Daily Market Update - August 11, 2020

$BTC 24 Hour High $12,045.14 $BTC 24 Hour Low $11,724.27 $BTC +0.7%




Digital assets market:

Despite $BTC finally breaching the 12K mark, DeFi continues to dominate headlines amidst the volatility.

  • Market cap up +13B to 370B overnight

  • $BTC traded within a 400 day range after a correction from 11,760 levels in the early Americas trading session before moving back within striking distance of 12,000, currently at 11,900. Tested support at 11,750 over the past 4 hours. $BTC has moved up 4% over the past 7 days. Trading at 10 day SMA expectations and slightly above upper Bollinger bands.

  • $BTC futures saw over 100M liquidated (74.3M long, 30M short), OI up +0.2B -> 5.7B and volumes doubled from 10B to 20B overnight

  • $ETH holding on key level support at 390, range bound 395-400 over the past 3 days. Trading at neutral RSI levels and 0.26% above 100D SMA expectations.

  • ETHBTC currently at 0.0333, reached 2020 highs last week at 0.0353 

Alts and DeFi watch:

  • DeFi market cap reached 10B; $BAND protocol and $LINK moving >100% in the past ten days

  • $LINK near its all time high at 13 levels, down two days after rejecting 14, trading at slightly undersold levels after the corrections and bottom Bollinger bands.

  • Next support level at 12.70, with target at 14 on the next DeFi push up. Overall market sentiment expecting more short term correction before challenging next levels with the current overall DeFi momentum

  • $XTZ up three days in a row currently for a total of +15%, seeing some market correction currently to 4.14 from 4.40 highs this morning as it loses almost 20% of its gains from yesterday. Trading 20% above its 10d SMA expectations at oversold levels currently in the upper Bollinger bands


Bull Markets Are Hard to Analyze

Behavioral finance is on full display right now.  To understand market psychology better, I often think about the difference between credit and equity investors.  Credit investors have asymmetric downside as their gains are capped but their potential losses are full, whereas equity investors have known downside but unlimited upside.  That risk/reward backdrop alone often makes credit investors more defensive and makes equity investors more aggressive.  It’s much easier for credit investors to invest in a bear market when they can point to depressed valuations, whereas equity investors thrive in bull markets and can seemingly justify any move higher.  

With the Federal Reserve, the Treasury Department, the President and foreign leaders all promoting loose monetary and fiscal policy, every asset class is now in a bull market.  The Nasdaq set another record last week, so did Gold.  Other commodities hit multi-year highs and even oil hit a post-March high.  Every inflation-protected and/or technology asset has been on fire, fueled further by the Fed’s commitment to hit its inflation target, despite a long history of never hitting any targets or goals. Somehow, Treasuries rallied to new highs as well.  

This is making some investors very comfortable, while making others extremely uncomfortable.  The bulls are pointing to better-than-expected economic data, improved trends in U.S. coronavirus cases, expanding business activity for the services sectors, and better than expected growth in jobs.  Equity analysts are raising price targets just to keep up with the fact that their old bullish price targets are now ridiculously low compared to current trading levels.  SPACs are being raised at record levels, which is basically an advertisement for “we’ve run out of ways to invest our money”.  Apple (AAPL) alone added $1 trillion in market cap since March. It’s hard to even comprehend a number like that.  

The bears, meanwhile, are focused on the fact that all of these “beats” are off extremely depressed levels and expectations, and fundamentals don’t justify prices.  While this may of course be true, it’s really hard to make sense out of bull markets.

Digital Assets - The Ultimate Bull Market

Digital assets check the box for both technology and inflation-protection.  As such, it’s not entirely surprising to see such rapid price growth.   In a recent note, Coinbase noted, “institutional applications continue to rise and are almost 3X what we were seeing this time last year.”  Technological progress combined with new money typically leads to large price increases. 

Yet many investors are either flummoxed by, or completely unaware of, this asset class’ growth, largely because the areas that are driving the price gains don’t fit traditional media’s agenda and aren’t represented in traditional investors’ portfolios.  To see why, it’s helpful to split digital asset investors into equity-like bulls and debt-like bears.  

There are essentially four types of investors in digital assets:

  • Bitcoin-only investors

  • Algorithmic / Quant funds

  • Venture Capital investors

  • Liquid, research-driven fundamental investors (like the strategies we run at Arca)

The Bitcoin-only investors seem uninterested in the evolution of this asset class.  The Algo/Quant investors don’t really care what constitutes this asset class as long as the underlying assets are liquid and can be modeled with predictable correlations and betas.  The VCs can see so far into the future that they sometimes miss what is right in front of them, preferring to place long-term bets with lockups long before a company or project has proven product market fit (a seemingly unnecessary legacy strategy in a liquid and ever-changing asset class).  The liquid, research-driven fundamental investors, meanwhile, have adapted constantly and in real-time to where the growth is occurring. There are many unhappy digital asset investors right now, as the bull market continues at a torrid pace but is leaving many of the early investors behind.  New, open-minded “Equity”-like investors are justifying the moves, albeit by constantly moving the goalposts to keep pace.  “Credit”-like investors are finding excuses for why this rally makes no sense.  

Largest Prices Gains Amongst Digital Assets Last Week


The price moves for many digital assets last week were, in some cases, silly.  And very few of the high-flyers are owned by three of the four types of investors mentioned above (the exception being a few VCs and the fundamental research investors), and most certainly are not represented in the ill-constructed “crypto index” products. As such, there are a lot of “credit-like” investors waiting for Bitcoin to catch up or downplaying the strength in small cap tokens and projects.  However, a rational investor with no preconceived notions might look more objectively at the facts.  The growth in market cap of the entire digital asset ecosystem grew by just $26 billion last week (from $338 billion to $364 billion), and the top movers shown above gained only a paltry $3.7 billion in market cap.  May I remind you that Apple alone gained $1 trillion in market cap since March?  A $26 billion gain across an entire asset class is literally nothing.  These small cap tokens are gaining in market value in many cases directly in line with their increased usage, and are heavily represented by the fast growing Decentralized Finance (DeFi) sector.  While market cap is not a great measuring stick for digital assets, the increased wealth created by these moves might actually be understating both the actual growth and growth potential.

Bull markets are much more challenging than bear markets, and behavioral finance is again on full display. It’s hard not to sell when a token you own is up 100% in a week, and it’s even harder to get involved after a token rises that much if you missed it. The liquidity of these tokens, and visible price moves, may actually be damaging investors’ abilities to process the moves objectively.   For context, with leading private companies, the growth in valuations year-over-year is often huge.  But we only get these data points a few times throughout the trajectory of the company, usually only after a successful capital raise.  When a leading private company has a massive jump in valuation, we tend to look at the bigger picture.  But objectively, the only way to get billion dollar jumps in valuations year-over-year is to have several $10-100mm weekly moves up and down throughout the course of the year.  For instance, Robinhood just raised money at an $8.6 billion valuation, up from $7.6 billion a year ago and up from $1.3 billion just 3 years ago.  However, back in March 2020, the company had so many outages and forthcoming lawsuits from unhappy customers that it’s conceivable that the company’s true valuation may have dropped by several hundred million dollars during this time, only to bounce back with record user growth and volumes in the Q2 and Q3 this year.  A daily or weekly price monitor of RobinHood’s equity would have likely looked very similar to what we’re seeing in digital asset prices today.  

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