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PRICE SNAPSHOT
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(6 Day Change as of Jan 26, 2023 2:40PM ET)
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Bitcoin Price: $23,074
9
.37%
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DeFi Total-Value-Locked: $47.45B
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Ethereum Price: $1,604
2.88%
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Crypto Market Cap: $1.05T
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Bitcoin Range: $20,865 - $23,825
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BITC.U Close: $6.78 (as of Jan 25, 2023)
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Ethereum Range:
$1,514 - $1,680
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Bitcoin Dominance: 44.37%
2
.16%
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Reboot or Selloff? FTX’s New CEO Weighs Next Steps
FTX CEO John J. Ray III, who is leading the company through its restructuring, said he would explore the possibility of rebooting the exchange instead of simply selling its assets. In an interview with Wall Street Journal, Ray noted that the company has set up a task force to explore the possibility of bringing back the international exchange after some FTX stakeholders "identified what they see is a viable business." The company is also still trying to retrieve additional funds and is looking into the possibility of selling the platform or simply liquidating assets. The new CEO also criticized former FTX CEO Sam Bankman-Fried, saying, "he hasn't told us anything that I don't already know."
China’s Digital Yuan Adds Smart Contract Functionality
China's Central Bank Digital Currency (CBDC), the digital yuan, has been upgraded with smart contract functionality and new use cases. The smart contract function was launched on the Meituan app, a Chinese app offering retail and food delivery services, allowing users to place an order and pay with their e-CNY wallet. This triggers a smart contract that searches for keywords and items in the order, and if a user buys something on the list of keywords for the day, they go in the draw to win part of a prize. Additionally, e-CNY can now be used to buy securities for the first time and make contactless payments using Android phones, even if the device is without internet or power.
Ethereum’s Final Frontier? Anonymizing Transactions
Ethereum Co-Founder Vitalik Buterin has addressed what he sees as the "largest remaining challenge" for Ethereum - privacy. In a recent blog post, Buterin stated that a solution to on-chain privacy issues is necessary, as all information that goes onto a public blockchain is public. He proposed the concept of "stealth addresses," which can potentially anonymize peer-to-peer transactions, NFT transfers, and Ethereum Name Service (ENS) registrations. He also noted that implementing the very technical sounding "Diffie-Hellman key exchange" and "key blinding mechanism" would be necessary to ensure the link between the stealth address and the user's meta-address is not publicly visible.
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BULL TRAP OR START OF A BULL MARKET?
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By Alex Tapscott
Bitcoin and other digital assets have had a stellar start to 2023. So far, Bitcoin is up around 35-40% YTD and some others are faring even better. After the annus horribilis the asset class experienced in 2022, we were due for a bounce. But what kind of “bounce” is it? Is it the kind that kick-starts a new bull market or the dead-cat variety? It’s hard to predict the short and medium term for this asset class, which is prone to bouts of volatility. And certainly, the recent turmoil caused by the collapse of FTX has given many investors pause. Other shoes may drop. Much also hinges on the global macro backdrop. Will inflation continue to ease? Will central bankers hit the pause button or even start cutting rates? All these things can influence prices.
But in the long run, we think an allocation of up to 5% in digital assets is sensible. The asset class has a track record of providing superior risk-adjusted returns when complimenting a well diversified portfolio. Not only that, as we have written previously, owning Bitcoin, ETH and some others also gives investors exposure to the underlying blockchain technology and all the possible ways it will be used in the future.
Still, we welcome a spirited debate so in the interest of showing both sides, here’s our BULL and BEAR case for Bitcoin, in charts.
BULL CASE
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#1. Bitcoin: Net Unrealized Profit/Loss (NUPL) – Investor Sentiment Turning
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The Net Unrealized Profit/Loss ratio measures the difference between relative unrealized profit and relative unrealized loss in Bitcoin. It can be used as an indicator of investor sentiment, with a high percentage of unrealized profits indicating greed and low levels signalling capitulation. As of YTD, the NUPL ratio is up 192% to Bitcoin’s 38.25%, suggesting that “investors are realizing profits at a slower rate than the growth in the market cap,” indicating bullish sentiment.
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#2. Bitcoin: MVRV Z-Score Suggests Bitcoin Undervalued
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The MVRV Z-Score is a historically effective tool in identifying market tops and bottoms by assessing when Bitcoin is over/undervalued relative to its fair value. It has been able to pick the market high of each cycle to within two weeks by highlighting periods where market value is moving unusually high above-realized value (red box) and periods where market value is far below-realized value (green box), where buying Bitcoin during these periods, have historically produced outsized returns. This metric has been in the green zone for the last seven months, indicating a bearish sentiment, but as of two weeks ago, it broke out of it. In past market cycles, such breakouts from the green zone have been followed by significant rallies in Bitcoin’s price, setting this indicator as support for a “true” bull market with BTC’s rally YTD.
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#3. Bitcoin: Mayer Multiple Trending Higher (But Still Low Historically)
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The Mayer Multiple is a widely used indicator in the crypto community, created by Trace Mayer, an early Bitcoin entrepreneur. It helps to assess the current price of Bitcoin in relation to its long-term historical price range, specifically, the 200-day moving average. The indicator is calculated by dividing the current price of BTC by the average price of BTC over the last 200 days. The current Mayer Multiple is 1.17, indicating that the current price of BTC is 17% above the moving average of BTC over the last 200 days. Historically, the Mayer Multiple dropping to 0.50-0.60 levels is considered a strong signal of a market cycle bottom. In June and July of 2022, the Mayer Multiple dropped to such levels as in previous market cycles such as 2012, 2015, 2019 and 2020, and in all instances, it preceded an extended price run-up. Therefore, the recent upward movement of the Mayer Multiple is considered a strong bullish signal.
BEAR CASE
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#1 – Moving Average Indicator Suggests Market Still Cooling Overall (But the trend is our friend)
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The Pi Cycle Top Indicator compares the momentum of two moving average indicators: the 111 SMA and 2 * 350 SMA of Bitcoin's price. When the 111 SMA meets the 2 * 350 SMA, it signals an overheated market. When the 111 SMA falls beneath the 2 * 350 SMA, it signals a cooling market. The indicator has historically been effective in predicting market cycle highs within three days. The 111 SMA has traded at a 75% discount to the 2 * 350 SMA for the past seven months (green area), indicating a prolonged period of market cooling after overheating. For now, this metric supports a bearish sentiment; however, if the 111 SMA can continue its upward trend toward the 2 * 350 SMA or out of the green zone, a true bullish rally could be imminent, as seen in many of the previous cycles.
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#2 - Bitcoin: The Investor Tool – Not There Yet…
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The Investor Tool is a metric to help long-term crypto investors identify potential market tops and bottoms. It uses two moving averages to determine if the market is under or overvalued: the 2-year MA (green) and a 5x multiple of the 2-year MA (red). Historically, when the market is below the 2-year MA, it has signalled bear market lows and produced strong returns. Above the 2-year MA x5, it has signalled bull market tops and a point where investors have reduced risk by selling the asset. With Bitcoin's recent 38.25% rally bringing it closer to crossing the 2-year MA, it's important to keep in mind that these lagging indicators may not yet confirm a bull market start and should be used to support a bearish case until the 2-year MA is at least surpassed, among other things.
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How Should We Value Digital Assets? with Sam Andrew
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On today’s episode of DeFi Decoded, Alex and Andrew sit down with crypto researcher Sam Andrew. Sam cut his teeth as an equity and fixed income analyst at a prominent New York-based hedge fund before turning his attention to Web3. His training on Wall Street has helped him bring a rigour and discipline to analyzing this new asset class. But it also forced him to re-train his brain to rethink valuation methodology and come up with some new ways to understand this technology. We discuss: does “value” exist in Web3? What are the top metrics we can use to measure it? Which assets does Sam think are undervalued, and which are overvalued based on his reasoning? Tune in to find out!
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#1: Non-Fungible Tokens (NFTs): The Past, Present, and Future
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It's been almost a year since the NFT market experienced a surge in activity, with 1.48 million total sales and $3.99 billion USD in sales in the 30 days leading up to May 14, 2022. Since then, NFT's total sales numbers have stagnated, with the total sales USD amount declining significantly. However, an inflection point in August 2022, where the USD of sales exceeded the number of sales, serves as a sign of potential recovery. Fast forward to the present day, the past 30-day period has seen a marginal uptick in sales numbers but a staggering 44% increase in total USD sales, indicating a resurgence in demand for NFTs compared to the past year.
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#2 The State of Crypto Venture Capital: A Look at 2022 and Beyond
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The crypto and blockchain industry has seen a surge in venture capital investment in the past two years, with over $30 billion invested in 2022. Despite this, the latter half of the year saw a decline in deal count and capital invested due to macroeconomic and market disruptions. As we move into 2023, the fundraising environment for crypto startups has become challenging, with stricter demands from investors and declining valuations. The Web3 sector continues to attract investment, particularly in the NFT subsector, while market infrastructure companies aim to take advantage of untapped potential. The US continues to dominate the crypto startup ecosystem, making it imperative for policymakers to clarify rules and regulations to support its growth.
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