Update on Cryptocurrencies: September 17th, 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
13th, 2021 but has a 10-year calculated history based on the index methodology.

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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. It set a new high on November 9th of 6,215.99 and was sliding down to November 2022 with new lows at 1,331.38. In December 2022, the market failed to fail further. 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 in the YTD chart below. The market made a minor new low at 1. The most positive situation for a move higher would be a retest lower at 2, followed by a strong rejection. A retest of 2 with a continued failure lower opens up the possibility for the retest of the 2022 lows.

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

Market Summary

a) Market Type

The BTC Market SQN score is “Neutral” and the market has been dipping in and out of “Bearish”. Time is ticking but we have no confirmed bias yet. Bears and volatility are normally companions. So, what is volatility doing?

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Volatility may be presenting a clue here. Look at the relative size of the volatility uptick at 1. Use the same size of that volatility uptick and compare it to 2 and 3. Clearly, 2 was smaller and continued the declining volatility trend. Note, however, 3 has been larger in scope. A break above the red line at 3 could indicate the beginning of a larger volatility expansion cycle. Same same…but different?

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From January 1st, 2023, BTC is up 61%. The BTC vs ETH performance gap persisted at 25%, and Binance continues to feel the heat from the SEC.

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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.

The system is currently in cash and will re-enter long on a close currently above $29,561.

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Courtesy of TradingView.com

c) Discussion: The Last Bite

Meet Adrian.

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Adrian is my gardener, and he is quite simply the man with the biggest smile I have ever met. Adrian is passionate about gardening but also terrified of snakes. Quite the Achilles heel in my neck of the woods.

When Adrian and I were bonding during his first day on the job, I laid down the snake law: In this garden, no snake shall be killed unless it is in self-defense.

This basically eliminates 99.9% of snakes, except the Black Mamba.

Although the Black Mamba is not one of the most poisonous snakes in the world, its bite would still have you, in the words of Mark Twain, “well and truly dead” within 20 minutes.

The Black Mamba completely distinguishes itself from other snakes in that it does not naturally shy away from people. In fact, one would quite happily bite you unprovoked.

1170 CU Chart8 2Because of this temperamental nature, the Black Mamba naturally has a few harmless impersonators piggybacking on its reputation.

Adrian gulped at this rule but then I took him on a little tour and showed him all the other defenses in the garden: Meerkats, mongooses and even the occasional Snake Eagle. It was a dangerous world to be a snake in.

Implied Rules

Things were going swimmingly for Adrian in his big green office until I heard a knock at the door.

“Sir, I found a snake.”

Apparently, my snake law had implied a duty of reporting. I escorted Adrian, identified the snake as not dangerous and moved it to its new domicile away from Adrian.

Adrian once again had the biggest smile in Africa.

This snake rehabilitation routine turned into our usual summer pattern. Then, one day I was travelling and I got a call from Adrian. Assuming it must be a code red emergency I answered expecting bad news.

Adrian: “Sir, I found a snake.”

Me: “Thank you Adrian. Is it where you are working?”

Adrian: “No sir.”

Me: “Good.”

Adrian: “Not good sir. The snake is hurting my brain.”

I had complete sympathy for Adrian’s hijacked brain dilemma. He was, after all, dealing with the original trickster.

If you could speak snake, I‘m pretty sure the first thing a Black Mamba would tell you is, I am not dangerous! All the Black Mamba impersonators would happily claim, I am extremely dangerous!

I was driving and could not become the middleman in a game of telephone tag between Adrian and a professional snake catcher. I phoned the first snake remover that Doctor Google recommended and put him in touch directly with Adrian.

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Time Will Tell

About an hour later, I phoned Adrian to hear the final report.

“That snake man is crazy sir.”

It turns out the official snake remover advice was to take a selfie with the snake…

When I phoned the snake catcher afterward to probe him about his reasoning, he explained it as follows: It was highly unlikely it was a Black Mamba, and in the process of taking the selfie the snake would be scared off. If it wasn’t scared off, then the snake catcher could come and catch the snake.

I thanked the snake catcher and promptly deleted his number.

All-or-nothing bets are simply not compatible with the game of snake catching.

The Great Snake or the Great Fake?

As we draw to the end of the VTI era, it is a natural time to reflect on the bigger crypto picture.

  • Is the blockchain really useful or just hype?
  • Are Altcoins really useful?
  • Was Bitcoin just a great fake?
  • Is Bitcoin truly a commodity, coiled and ready to strike to $100k, $250k or even $5m in the future?
  • Bitcoin HODL or active trading or a bit of both?

While all these questions make for an interesting debate and herald a potential fortune, only one formula will ensure you are around as a trader in five, 10 or even 20 years down the line: Position Size Wisely.

Without professional position sizing, you are likely picking up pennies in front of a tank!1170 CU Chart10 3

“The most successful market professionals achieve success by controlling risk. Controlling risk goes against our natural tendencies. Risk control requires tremendous internal control.” —Van K. Tharp

a) News Map

Context is all important, and to add some 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:1170 CU Chart11

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.

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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.

HODLers:

  • Michael Saylor revised his Bitcoin target to $5m “one day”, dependent on the following three conditions being met:
  1. The launch of spot Bitcoin ETFs
  2. Banks offering financial services using BTC
  3. Official regulation of cryptocurrencies in the US

1170 CU Chart13Considering Michael pushes a big chunk of his profits into the Saylor Academy (with the objective of free education for all who want it and need) I will happily cheer on his prediction. Salute.

  • Recently, the FAA grounded all United Airline flights because, “We are experiencing a systemwide technology issue”. Imagine the whole world running on Central Bank Digital Currencies (CBDC) with no payment alternatives. Can you envision whole countries and continents experiencing “system wide technology” issues for CBDCs? Paper checks may have some life yet.

Traders:

  • The Blackrock Bitcoin ETF in the US is still pending SEC approval.
  • A spot BTC ETF, the Jacobi FT Wilshire Bitcoin ETF, launched in Europe. No pressure SEC.1170 CU Chart14 1

Market & Makers:

  • Grayscale won its case against the SEC who had prohibited it from converting its trust funds into ETFs. The victory for Grayscale, however, is bittersweet. Its competent counsel has ensured that the annual management fee will now have to drop from 2% to a maximum of 1% to be competitive in the soon-to-explode crypto ETF marketplace. In a world with crypto ETFs, two shifts are about to occur for Grayscale:

1) Its assets under management will increase by 30% (GBTC is priced currently at a 30% discount to BTC spot) if its new ETF price goes to parity with Bitcoin prices. But…

2) Its fees will decrease by 50%.

Grayscale won in court but becomes a net loser as a result. Still, Grayscale has served investors well in the process. Salute.

  • The US Marshal Service entered into a share purchase agreement with Robinhood, enabling Robinhood to buy back the 7.6% stake that Sam Bankman-Fried had scooped up shortly before the demise of FTX.
  • Binance has experienced an exodus of senior staff as the US continues its intense regulatory scrutiny. The head of legal and chief risk officer recently called it quits. Move along. Nothing to see here!

Business, Big and Small:

  • Good news for Coinbase. Its level two network, called Base, briefly exceeded the per second transactions of Ethereum, driven by Friend.tech. The bad news? The volume to date has been mostly coin scams.
  • PayPal launched PayPal USD, a stable coin.
  • Friend.tech proposed the following: You pay us money to buy a key that gives you access to a chatroom. Hmmm. Is it me or does that just sound exactly like a “password” being rebranded?

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The Sheriff & Co:

China continues to beaver away at their mBridge project. This project means to bridge CBDCs between nations to facilitate real-time, peer-to-peer, cross-border payments and FX transactions. The implications here are interesting:

mBridge would likely make the SWIFT payment system redundant and effectively take the fangs out of the G7 nations’ ability to impose sanctions on other countries via USD settlements or to grab central bank USD reserves of said nations. (Russia ring a bell?)1170 CU Chart16 1

Quite a few cryptos already tick all the boxes for a new payment system. Bitcoin ticks the boxes in a more annoying fashion though because its supply cannot be artificially manipulated.

The future payments system presumes all nations will be on CBDC. If this happens, democracy will die along with individual liberties.

mBridge comes from the nation which brought you Xi Thoughts. Not familiar with Xi Thoughts? This is where you, a private individual, are required to study the wise words of the supreme leader daily. Further, the government keeps tabs on how well you do your “homework”. Imagine being forced to study the wise words of the last four American presidents daily under threat that non-compliance will lead to your funds being frozen or at least curtailed in the CBDC world. I am unconvinced that non-compliant trading partners using mBridge would fare any better.

Bridges, as a technology category, undoubtedly represent the weakest security link in any part of the crypto ledger infrastructure. I have quoted Vitalik Buterin (sort of an Ether expert) on this many times and will bore you a final time with it.

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On the bright side, many hackers will be able to retire much more comfortably with access to the mother of all bridges for regular withdrawals… Maybe mBridge is short for motherBridge?

Salute to Satoshi Nakamoto who built BTC one man, on hour at a time, without the aid of any government.

a) Market in Pictures

The SQN proxy list continues to be postured bearish as we await the post summer directional move to kick in.

At present, one coin is “Very Bullish”, three coins are “Bullish” and 83 are in the red with 44 “Bearish” and 39 “Very Bearish”.

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Overall Commentary

As we draw to the end of the VTI era, I would like to thank you for joining me on this crypto journey over the last 12 months. I have very much enjoyed sharing what I see in the crypto space and I hope in the process, you have smiled and maybe even learned a little.

Whatever your journey forward may look like, may the LORD bless you and protect you. May the LORD smile on you and be gracious to you. May the LORD show you his favor and give you his peace.

Godspeed,

Nolan

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