Crypto Corner: Week Summary 25 Jan 2021

This week Yves Renno, our Head of Trading, shares his insights on the fluctuations in the cryptocurrency market following Elon Musk's public support for Bitcoin and the community of Reddit going head to head with Wall Street hedge funds. Check what impact these events have had on the crypto markets below: 

Data taken at 9:01am 29/01/2021

This week, the Bitcoin price has held ground above the $30,000 price before climbing back recently to a $38,250 high when Elon Musk changed his twitter biography to “#bitcoin”. Reddit and Elon Musk have both shaken the markets this month. and this is true for the cryptocurrency and traditional markets alike:

• Gamestop is a small video games retailer that is reviled by Wall Street analysts, with equity shares sold (short-sold!) by major hedge funds. These shares soared by as much as 1,800% after both the Reddit community and Elon Musk showed support. The rally triggered billions of realised losses in major hedge funds.
• Before that, Signal Advance, a small company unrelated to the Signal messaging app, had its stock soaring by 1,100% after Elon Musk tweeted to use the app.
• Dogecoin rallied 9-fold recently when the Reddit community decided to support the cryptocurrency, sending it in the top 10 cryptocurrencies by market capitalisation.
•  Finally, Bitcoin jumped 18% today after Elon Musk’s message to his 43.8mil followers.

These movements reflect in general the freedom and power of communities today. They also reflect an undeniable shift of attention from professionals, journalists, market analysts, politicians, to social networks. It is a confidence crisis, the same confidence crisis that launched Bitcoin after the subprime mortgage crisis in 2008. For better or worse, the social network generation is trying to disturb a system that unveiled its many flaws in the past 20 years.

The resulting jump in Bitcoin’s short term volatility hardly changes our long-term fundamental views. Even though volatility can hurt confidence and drive potential investors away in the short run, the sustainable drivers of growth are eventually the only drivers that count. The singularity of the Bitcoin market resides in its supply and the fact that it is a long-term HODLers market: 13.7mil Bitcoin have been dormant in the past year, and 4.13mil in the past 5 years according to BitInfoCharts.

From a demand perspective, new institutions are joining or will soon join the list of Bitcoin investors. Coindesk reported that university endowments (including Ivy League) have been investing in cryptocurrency funds in the past year. Blackrock, the world’s largest asset manager, already filed two statements for the SEC’s agreement to invest in crypto-related instruments for two of its funds. Banks are already indirectly assisting their crypto-friendly clients to invest in cryptocurrencies through crypto-linked trusts or structured products. New trusts, ETPs, and ETFs are launched frequently: yesterday, Ninepoint Partners launched its trust on Torinto’s TSX exchange with $180mil. Grayscale, the largest digital asset manager, might be looking to extend its cryptocurrency coverage into DeFi (Decentralised Finance) as it filed for the incorporation of new trusts on Polkadot, AAVE, Chainlink, Uniswap and more.

Despite the new endeavours, launches and positive marketing campaigns, the Bitcoin frenzy has most likely been replaced by a consolidation phase. Grayscale’s BTC trust saw an extreme 40% premium completely melt to a low of 2.8% with the market correction. The latest “Elon Musk community push” aside, we’ve probably entered into a sounder market regime on BTC.

Meanwhile, the price of the second largest cryptocurrency, Ether (ETH), reached a new all-time high (ATH) at $1477 on Monday. It also followed today’s Bitcoin rally, moving for the third time this month above the $1400 level. Yet, the growth of ETH Deposits in the Beacon chain, a major step in the deployment of the layer 2 protocol, has slowed down since January 20th. However, on-chain transaction fees are still high, indicating sustained activity on the blockchain. The Ether price is holding and potentially eying another ATH ahead of the CME futures launch.

The Stellar cryptocurrency (XLM) is also catching up moving as high as 65% in the last two days. The cryptocurrency suffered from its association with Ripple (XRP): both have historically the same founder and similar protocols. They’ve been reportedly sold together by Grayscale following the SEC action against Ripple. However, fundamentally, and despite XLM’s clear advantages in terms of speed and cost, Stellar’s active accounts have bottomed in Q3 2020, and are still struggling to rise. For the time being, the price move is purely technical. However, it might be an opportunity to put the 10th cryptocurrency by market capitalisation back in the spotlight: Stellar could be a great alternative to the centralised Ripple.

Written by: Yves, Head of Trading at Wirex