Daily Market Update - December 1, 2020

$BTC returns to $19K levels and inches towards new ATHs. Digital assets market: Overall market cap stands closer to to 600B than 500B now, currently at 575B, but still 182B away from its ATH achieved on Jan 1st 2018 $BTC dominance at 64.14% to start the last month of 2020 $BTC trading on a $1,300 traded range overnight with a +6% price action pushing it to near its ATH at 20,089 achieved on Dec 17, 2017 It has moved up 15% over the past three days from 17,150 recent lows to 19,700 levels trying to challenge 20K today. We’re seeing global traded physical volumes around 47.6B with institutional buyers initiating the run, followed by retail buy flows. Not all is rosy for miners as BTC mining hardware manufacturer Canaan reported a 12m Q3 loss, around 4x its loss from Q2, but seeing demand for their machines rebounding with a “large” number of pre-sale orders slated for delivery in Q4. $BTC blockchain fees have increased by 82% over the past 24 hours from 2.88USD to 5.25USD while Blockchain.com itself is seeing a sharp rise in new wallets being created, 11% more wallets created, bringing it from 54m to 60.3m wallets since the beginning of October We’ve seen over 128M worth of $BTC short and 40M long contracts liquidated on future exchanges during last night’s volatility $ETH currently trading at 609, trading up 19% over the past three days from 517 levels. Options are selling at a premium as the community remains very-bullish on $ETH with ETH 2.0 just around the corner Alts and DeFi watch: Only large-cap coins are performing better than $BTC during this latest run $LTC up 15% to 90 levels as it has risen 56% over the past month and 27% over the past week, riding the coattails of the $BTC pump $EOS up 7% overnight to 3.28 levels $BCH up 11% overnight to 315 levels, trading on upper Bollinger bands News that caught our eye: Authorities shut off electricity to Bitcoin miners in China’s Yunnan province.

Venezuelan army starts mining Bitcoin to make ends meet.

Deep Dive with Arca:

Market Participants Showing No Fear Stocks up.  Digital assets Up.  Oil up.  It doesn’t seem to matter what you’re invested in right now… chances are, it’s higher.  And as we said last week, the bulls and bears are equally loud and insufferable right now, as the chorus of celebrators grows louder as does the uninformed anti-Bitcoin takes.  But while the bears are talking loudly, they aren’t doing much investing.  Everywhere you look, markets look extended, with very little fear.  Both the equity and Bitcoin fear and greed indexes are flashing caution. Equity short interest is at 15-year lows, and hedge fund leverage is at 5-year highs Source: Goldman Sachs Report At one point last week, Bitcoin and Ethereum skew was -28% (meaning call options were 28% more expensive than puts).  We could go on and on.  While the lack of fear itself should be causing more fear, the reality is, governments around the world are basically double-dog daring investors to hold cash.  They are doing everything in their power to force investors into risky assets, and it’s working.  They’re also constantly changing their narratives, which on its surface would be concerning, except it's nearly impossible to take any government officials' words at face value anyway after 10+ years of moral hazard.   When everyone is on one side of the boat, it usually ends badly.  But at the same time, the government is doing a pretty effective balancing act on the other side. The Institutions are Coming, the Institutions are Coming!  The biggest, most frequently stated hypothetical scenario in digital assets is now a reality. The institutions are in fact coming, many of whom are already here.   Coinbase wrote this week, “Institutional adoption is flashing green”, citing two benchmarks for tracking this adoption: “CME Bitcoin futures open interest made a new all-time high above $1bln in dollar notional. Assets under management of the Grayscale Bitcoin Trust crossed $10bln for the first time. “

Source:  Coinbase blog via Skew Coindesk went further, stating, “While we have been hearing for years now about the fabled institutional “wall of money” poised to rush in and push BTC prices to stratospheric levels, there are some signs that institutional interest is growing.” Everywhere you look, there are new data points and discussions about new entrants.  There’s only one problem. Ummm… How Do you Trade Unregulated 24/7 Assets on Regulated, Limited Trading Venues? Grayscale’s products and the CME futures products are dominating US institutional trading of Bitcoin.  The problem is, they both run on outdated infrastructure that don’t support the 24/7 nature of trading Bitcoin.  And this of course completely ignores the hundreds of other unique and growing digital assets that aren’t even available on the CME or at Grayscale, yet these other assets often provide insights into the behavior of Bitcoin and Ethereum.  The institutions are coming all right, but they are currently playing stickball in the parking lot while the pros are under the lights of Yankee Stadium.  This of course is not an endorsement of unregulated exchanges, nor a knock on the CME or Grayscale, but simply a reality of a disjointed market infrastructure.  The institutions are getting a raw deal while trying to play by outdated, or unspecified, rules.  I’ve personally spoken to two traditional bond and equity fund managers this week who have compliance and back office so far up their assets simply for trying to invest in Bitcoin futures using a “regulated” venue. How damaging is this limitation?  Last week’s holiday-shortened week sheds light on the inefficiencies, which is directly affecting P&L as much as it is settlement and structure.  In the first half of the week, Bitcoin rocketed up to $19,374.  As soon as US markets closed on the Wednesday night before Thanksgiving, the market turned, with Bitcoin falling over 12% in 16 hours and many other digital assets falling 20-30%.  This same pattern reversed over the weekend, as Bitcoin and other digital assets exploded higher ahead of the US open Sunday night.  All of this volatility happened with the CME and Grayscale’s products closed for trading.  How would you like to watch your P&L move by 15-20% with no ability to do anything about it?  This was a reality for all “traditional” institutional investors who are dabbling with products that don’t fully express the market reality. The graph below shows the price of Bitcoin from Wednesday through Sunday. The yellow lines show when the CME closed on Wednesday, and the white lines the subsequent open.  The CME was only open for a brief time period and missed both the move down and subsequent move higher. Source: TradingView A similar graph below shows an even smaller window of time where Grayscale’s GBTC product was tradable compared with the volatility that occurred outside of trading hours. Source: TradingView While bond and equity investors were enjoying time off for the holidays, as were the operators of their favorite trading venues, those of us actually entrenched in the digital assets ecosystem were up until 3am trading (present company included).  The institutions are coming all right, but they are taking the local bus while the rest of us are on the express.  The digital assets market needs US institutional investors.  We welcome them with open arms.  Many of us (again, present company included) are also rooting for regulators to figure this out, and for regulated venues to continue to improve their offerings, thereby stealing market share.  We want Bloomberg to offer a suite of services that actually represents this asset class (not the nonsense batch of tokens it currently lists on CRYP).  We are keenly aware that the current system is not perfect.  This is the early days of a very important and growing asset class.  The infrastructure is being built.  But until it is fully built, investors have to make tough choices.  None of them are wrong, but the differences should be noted and understood.  In the 1800’s, JP Morgan and Alexander Hamilton used to literally corner the market.  On an actual street corner. That didn’t invalidate the early days of equity and commodity trading… it simply left more to be desired.  That is the current state of digital assets investing.  We can do better, but that doesn’t mean the old way is better.

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