Bear Market Or Bear Trap?
Summary
Dear Reader,
Bitcoin and Ethereum have remained rangebound over the last fortnight, but elsewhere the crypto market has been having a tough time. Is this the start of a bear market, or is it a bear trap, designed to shake out weaker holders and present an opportunity to those with greater conviction? This week we explore the different sets of evidence. We lean heavily to the trap view. There will doubtless be more volatility, but we retain our confidence in a strong end to the year.
One of the reasons for altcoin weakness is the sheer volume of issuance. Supply constrained names have held up ok. On-chain activity presents a mixed picture, but broadly speaking we see constructive patterns.
Is inflation dead or merely resting? The price of natural gas might give us a clue, and the timing of the UK general election suggests that Rishi Sunak has a view as well. We mention mBridge, a digital currency experiment that would provide emerging economies with a way around the US dollar.
If you’re in the property game you’ll be fascinated by Propy, and it’s also great to see evolving tokenomics at Uniswap. Crypto needs sound financial models to ultimately succeed. We also explore the phenomenon that is Toncoin and explain what a DEX is, in CryptoTutor.
Finally, we have a rant about the climate “emergency”, the lunacy of expensive energy, and the role bitcoin mining can play to help us look after the environment.
·?????? Technical analysis?? Is weakness in the altcoins a sign of worse things ahead?
·?????? On-Chain??????????????? Bitcoin activity weakens, but solid signs elsewhere
·?????? Macro??????????????????? Biden buddies up to crypto, UK inflation
·?????? Cryptoverse???????????? Toncoin, Uniswap and Propy – the use cases keep coming
·?????? Ethos????????????????????? Bitcoin and Energy efficiency
·?????? CryptoTutor??????????? What’s a DEX?
Technical Analysis
There are moments when the market makes a fool of you. Our most recent edition provided just such an opportunity. Having postulated that bitcoin’s dominance could be breaking down, it has done the opposite. We update the chart accordingly.
The reason for this is not so much that BTC has been strong, but because the tail of crypto has been having a horrible time.
The long-term picture for BTC continues to look absolutely fine. As it does for the larger, more liquid cryptos, including Ethereum.
Much of the rest of crypto, however, has been weak for a while. The following chart shows a number of popular, larger cap names and their performance over the last 3 months.
One of the principal reasons for this slump seems simply to be the massive amount of new issuance.
Nowhere is the old saying, “If the ducks are quacking, feed them” more prevalent than crypto.
Recent token “unlocks” from Aptos ($97m), IMX ($51m), STRK ($75m), SEI ($62m), ARB ($90m), APE ($18m) and UNI ($90m) - in total $483m – seem to have knocked the stuffing out of our feathered friends. The market has been unable to digest this wave of supply, and has cracked. https://post.10xresearch.co/p/solana-10-altcoins-are-crashing-what
Fear is contagious in crypto and the selling has recently become more pronounced. That said, it would be reasonable to expect some sort of interim bottoming-out relatively soon. We are already hitting levels consistent with decent buying opportunities in terms of how “oversold” they are.
One interesting feature is that the larger cap, supply constrained cryptocurrencies like BTC and ETH, have been far better behaved in this episode than the rabble.
The ETF impact
A lot of time and effort is spent analysing flows into and out of the US Bitcoin ETFs. The focus is typically on the scale of flows rather than the type of flows. Yet the latter is arguably more instructive.
To date there is little obvious correlation or causation between BTC price and ETF demand. Not surprising really since the history is so short. My instinctive belief is that price has been a leading indicator of demand rather than vice versa, but in truth it’s inconclusive either way.
What we can tell is that the ETF phenomenon is dominated by retail investors. We know this because the average size of a spot BTC ETF trade is just $14,600 (the blue series at the bottom in the chart below).
This is far less than most other popular ETFs, and is about one-tenth the size of a typical SPY (the S&P500 Index facsimile) trade.
There’s a school of thought that retail traders are prone to be more panicky than institutions, and that this investor profile will result in more volatility. I’m not so sure. A lot of the individual owners of crypto that I have come across are far more tuned-in to the characteristics of the asset class and the reasons for holding it than institutions. In the main they are here for the long term.
On-Chain
On-chain activity on the Bitcoin Network has been weak. Transaction value has tailed off substantially, both on short- and longer-term measures. This is shown in the following charts where the grey and orange lines show the daily average over different timeframes.
Over one week, one month and one quarter, momentum is now to the downside, despite the elevated price of bitcoin.
This lack of activity has translated into a fall in our fair value for bitcoin, shown as the blue line below. This is a trailing measure, because the price is one of the inputs to the formula, but nonetheless it is disappointing to see that the recent price recovery has not been reflected in on-chain activity.
From a technical perspective, therefore, the current price behaviour is looking like a “double-top”, which might signal an extended downswing. But there’s another explanation.
One way of rationalising this activity downturn is as a consequence of the changing shape of the market.
In particular, we know that the advent of exchange traded funds (ETFs) has introduced a new cohort of bitcoin demand. Bitcoin bought in an ETF is effectively removed from circulation. It’s like buying gold and hiding it in an underground cavern – you can’t buy a round with it.
Not so long ago crypto enthusiasts traded BTC much more actively. Typically, a trader would buy BTC, and from there venture into more exotic parts of the market, looking for ways to generate outsize returns, perhaps by borrowing against the original holding.
The ETF investor, by contrast, has by and large been sold the somewhat incomplete “digital gold” narrative. The ETF is a simple vehicle through which to express this trade, but it means that the bitcoin held will not be actively traded or utilised as a means of exchange.
No wonder, then, that the on-chain value activity is lower than during previous price peaks.
The saving grace for bitcoin is that the number of on-chain transactions remains healthy (below), even if the value has tailed off.
Higher transactions had - until recently - translated into a stronger fee picture, although even those have turned back down again. Still, as depicted by the grey line below (average over 280 days), fee generation appears to be structurally climbing, which is exactly what we need to see for the long term health of the network.
On other blockchains, on-chain activity looks healthy to us, which suggests that this sell-off is more to do with exogenous factors than a major abandonment of the underlying technology.
This is important when trying to decide whether this is a bear market or a bear trap. The former is painful and extended. The latter flushes out weak hands, is also painful, but is typically short.
Transactions on NEAR have cooled off a bit after a storming six months.
Activity on Solana is very healthy
Solana fees are also trending higher.
There’s also nothing wrong with transaction growth on Ethereum.
It’s important to keep the on-chain data in view, because it tells us about the fundamental state of the crypto universe.
Taking all this together, our conclusion is that this period of weakness is much more likely to be seen as a bear trap than a bear market. It will be important to select assets wisely during this period. Those that hold up well in this period are likely to be the ones that will thrive in the next.
Macro
Tip-toeing away from the dollar?
Bitcoin commentators never fail to leap at anything that smells like the demise of the US dollar.
We are light years away from that, of course. The dollar’s role as the global reserve asset will not be threatened for some time. Such dominance doesn’t get dismantled overnight, particularly when there is no plausible alternative.
That said, it’s noteworthy that Saudi Arabia has joined a project called mBridge, https://www.reuters.com/technology/saudi-arabia-joins-bis-led-central-bank-digital-currency-trial-2024-06-05/ ?in cahoots with the Central Banks of Thailand, Hong Kong, China and the UAE. mBridge is a central bank digital currency (CBDC) cross-border trial, which is being overseen by the Bank of International Settlements (BIS). So, it’s serious.
This is important because at the margin it’s clear that new forms of financial exchange are being proposed, considered and tested. We haven’t been in such a period of upheaval for payments in the last 50 years.
Where this leads, who knows. But the bedrock of this change is distributed ledger technology, which is what crypto is all about. Blockchain is here to stay.
US political engagement
We highlighted last time that the Trump Presidential campaign had opened its arms to the crypto community, in agreeing to accept crypto to help funding.
Well, blow me, if Biden’s lot haven’t decided to do the same. https://cryptoslate.com/biden-admin-mark-cuban-reportedly-set-for-high-stakes-bitcoin-roundtable-in-dc/? In response to Trump’s u-turn, the Biden administration is clearly taking a more constructive stance towards the industry. The latest is that a member of the Biden administration is organising a round-table in early July to figure out ways of supporting the industry.
The two Presidential hopefuls are competing for the crypto vote. They wouldn’t be doing this if it wasn’t an important issue for the electorate.
Inflation
News today that inflation has come down to 2% in the UK.
This is largely because the price of food and utilities has come down, which might have something to do with the price of energy coming down, as shown in the following chart. More on this in the “Ethos” section.
It’s worth noting however that service inflation is still running at 5.6%. Service inflation is much stickier than inflation related to oil and gas prices (such as food and utilities). Energy prices are largely outside government control, and they adjust rapidly.
Anyone who thinks the inflation battle is won is therefore likely to be very disappointed. With energy prices no longer going down, that easy win has now gone.
Rishi Sunak almost certainly knew this when calling an election. His best chance of being believed that he’s beaten inflation is now. Good luck to the next lot.
As we go into the back end of the year, this is likely to become more evident, which is another argument for a portfolio that has some diversification into alternative assets.
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领英推荐
Cryptoverse
Explaining and justifying the rationale for cryptocurrency as a funding mechanism is one of the harder parts of our job! Many of the issuers of tokens and coins have little to no interest in building a long-lasting project. They just want to issue some coins, trouser the cash and get the hell out. Good luck to them, I guess, if there are enough degenerates to make it work. But no wonder the industry has a reputation for scams and frauds.
However, there are many others trying to create a better future. We’re interested in how this funding model matures and evolves, so that we have an economic tool we can work with as long term investors. Uniswap is an interesting case study.
Uniswap (UNI) – improving tokenomics
Uniswap is the largest decentralised exchange (see CryptoTutor, below) in the industry. Since its launch in November 2018, it has processed almost $2 trillion https://uniswap.org/ in trading volume, with roughly $1.99 trillion of that occurring on the Ethereum blockchain. In the past month alone, Uniswap facilitated $50 billion https://app.uniswap.org/explore/tokens/ethereum in trades on Ethereum and $11.7 billion on Arbitrum.
It employs an automated market maker (AMM) mechanism to enable the decentralised trading of crypto assets. Despite the complexity of AMMs, the process is automated, allowing users to seamlessly utilise the platform without needing to understand the technical details.
To enhance UNI’s tokenomics and incentivise token holders, the Uniswap Foundation has introduced https://vote.uniswapfoundation.org/proposals/64 a significant proposal aimed at distributing a portion of the platform’s revenue to token holders. While this change would greatly benefit UNI and enhance its value proposition, voting on the proposal has not yet commenced.
Currently, since the UNI token's sole purpose is granting governance rights, the UNI token lacks a direct economic link with activity on the platform.
This proposal aims to change that by tying the platform revenue to the token value. In the TradFi sense, this fee switch is like the introduction of dividends for UNI holders.
This is a major change and requires a careful vetting process and due diligence by the Uniswap Foundation to eliminate any possibility of errors. Any issues or unintended failures during the change could create hostility in the ecosystem, sending the token into free fall. On a positive note, the foundation seems to be fully aware of the significance of the proposal and is taking every step to ensure a smooth transition.
The Foundation cited https://twitter.com/UniswapFND/status/1796590521072119927 the proposal's sensitivity and the need for additional diligence to ensure a smooth transition. Whenever the voting starts, it’s safe to assume the proposal will certainly be voted in favour.
We eagerly await the outcome.
Propy (PRO) - The Real Estate Disruptor
Property prices have skyrocketed in recent years, pushing the goal of home ownership out of reach for many, especially the younger generation. The market’s appetite for homes is inexhaustible, yet supply can’t keep up.
The housing market is notorious for its inefficiencies. Many have experienced the frustration of a deal collapsing at the eleventh hour or the endless wait to receive keys for the new place. And don’t even get me started on coordinating agents to talk to each other. It’s high time for a change. A streamlined approach is overdue.
Enter Propy, the new kid on the block shaking up the real estate world. Its mission: cut out the middleman and make property deals smooth, quick, secure, and ultimately cheaper.
Think of Propy’s dApps as your digital real estate genie. It allows users to mint property addresses and deeds on-chain, making property ownership more transparent and immutable. By utilising the blockchain, it makes buying and selling homes a breeze. With tokenised properties and smart contracts, fraud risk is reduced, and the usual paperwork hassle is slashed.
Propy aims to smooth out the market by trimming down the crowd of middlemen. Right now, everyone from estate agents to solicitors, brokers, and surveyors wants a slice of the action, each adding their own fees. By simplifying the process, Propy could help stabilise prices and make home buying and selling more cost-effective.
Propy’s platform utilises blockchain technology to automate the closing process, significantly speeding up transactions compared to traditional methods.
Propy’s AI technology is designed to automate the review of title reports and historical ownership data, negating the need for some of the work typically done by conveyancing solicitors. By integrating smart contracts, Propy can trigger automated workflows tailored to specific regions and transaction types, further reducing the reliance on human intermediaries.
Propy’s new feature, ‘PropyKeys’, launched on the 13th of March, aims to simplify the listing and closing of deals by using onchain deeds - nudging estate agents to the sidelines. This Web3-powered offering provides a straightforward way of transferring ownership.
PropyKey is venturing into DeFi as well. The dApp enables users to convert their properties into RWA and use them as collateral to quickly secure loans. This intriguing innovation should give mortgage brokers something to think about.
The star-studded launch event of PropyKeys featured big names like Cathie Wood and Tim Draper, all nodding to the game-changing potential. Andrew Zapo, COO, says it’s about opening doors to digital real estate for everyone, everywhere.
Propy 2024-2025 Roadmap: The Year of the Onchain Real Estate Movement https://propy.com/browse/propy-2024-2025-roadmap-the-year-of-the-onchain-real-estate-movement/
This has middlemen everywhere quivering: could Propy actually replace us?
Well, looking at their roadmap it seems to be on its way to doing so. Back in February 2022, Propy oversaw the first NFT home sale in the US. A Florida property went for 210 Ether, about $653,000 at the time. Since then, over $4 billion in transactions have been processed with Propy partners across the US.
Propy’s CEO, Natalia Karayaneva - “We truly feel that we made history, both for the real estate industry and for the crypto community.”
Propy aims to bring one million homes onto the blockchain by 2025. Currently, it has onboarded over 200,000 properties https://dune.com/propykeys/propykeys , making significant progress toward its goal.
TonCoin (TON)
Over the past few weeks, I have been delving deep into the rabbit hole, trying to determine the intrinsic value of Toncoin. According to CoinMarketCap, Toncoin has surged over 60% in the past 90 days, a move likely driven by increased demand.
My primary question was: where is this demand coming from?
Toncoin is the native token for the messaging platform Telegram, renowned for its security and privacy features. For those unfamiliar with Telegram, it is similar to WhatsApp but boasts its own unique features and as at March 2024 had over 900m users https://www.ft.com/content/8d6ceb0d-4cdb-4165-bdfa-4b95b3e07b2a? .
One such feature is the creation and implementation of automated bots. These bots function as automated chat services where users interact with a bot and are given selected response options. This tool has enabled many users to create stores that operate primarily on Telegram. In these stores, users can purchase items or services. Cryptocurrencies were commonly used for transactions, with Bitcoin and Monero historically being the main two.
Enter Toncoin. The implementation of Toncoin has significantly enhanced these bots, as transactions can now occur directly within these bot-operated stores, eliminating the need for users to use another wallet app. This removal of a significant barrier makes it easier for the average buyer on Telegram to transact, which has created a significant use case for Toncoin.
Now, the question is: which of these bot-oriented stores attract the most traffic? While there are plenty of stores, often referred to as “Channels,” these two particularly piqued my interest:
Mobile eSIM
What is the Mobile eSIM Bot?
The Mobile eSIM Bot is a bot-operated service designed to streamline the process of obtaining and managing eSIMs. Available in over 70 countries, it includes a built-in VPN for enhanced security. Unlike traditional SIM cards, eSIMs are embedded directly into your device, eliminating the need for a physical card. This makes switching between carriers or managing multiple phone numbers easier and more convenient.
The service offers competitive pricing. For example, at the time of publication, a package covering various Asian countries, including Cambodia, China, Indonesia, Japan, Malaysia, and Singapore, costs only $20.58 for 5GB. Additionally, these eSIMs can be purchased with TON cryptocurrency, providing a modern and flexible payment option.
How Does It Work?
Using the Mobile eSIM Bot on Telegram is simple:
·?????? Start a Chat: Open Telegram and start a chat with the Mobile eSIM Bot.
·?????? Select a Plan: Browse through various data plans and packages that suit your needs.
·?????? Download the eSIM: Once you choose a plan and pay for your package, the bot will guide you through downloading and installing the eSIM on your compatible device.
TON Dating
The second bot operated service we came across was TON Dating. TON Dating is a membership-based dating community integrated into Telegram, designed to create high-quality connections between real and verified individuals. To ensure authenticity, all profiles undergo a rigorous verification process conducted by AI and professional moderators.
The community is built within Telegram, leveraging its secure and popular messaging platform. Users can join through specific Telegram channels and interact within the app, which helps maintain a high level of engagement and ease of communication. By integrating with Telegram, TON Dating provides a familiar and convenient interface for users, facilitating seamless interaction and connection-building.
One of the unique aspects of TON Dating is its innovative reward system. Active members, especially women, can earn rewards in TON cryptocurrency. This system incentivises participation and engagement within the community, encouraging users to stay active and involved. This not only benefits the users but also enhances the overall vibrancy and activity of the platform. Although still new, this novel idea has the potential to gain popularity. It will be interesting to see if mainstream dating apps like Tinder, Bumble, or Hinge adopt a similar incentive scheme. Only time will tell.
These are just two of the many services available on Telegram. We will write about additional services we discover in future, but please let us know if there are specific areas you think we should look at.
Ethos
Bitcoin and Energy
The cost of just about everything essential is meaningfully impacted by the price of energy.
This particularly applies to food, where energy is a key component of farming, processing, packaging, storage, transportation and, of course, cooking.
According to this study there are now more than 2,872 food banks in the UK, serving approximately 3% of the population in 2022/23 https://www.trusselltrust.org/news-and-blog/latest-stats/end-year-stats/. This is unacceptable in any country, let alone a supposedly modern one.
Yet all politicians seem to want to do is increase the cost of energy. On top of forcing people to shift to expensive, inconvenient and hard-to-dispose-of electric vehicles, the latest wheeze is to apply a windfall tax to oil and gas companies!
How stupid is that? It simply disincentivises them from finding and extracting more oil and gas. It adds to the cost.
If you’re trying to deal with a cost-of-living crisis, if you’re trying to heat and feed your people, this is literally the worst way of going about it. And yet they all think it’s a good idea.
Tip to politicians: Cutting tax and duty on fuel https://www.racfoundation.org/data/percentage-uk-pump-price-which-is-tax-page would surely be the most magnificent economic stimulus, particularly benefiting poorer people, while also encouraging inward investment.
Of course, this is done in the name of the climate “emergency”, which isn’t an emergency at all, because the climate has always changed and always will change. The idea that forcing everyone to drive milk floats and revert to windmills will in any way change this is so laughable that the vast majority of sensible people have been utterly wrong-footed by the fact that it’s actually taken seriously. Carbon dioxide is plant food. It makes things grow better. Honestly.
I mean, if you’re told it’s going to rain a lot more in the next few years, do you invest in better drains or do a sun-dance? If you think the sea level is going to be higher in a few years, do you build better sea defences and move up a hill, or buy an electric car and pray?
Still, the good news is that bitcoin mining can play an important role in managing energy costs.
The reason is that a lot of energy that we attempt to capture naturally, such as solar, wind or hydro, is inconsistent. The sun doesn’t always shine, or the wind blow, or the rain, rain.
Conversely, we might not actually need that energy at the moment it is produced. Which means it goes to waste.
Adding Bitcoin mining capacity to one of these power sources is a great way to use that surplus supply. While the windmill is gently rotating - in the middle of the night, for example, when it’s not needed - the energy it produces could be used mining bitcoin and generating a return on the investment.
In cases in some of the poorest parts of the world, it makes investment in a project viable, where it wasn’t before. https://gridlesscompute.com/
The image above shows that despite a massive increase in energy consumption, bitcoin’s mining emissions haven’t budged since 2020.
Sustainable energy as a percentage of overall energy consumption is now running at around 55% (from 35% in September 2019), according to the next chart from the same source.
Regardless of where you stand on the climate emergency spectrum, this matters. Bitcoin is proving that it gravitates to renewable energy, because in its unadulterated form it’s free and that’s the most important driver of bitcoin mining profitability.
Bitcoin also allows renewable energy to be monetised when stranded (ie off-grid), a fascinating concept in its own right if you think about it. Turning the earth’s natural energy into an inviolable monetary standard…
Bitcoin’s increasingly benevolent participation in clean energy is unequivocally a good thing. We can no more bend the climate to our will than make the earth spin in the opposite direction, but we all want a more pleasant environment. Bitcoin can help us on that path.
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CRYPTOTUTOR
What is a DEX?
A Decentralised Exchange (DEX) is a type of cryptocurrency exchange that operates without a central authority. Instead of relying on a centralised intermediary to facilitate trades, DEXs use smart contracts and blockchain technology to allow users to trade directly with one another. This ensures greater transparency, security, and control over one’s funds.
How Does a DEX Work?
At the heart of most DEX’s like Uniswap lies an Automated Market Makers (AMM) mechanism. An AMM relies on liquidity pools rather than order books. Liquidity providers deposit funds into these
pools, and traders can trade against the liquidity in the pools. Prices are determined by algorithms based on supply and demand. For providing liquidity, liquidity providers are rewarded by the fees generated from the trading within the pool.
Additionally, as they trade directly from their wallets, users always maintain full control of their funds, creating a trust-less environment.
How to use a DEX
·?????? Connect Wallet: Install and fund a compatible cryptocurrency wallet (e.g., MetaMask), then connect it to the DEX.
·?????? Select Tokens: Choose the token pair to trade and enter the trade amount.
·?????? Confirm Trade: Review details, approve the transaction in your wallet, and confirm.