The Rake Review: February 2023
The Rake Review: February 2023
The Rake Review: February 2023
A New Market Regime
As summer draws to a close we’re excited to share some positive news from the world of crypto. February saw Bitcoin hit a new 2023 high as sentiment did likewise. We are trending sideways, however those that bought BTC sub $20,000 USD & ETH sub $1,300 USD are now laughing. They have effectively set-up their 2023 nicely.
We are in a Buy the Dip environment that rewards those that have high conviction and are not afraid to buy when others are fearful. The market seems to be bouncing back after every dive rewarding steady investors. On the below chart, You can see the gain some investors made if they bought almost anytime during the panic created by the FTX collapse. Of late, the second DIP was erased very quickly and BTC went on to greater highs.
Narratives
We have kept a very close eye on the narrative games being played out in 2023. The biggest narrative so far has been Artificial Intelligence (AI) coins. After ChatGPT became an overnight sensation, reaching 100 Million users faster than facebook and TikTok, AI related coins started to pump. By the start of February, new coins started popping up claiming to have the latest AI tech (Ala Bullruns of 2017 and 2022). However, it can be challenging to differentiate between genuine projects that are building innovative technology and those that are simply trying to pump up the value of their coins. So it was a dangerous game. High risk, high reward. Here’s the 3 month chart for one of the biggest pumps - ImgnAI:
As fast as it came up, the narrative has disappeared and left behind many bagholders. The new narrative is China. Chinese Crypto’s such as Filecoin, Conflux, NEO, VeChain and Phoenix Chain have been pumping. The Chinese narrative is based on a huge cash injection of $92Billion USD worth of Yuan to help stimulate the COVID-19 hampered economy in China. As a result, everyone is trying to work out how this will affect markets. Either way it's trading not investing. For the long-term investor - short term narrative trading is a minefield. You may succeed but more likely you will be distracted from the real goal which is to accumulate Bitcoin and grow wealth slowly.
Bitcoin has been growing 200% per year on average and incredibly, that is still too slow for a lot of people as they chase greater opportunities. The downside of chasing 3-5x returns is that you are taking on a tremendous amount of risk and that risk could one day bite you hard. At that point you will say the often repeated words - “I should’ve just bought Bitcoin and sat on it".
As the people of Lebanon recently learned after their currency was devalued 90% in a day, you can’t trust your government to look after your best interests. That 90% was not even enough. The true market value of the Lebanese Pound is actually a lot less than the current official rate. Even prior to this, we saw people breaking into banks to try and make a withdrawal from their own accounts. Now we have people taking to the streets and setting fire to the house of the President of the Banking Federation. Imagine waking up and realising that you have lost 90% of your retirement savings? How would you feel?
February also saw riots in Nigeria where cash is being outlawed. Cash was the only way poor people could transact. A government issued currency where the authorities can decide who gets a bank account and who doesn’t is a way to control the population. But it won’t ever happen in the West - our government doesn’t want to control us. Right?
Bitcoin is not just an investment in your financial future. Bitcoin is a decentralized financial system that prioritises freedom and protects property rights. Bitcoin is Forever.
Market Update
Here is the fast five of what you need to know about the crypto market in February 2023:
- Bitcoin has seen plenty of intra-day volatility this month and has put in a 15% range from peak to trough of the monthly low to high. Despite all of this volatility Bitcoin has only risen 1% for the month with the monthly candle showing a lot of indecision around direction.
- Ethereum has risen from its underperformance against Bitcoin and has risen 3.9% for the month of February. There are some headwinds coming up with the Shanghai upgrade but for now the momentum is in Ethereum's favour.
- The total crypto market cap has maintained the all important 1 trillion USD handle, having added $25 Billion USD in the month of February. We will continue to monitor inflows and watch the 1.30 Trillion USD handle as a clear signal of a secular bull market confirmation.
- The best performing coin for the month of February is Stacks (STX) which markets itself as Bitcoin DeFi. The reason for the strong outperformance is due to a new technology called Ordinals enabled via Taproot. Although there is no direct link between Stacks and Ordinals, the drivers of speculation remains the same.
- The worst performing token for the month was Aptos (APT). This is driven on the back of VC firms and early stage investors using last month's APT pump as attractive enough valuation levels to exit their initial investment. In last month's Rake Review we warned that this could happen and hope our readers took necessary precautions.
Video of the month
Molly Templeton, an internet enthusiast explained what Bitcoin is over 10 years ago when a single Bitcoin was only worth $20.
Our recent Videos of the month have been 2 hour plus affairs.
This month we want you to enjoy this informative yet lighthearted explanation on the greatest money mankind has ever known.
In the news
- Jump Crypto just counter-exploited the Wormhole hacker for $140 Million
- SEC sues over TerraUSD stablecoin that rocked crypto as part of crackdown
- Optimism airdrops it's second release of tokens to OP network users
- U.S. SEC targets crypto 'staking' with Kraken crackdown
- The Australian government opens up proposals to its token mapping program
- Robinhood received crypto related subpoena request
- RBA Chief grilled over shock rate rises. He promised Australian rates would be low in 2023.
- Coinbase launches Layer 2 blockchain called Base
Education
Education
Education
In this month's education section, we are going to layout a basic foundational understanding of Liquid Staking Derivatives (LSDs). We will conduct a deeper dive in an upcoming Thunder Trading Article.
Let's first answer the questions; what are liquid staking derivatives and why is it important to understand?
The Ethereum network is validated by users who stake their ETH in a special staking contract. There is currently no way to un-stake from this which means stakers have effectively lost liquidity over their ETH assets, until Withdrawals are enabled via the Shanghai upgrade. Liquid Staking was invented as a derivative market, whereby liquid staking providers offer a receipt token known as a Liquid Staked Derivative (LSD).
This LSD token can then be traded on secondary markets, and is similar to most other crypto tokens as it is fully fungible, transferable, fractional, etc.
LSDs essentially unlocks the liquidity of your staked ETH, as it has a similar value of the underlying staked ETH that is temporarily locked. Using the LSD token essentially allows you to indirectly use your staked ETH in DeFi activities such as selling, providing liquidity, lending it, using it as collateral, etc, to earn additional yield on top of the staking yield that you earn.
Now with that understood, we need to ask ourselves who are the Liquid Staking providers?
Liquid staking providers offer liquid staking features to help you unlock the liquidity of your staked assets. In return, most liquid staking providers take between 5-10% of the staking rewards as their revenue for providing this service.
After the Shanghai upgrade, ETH LSDs will be even more popular as the risks and inconvenience of staking ETH will be reduced. More ETH LSDs also means more revenue generated for liquid staking providers, which is bullish for the liquid staking sector.
In anticipation of this, MetaMask has also integrated staking directly on the wallet, making it more convenient for users to stake their ETH and earn around 5% yearly rewards in ETH. They currently support Lido and Rocket Pool which are the two largest decentralised solutions available.
We will conduct a deeper dive into LIDO and how their liquid staking solution called stETH works in a later Thunder Trading article. For now, what is important to understand is that Lido is by far and away the largest liquid staking solution in the market and for good reason, they were one of the first to innovate and release their own staked ETH solution.
To give some context around their success, here are some key stats to note. Lido is currently the top protocol on Ethereum in terms of "Total Value Locked" (TVL) with over $7 billion. This is around 9x their next competitor, which is Rocket Pool at around $0.9 billion TVL. Lido currently owns 28% of all ETH staked and 72.9% of the liquid staked ETH market share.
There is currently no way to move liquidity from Lido to other LSDs, so it will be interesting to watch the campaigning of these projects in the lead up to the Shanghai fork, as well as the flow of liquidity afterwards.
In summary, Liquid Staking Derivatives such as LDO and stETH are here to stay and will be a mainstay in DeFi for many years to come especially after the upcoming Shanghai upgrade.
Watch this space as it continues to dominate the Ethereum landscape.
Watch this space as it continues to dominate the Ethereum landscape.
If you want to invest in Lido or Rocketpool tokens see your Stormrake broker.
Memes of the month
Can we add "AI" to the name any project now?
Start Your Brokerage Account
If you enjoyed this Rake Review, feel free to open an account and gain access to more proprietary research and work with your very own dedicated crypto broker.
No Advice Warning
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.
Disclaimer
All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.Copyright © 2022 Stormrake Pty Ltd, All rights reserved
