“We are infected by our own misunderstanding of how our own minds work.” – Kevin Kelly ||
Hi all! It’s getting hard to be cheerful in this industry, with so many dominoes falling and knowing there are people behind them who are going through some scary times… We know, though, that what we are doing is important. The industry will fall down every now and then. It probably deserves to. But the mission matters, to extend financial opportunity to a broader swathe of humanity, and to return economic sovereignty to all who want it. I’m sad because I care about all those impacted through no fault of their own. But I’m very glad to be here, and I want to work hard to help us recover and continue our growth. Of course, nothing I say is investment advice. If you find this email useful, please consider sharing with friends and colleagues.
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MARKETS
The FTX-rigged dominoes keep falling, which is not surprising but nevertheless very sad. Yesterday was Genesis Global Trading’s turn, with the announcement that its lending division Genesis Capital was temporarily suspending withdrawals. For full disclosure, I used to work there – that, plus its established role as the leading centralized crypto lender with relationships across the industry, make this especially not welcome news.
What is astonishing is that BTC did not drop further. I fully expected when I woke up yesterday morning to see BTC at around $13,000, should the frantic rumours prove even half true. But BTC has held relatively steady, and at time of writing is down only 0.9% over the past 24 hours.
One metric to keep an eye on for general crypto sentiment is bitcoin’s market cap dominance (known as BTC.D). This tends to increase in times of fear due to a rotation into the “safe” crypto asset – the qualifier may trigger guffaws, but BTC does have a lower volatility than others and is one of the most liquid with the highest number of on/offramps. Indeed, it has been increasing over the past week.
(chart via TradingView)
Genesis’ statement clarifies that they are actively working on fixing the liquidity problem, and both Binance and B2C2 (and possibly others not yet disclosed) have expressed an interesting in acquiring some of the outstanding loans. So there may yet be a sort-of happy-ish (or at least not-so-miserable) ending to this. But the sensible approach is to be pessimistic while hoping for the best. In other words, expect more fallout but the industry as a whole will get through this.
And BTC is holding up relatively well so far, as I mentioned earlier. There are signs of large investors returning. Glassnode tracks the type of buyer by size and overlays that on to the price movements – the below chart shows that large buyers (in purple) are coming back in, which often (but not always) precedes an upswing.
(chart via glassnode)
There are also signs that hedge funds are reducing their shorts, hinting at a shift in risk sentiment.
(chart via The Block Data)
The shift for now is still slight, however, and basis – the spread between futures and spot pricing – is still negative following the sharp drop after last week’s revelations. But is that a tenuous bounce I see?
(chart via The Block Data)
Meanwhile, stocks dipped yesterday as:
US retail sales for October came in stronger than expected (+1.3% vs September, more than the +1.0% expected and the highest increase in eight months), hinting at a still-strong consumer and confirming the need for more rate hikes.
The Fed hawks were out in force, with San Francisco Fed President Mary Daly emphasizing that a pause is “off the table”, and Kansas City Fed President Esther George stressing that policymakers must be “careful not to stop too soon” (and about that soft landing, well…)
Target reported a 50% drop in quarterly earnings, stoking fears of more earnings hits ahead.
US industrial production for October decreased by 0.1% month-on-month, while expectations were for a 0.2% increase.
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Yesterday I talked about potential cracks in the US Treasury market, and mentioned the lack of transparency as being a vulnerability. Well, yesterday US Treasury Under Secretary Nellie Lang revealed at a conference that more treasury transaction data will be available to the market. We don’t know what or when, but patience, it’s coming.
And yesterday ECB vice-president Luis de Guindos warned of building risks in the financial system which could trigger damaging turmoil, and suggested that global regulators insist that investment funds hold more liquid assets. Apparently, the withdrawal of liquidity and reduction in longer-term investment this would mean for the global economy is not itself a risk factor?
NEWS
Big raises are back? Ethereum development firm Matter Labs has raised $200 million in a C round co-led by Blockchain Capital and Dragonfly, with Variant, Lightspeed Venture Partners and Andreessen Horowitz also participating. The firm is working toward the launch of its zkSync V2 rollup network, an Ethereum layer-2 solution that aims to boost transaction speed while lowering fees. The round closed before the FTX collapse, but is still notable for its size in a desert of large raises. A year ago, this would have almost a daily occurrence – now, it’s easily the largest raise that I’ve come across in over a month.
Not just yet. The Australian Securities Exchange (ASX) has cancelled its plan to replace its current system with a blockchain platform. When it was announced in December 2017, the plan was hailed as a vindication that distributed ledger technology was a significant improvement on traditional market infrastructure. While this decision is not a surprise (the project was running well behind schedule and over-budget), it is a small setback for promise of distributed systems at scale. One of the problems with the ASX project was the conflicting directions the participants wanted it to take. In part this was too many cooks spoiling the broth, but it highlights the challenge of changing something so complex and yet so ingrained in our networks. Unfortunately, the failure here could be a deterrent to others contemplating similar reforms. The solution may be to change one small piece at a time, rather than a sweeping, top-down, all-encompassing reform. This would allow for testing of both the technology and the need, while giving policy makers time to mull over big-picture maps of what the capital markets of tomorrow should look like and who they should serve.
The fallout continues
Genesis Capital announced suspension of withdrawals (discussed more above).
Gemini pauses redemptions on its Earn program, and has had to deal with a spike in withdrawals and a temporary platform outage.
More territorial spats: A Bahamian liquidator appointed by the islands’ Supreme Court said in a court filing that FTX was not authorized to file for bankruptcy in the US.
Crypto-only exchange OKEx has announced plans for a $100 million fund to help struggling companies in the ecosystem.
Can you please breakdown the accumulation score graph by the holders cohorts. I believe you can get individual cohorts scores from shrimps to mega whales from Glassnode. In fact it would be a useful metric to track on a weekly basis for trend reversal