEC’s current debank and destroy operation.
  • According to research by CCData, crypto derivative volumes continue to climb as spot volumes continue to decline, particularly in the USA.

1158 CU Chart15 1

Market Makers:

  • Binance.US and Coinbase are having a tough time with the Bank Regulators, the SEC, the CFTC and some state regulators. The regulators seem to be fighting a coordinated battle to crack down on exchanges. The thinking seems to be: If exchanges can be shut down, then US consumers will be safer. Maybe? But US consumers will be cut off from financial innovations which the rest of the world is embracing . . . so for whom is this truly safer?
  • Binance.US and the SEC reached an agreement to repatriate US customers’ assets in exchange for the SEC not freezing Binance.US assets.
  • Binance’s BUSB is the focus of the “Howey test” again on the securities front. The SEC argues that the reward program that promised to pay interest payments merely for holding BUSB created an expectation of profit for the deployment of holders’ capital.
  • Decentralized Exchanges (DEX) like Uniswap are unscathed so far. Basically, DEX is an exchange that simply runs on code. Sue the DEXes? With whom do you engage? 0 or 1?
  • Robinhood is reviewing its crypto offerings following the crackdown on Binance and Coinbase.
  • Two South Korean crypto firms, Delio and Haru Investments, suspended client withdrawals citing “market volatility and increased confusion”. They did not clarify if the confusion is the same type of confusion FTX suffered around who’s money it is anyway.1158 CU Chart16 2
  • A freedom of information request to the NY Attorney General showed that, in 2021, stable coin USDT had billions of dollars of short-term loans to Chinese companies and a sizable loan to Celsius Network. That’s not quite the risk-free assets USDT advertised holding, although Tether claims to be in a “completely different position compared to two years ago”. You may remember that in 2021, Tether claimed to be as good as the USD.

Business, Big and Small:

  • Crypto businesses, en-masse, were targeted by the SEC this month with Binance and Coinbase as some of the high-profile targets.
  • MakerDAO, one of the largest DeFi protocols, voted for an 80% reduction in their Gemini USD position, from $500M to $110M—a $390M decrease. Gemini USD has a circulating supply of only $566M according to CoinMarketCap. So this is a big setback for the Winklevoss twins. MakerDAO cited liquidity issues and yield as the main reasons. Gemini USD only pays a yield of 2% vs USDC yield of 2.6%. MakerDAO plans to invest the funds into Treasury Bills…staking with the good old US Government for +5%.
  • Ripple scored a win against the SEC. A federal judge ruled that the SEC can’t keep documents confidential related to a former official’s 2018 speech on crypto and securities in its ongoing lawsuit against the company.1158 CU Chart17 2
  • Ledger had a serious judgment error, forgetting the key mantra of “Not your keys, not your crypto”. It launched “Ledger Recover” where anyone who lost their recovery passphrase could recover the passphrase. How? Ledger would split the secret password into three shards which are held with three different companies. In other words, your key became Ledger’s key whilst every state-sponsored North Korean hacker in the world is working to liberate those keys. (Image Courtesy of Elon Musk)
  • Hong Kong has a key focus on establishing itself as a Fintech hub with even the HKMA Central bank planning to partake in the October 30th Hong Kong Fintech week.

The Sheriff & Co:

  • Florida became the first US State to outlaw the use of Central Bank Digital Currencies (CBDCs) issued by international central banks as well as the Fed.
  • The Swiss Government was forced by Swiss campaigners to enshrine the right to holding physical cash in the constitution—a pre-emptive strike on CBDCs.
  • Hong Kong began testing a digital version of its e-HKD currency and recruited 16 firms to partake in the pilot. This included HSBC, Bank of China, Alipay and Visa.
  • Singapore has indicated it won’t be rolling out a CBDC just yet, citing risks from the adoption of a CBDC.
  • Regional banks in Denmark breathed a sigh of relief as Danish authorities ruled out a retail level CBDC, rightly citing a CBDC would severely undermine traditional banks that support economies with loans.

e) Market in Pictures

The SEC must be feeling satisfied now that all of the crypto retail traders feel much safer with the SEC’s help.

Talking of feelings, Hong Kong, London and Paris are feeling grateful for al the free Fintech business flowing out of the US.

The Market SQN picture has weakened considerably on our proxy 100 list over the last 30 days. Only one coin is “Very Bullish”, four coins are “Bullish” and 86 are in the red with 50 “Bearish” and 36 “Very Bearish”.

1158 CU Chart18 3

Notice how BTC, the non-security, is hanging on to a “Bullish” reading for now.

The Dot com bubble slogan of some years ago was “Dot com. Dot bomb. Dot gone”. Despite that outcome for so many Internet companies, a couple of value propositions survived and thrived. Amazon and Ebay come to mind.

Nothing will stop a true value-add innovation.

Overall Commentary

This is a free newsletter to the VTI community. It’s not about making any recommendations for what to buy or sell. Instead, it’s about understanding how money can be made in crypto assets.

Until next time,

God bless.

Leave a Comment

Your email address will not be published. Required fields are marked *

Shopping Cart
Scroll to Top