"The greatest shortcoming of the human race is our inability to understand the exponential function.”
- Prof Albert Allen Bartlett
I’m doing this one for the closet S-curve enthusiasts, the convexity mongers and the log curve cowboys this morning.
Long s-curves is effectively being long convexity … and convexity remains the sangre vital of macro alpha.
#LFG …..
- $243 billion UAE wealth fund Mubadala to invest in the crypto ecosystem >> twitter
- German savings banks to enable Bitcoin for 50M clients >> cointelegraph
- Switzerland's largest online bank to launch crypto exchange >> finews
- Spain's 2nd largest bank's subsidiary to offer Ethereum trading and custody services >> twitter
- Finance Ministry of Cyprus has called to accelerate its capacity building for crypto >> cointelegraph
- Myanmar shadow government declares stablecoin USDT an official currency >> cointelegraph
- Bitcoin Broker NYDIG raises $1B, valued at $7B >> coindesk
- Crypto bank Anchorage raises $350, valued at over $3 billion >> theblockcrypto
- $2.5 billion insurance firm Lemonade adds $1 MILLION in #Bitcoin to balance sheet >> twitter
- $SLG (prominent U.S. REIT) adds BTC to balance sheet >> twitter
- Musk says company will accept Dogecoin payments for merchandise >> blockworks
- Nike has acquired virtual sneakers and collectibles brand RTFKT >> cointelegraph
- Solana Ventures announces new $150 million fund for blockchain gaming >> theblockcrypto
- FTX US signs NFT deal with the Golden State Warriors basketball team >> theblockcrypto
- Twitch co-founder is building a marketplace for gaming NFTs >> forkast
- “Demand from companies looking to integrate #bitcoin is unlike anything I ever seen before in this space.” - NYDIG'S CMO >> blockworks
- SEBA Bank has launches regulated digital token backed by physical gold and exchangeable for delivery. >> coindesk
That is just a curated cross-section of developments across the digital asset space …. Over The Past 24 Hours!
If one were to attempt to map Metcalf’s Law or active S-Curve adoption into Newsflow space, it would probably be difficult to outdo the above (or any day over the past year+)!
If the building of a parallel financial system, the early crafting of the decentralized, user-owned Web3 and the fledgling ‘tokenization of everything’ has remained largely hidden-in-plain-sight to you, it’s okay.
Today is always the next best opportunity to level up your awareness or deconstruct then reconstruct your conceptual framework.
Back to the volatility-is-inevitable-alongside-tech-innovation-and-digital-asset-adoption Grind…
I promised an annotated tutorial around the On-Chain & Anecdata Section of our daily Crypto Quant product a couple weeks ago, so let’s deliver on that this morn.
The Crypto Quant product is meant to be low touch from a production and consumption perspective, but informationally dense from a context perspective.
By way of example, let’s walk through what’s left unsaid (in the daily note I just present the visuals) but should be implicit as you digest the data set below:
Net Flow Volume and Net Exchange Net Position Change: These measure the difference of volume flowing into exchanges and out of exchanges (i.e. the net flow of coins into/out of exchanges) and the 30 day change of the supply held in exchange wallets, respectively.
“What you should be thinking” … You can’t sell it if it’s not for sale. If people want to sell they push their coins onto exchanges and net flows turn persistently positive. The converse is true as well. In the present instance, prices are elevated and people keep pulling BTC off the exchanges which continues to build a supply shock scenario. This comes with a caveat … that is, as defi platforms have proliferated, coins that may have otherwise been left on exchange have been parked elsewhere (to stake or provide liquidity, etc). So, the directional trend remains insightful but it’s not exactly apples to apples looking back across the time series.
Coin Days Destroyed: Coin Days Destroyed (CDD) for any given transaction is calculated by taking the number of coins in a transaction and multiplying it by the number of days it has been since those coins were last spent. 90D Coin Days Destroyed is the 90 day rolling sum of Coin Days Destroyed (CDD) and shows the amount of coin days that have been destroyed over the past year.
“What you should be thinking” …. Each day a coin is spent it gains one coin day. If it’s spent it loses all the coin days it had gained. So, if CDD is rising it is long-term holders that are selling. If CDD remains muted as price is falling, then it is predominantly recent buyers/ST holders that are capitulating.
SOPR: The Spent Output Profit Ratio (SOPR) is computed by dividing the realized value (in USD) divided by the value at creation (USD) of a spent output. Or simply: price sold / price paid. Short Term Holder SOPR (STH-SOPR) is SOPR that takes into account only spent outputs younger than 155 days.
“What you should be thinking” … A dip below one has historically been a buy signal during bull phases as top buyers get washed out. Moreover if the price distribution of coins (different metric) is top heavy (a lot of transactions occurred near the cycle peak) the capitulation risk and subsequent liquidation cascade risk is higher
Futures Leverage Ratio: The Estimated Leverage Ratio is defined as the ratio of the open interest in futures contracts and the balance of the corresponding exchange.
“What you should be thinking” … The risk of a liquidation catalyzed price spiral rises as Open Interest increases. However, if open interest is up, but it’s actually down as a % of market cap , the risk for a leveraged washout cascade is comparably lower or, at least, the prospective magnitude of drawdown is lower.
Coin-Margined Open Interest: The total amount of futures contracts open interest that is margined in the native coin (e.g. BTC) and not in USD or stablecoin
“What you should be thinking” ….”longing your longs” by margining your position with crypto is a potentially combustible dynamic when exuberance slams into reverse and collateral values are falling at the same time as price.
That is just a small selection of metrics, but I think you get the idea.
There are hundreds of on-chain metric which carry specific or situational relevance. On a daily basis, we look to profile the metrics that provide signaling value or meaningful situational context.
*Note: Not all the charts above are updated for this morning’s data. The price feeds for some of the on-chain metrics fell victim to yesterday’s data bug and are still being resolved.
Choose Your Own Adventure ….
In 1Q we plan to deploy the following updates wrt to expanding the Crypto Quant product:
- Performance and macro/quant stats for a broader selection of coins (prob Top 20 Mkt Cap coins or so)
- Performance and macro/quant stats across all the primary Sectors (think Defi, Gaming, NFT, Web3, Metaverse, Privacy, etc)
- Performance and quant statistics across the major Ecosystems (ETH, SOL, DOT, AVAX, LUNA, etc)
- I also plan on doing a larger once a week writeup where I’ll do a deeper exploration on something emerging/topical along with an annotated walk-through more fully contextualizing the on-chain and crypto-macro incremental’s of consequence.
- Crypto Q&A on HedgeyeTV (weekly?)
The plan above and isn’t some static or pre-determined roadmap. Let us know … we are always open to thoughtful suggestions vis-à-vis product innovations that help to optimize utility.
A Few For the Road …..
I’m recurrently asked for low-intensity options for gaining exposure to the digital asset space .. and for gaining (passive’ish) diversified exposure.
Below are a few related options that I have exposure to personally. Don’t take any of them as specific investment advice. Take it as a simple FYI that these and similar products exists and the UI/UX is becoming increasingly enjoyable.
- Makara: Makara provides exposure to thematic/sector baskets (Defi/Web3/Metaverse/etc). The experience is easy and low-intensity. You can deposit funds from a crypto wallet or your bank account and Makara handles the trading and custody.
- IndexCoop: IndexCoop is a DOA that has built crypto index products targeting Defi, the Metaverse, Data infrastructure and others.
- Anchor Protocol: There are no shortage of stablecoin yield strategies, AnchorProtocol is just one. If you’re a supporter of the Terra ($UST/$LUNA) ecosystem, anchor protocol is the primary savings platform. You can earn 20% yield on all $UST (Terra stablecoin) deposits. You can even take out insurance against the deposit from a crypto-native insurer like NXM for like 2% (so its effectively a risk free 18% yield).
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.35-1.55% (neutral)
UST 2yr Yield 0.56-0.72% (bullish)
SPX 4 (bullish)
NASDAQ 14,999-15,893 (bullish)
RUT 2128-2271 (neutral)
Tech (XLK) 167.02-176.69 (bullish)
Consumer Discretionary (XLY) 196-210 (bullish)
Housing (ITB) 77.78-84.55 (bullish)
Industrials (XLI) 100.76-107.04 (bullish)
Best of luck out there today,
Christian B. Drake
