Digital Asset Markets Face Another Stress Test

21.11.22 02:35 AM By Stormrake

There are ongoing issues following the post-mortem of FTX as Genesis Trading works to cover a $1 Billion USD hole. The parent company of Genesis, Digital Currency Group now has to make a decision, save Genesis or kill it to save its flagship product, the Grayscale Trust.

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

Daisy Chain of Leverage

The same names keep coming up throughout 2022 when it comes to insolvency, toxic leverage and inappropriate/fraudulent business practices. We keep seeing 3AC, Celsius, BlockFi, FTX, Alameda, Genesis and more recently Grayscale. These business and their respective CEOs acted as if they were paragons of "Web3" and were going to usher in a new era of finance. The problem as highlighted in the daisy chain above is that this "new reality" couldn't be further than the truth and has led to the capital destruction of billions of dollars. Unfortunately, what was actually built was just traditional finance with a new skin and a bunch of VC funded subpar projects, where ultimately retail is left holding the bag.

Worth noting, with all the doom on the Twitter timeline and mainstream media takes, none of this can be considered systemic risk. Bitcoin, Ethereum and most of the DeFi blue chips such as Aave and Uniswap have been thoroughly battle tested, showing that their design is resilient enough to exist seperate to price action. What has been getting killed in 2022 was the TradFi portal into the world of crypto, everything from hedge funds, equity investment into exchanges, custodians and lenders, all the vehicles that TradFi is used to has been slaughtered.

Moving forward, at least in the next bull market we can anticipate there will be more direct investment into Bitcoin and actual on-chain activity such as using Aave for borrowing/lending and Uniswap for actual trading. Centralised exchanges will operate more as reliable fiat on/off ramps but users will rarely leave funds in their custody for long. Essentially, the next bull run will be championed by, "don't trust, verify".

Bitcoin Halvening Cycles

A great chart was recently released by Dan Morehead, CEO of Pantera Capital, one of the last remaining major Bitcoin funds left standing. The chart shows an outline for Bitcoin price trajectory when taking into consideration the Bitcoin halvening event. The forecast is speculative and does provide a diminishing return profile for the price appreciation both before and after the after the event takes place. We will probably have to bear a savage winter to see these events unfold but for those who are patient and remain focused on accumulating spot will be best positioned to enjoy the bull run.

BTC/USD key levels

Interactive chart: click on image for higher resolution

Bitcoin is currently in free fall due to the Digital Currency Group contagion risk as it trades on rumours and hearsay. It has lost the key level of $16,500 USD and if it breaks and closes below the FTX flash crash level of $15,558, no major level of support kicks in until $14,444. To the upside, we will need to see a reclaim $16,500, if we do manage to close above this level then the next major resistance level comes in at $17,189.

ETH/USD key levels

Ethereum faces the same contagion risk as Bitcoin with the added sell pressure of the "FTX hacker" now dumping the stolen Ethereum. As it stands now, ETH has lost the key level of $1,190 USD and looks to retest the recent lows of $1,071. Worth keeping in mind is that as Bitcoin makes new lows since the FTX saga has began, ETH trades approx. 25% over its cycle lows. This relative strength can become a weakness, for if it loses $1,071 it can retest $888 very quickly. To the upside we need to reclaim, $1,180 and if we manage this, we can then anticipate a retest of major resistance coming in at the $1,333 key level.

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The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

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