Connecting the Dots
Connecting the Dots
Episode 98 - The Trump Pump
Welcome to the new subscribers that have joined us over the last week. The aim of this newsletter is to help you navigate the world of crypto. There’s an incredible amount of information out there so we try to distil it into the things you MUST know each week, covering both macro and crypto.
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Onto the newsletter. Here’s what you’re getting this week:
Macro Update: Our latest view on the macro and its impact on crypto markets.
Crypto Native News: Ethereum Foundation released its annual report, a number of crypto firms partner to launch the Global Dollar Network, Coinbase released its wrapped Bitcoin token on Solana, Jack Dorseys Block Inc to focus on Bitcoin mining.
Institutional Corner: Detroit to accept cryptocurrency payments.
Charts of the Week: BTC/Gold with a huge rise, CME BTC futures post an all time high daily trading volume, BTC vs Gold ETF inflows, Solana’s DeFi TVL on the rise.
Top Jobs in Crypto: Featuring Chainway Labs, DRW, Coinbase, Kraken, Wintermute, Circle and MoonPay.
Macro Update
This is where we connect the dots between macro and crypto.
The Trump Pump
Bitcoin hit new record highs, along with US equities which saw the S&P 500 make its biggest weekly percentage gain in a year, in a euphoric reaction to Donald Trump's landslide Presidential victory 🚀
Whilst a “Red Sweep” in itself is a positive risk outcome given Trump’s pro-business stance, for markets which love certainty, the definitive result, avoiding a contested election, removed a huge amount of uncertainty that has been hanging over markets for months. In our assertion that pain remains higher for a market that has been under positioned risk, the performance chase began immediately with $22bn of inflows into risk-on ETF’s the day following the election. As highlighted by Bloomberg’s Eric Balchunas, that’s usually a good week, so it’s a crazy level of inflows in just one day.
The good news is, we still think there’s a lot of cash on the sidelines still to flow into risk markets which will keep US equities and Bitcoin pumping into year end. Crypto is clearly the biggest winner from the Red Sweep, given the Biden administration's ignorant and abrasive stance towards crypto and innovation. With a crypto friendly House and Senate (16 pro-crypto candidates elected Vs 12 anti-crypto) and a crypto-friendly SEC Chair to replace the soon to be fired 🫵 Gary Gensler, this marks a paradigm shift in the political and regulatory backdrop which will turn the US from being an obstacle to a positive driving force for the crypto industry. Coinbase up 50% on the week reflective of just how positive a catalyst this is.
Bitcoin strategic reserve asset…
Senator Cynthia Lummis immediately reaffirmed plans to establish a Bitcoin reserve and acquire 1mio BTC over 5 years and establish Treasury managed secure Bitcoin vaults. If this comes to fruition, it is hard to emphasise just how big this would be for Bitcoin, the only commodity in the world with a truly fixed supply. It would also likely trigger a domino effect with other major economies compelled to strategically follow the US lead.
It’s quite incredible for us to think at London Crypto Club that in past cycles, we had to consider the prospect that major economies and governments would simply ban Bitcoin. Now we’re considering if the US will actually make it a strategic reserve asset 🤯. We often state that Bitcoin is the best investment opportunity we’ve seen in our lifetime and have tried to give a sense how big that opportunity could be over a longer time frame. Yet we’re progressing much more quickly than even we optimistically hoped. If the US does make Bitcoin a reserve asset, then talk of $1million per Bitcoin is not only likely in our view, but could materialise within the next few years.
Alt season…
With the prospect of a more constructive, open approach to crypto regulation, the altcoin space has started to outperform given the positive implications for decentralised finance (Defi). Ethereum has been very much unloved so far this cycle, despite the launch of the spot ETH ETF’s and despite on-chain activity hitting record highs this year (although that has also coincided with a collapse in fees post the Dencun upgrade in March.) Bitcoin has been the cleaner trade to play the bullish macro environment given the SEC’s clarity that Bitcoin is a commodity and not a security. Bitcoin dominance (a measure of BTC market share against the whole crypto market) hit a cycle high of 60.5% on Wednesday but is now falling quite sharply as the bull market rally broadens out and we think this augurs for further ETH outperformance (relative to Bitcoin). Adding a tailwind to ETH, with major central banks cutting rates, the higher yields available in Defi become more attractive on a risk adjusted basis which should reinforce greater Defi activity.
Bitcoin Dominance reversing post election - time for Alt season
This is the stage of the market where the combination of a rising liquidity cycle alongside post election certainty, sees BTC and broader crypto gains go exponential. Or as our friend Raoul Pal calls it, the Banana zone 🍌. Just as we see in “risk-on” traditional markets, as liquidity rises and portfolios perform, investors start to venture further out the risk curve and we’re just starting to see this in the crypto space. As predominantly macro guys, we maintain our focus (and holdings) on Bitcoin, but it would be remiss for us not to highlight the fact that there are huge portfolio gains to be had in the altcoin space which is now breaking out across the board, relative to Bitcoin and a small percentage holding of quality alts could add some convexity and outperformance to your core portfolio. Fear not however, your Bitcoin will still outperform the boomer stocks and assets you hold substantially!
Despite the Trump Pump we’ve already experienced post election, we are still very early in this bull cycle. Indeed, there’s very little signs of froth in the market, with 30 day implied BTC volatility sat just a little above 50 vols, whilst according to the team at FRNT Financial, Binance 1227 basis (spot Vs Dec 27 future) at 13.97% sits only 3% higher than the 30 day average. This is a very orderly move higher. Additionally, it's interesting just how closely Bitcoin is following past halving cycles. Typically, once through the election, we get the sharp seasonal price rises which we look on course to repeat again (h/t Global Macro Investor for the below chart)
Bitcoin following previous post halving cycles set to accelerate post election
We’ve not even mentioned the Fed, who cut rates as expected on Thursday and likely to follow with another 25bps in December. Whilst a Trump administration with higher tariffs and stimulative tax cuts has the potential to slow Fed cuts going forward, as JPow himself stated, they currently need to act on the basis of incoming (lagged) data and not speculate on the future policy of a new administration and when those policies impact. For now, we will continue to see the Fed and other major central banks cutting rates (Bank of England also cutting 25bps as expected last week) and China roll out their 10trn Yuan stimulus and pump liquidity into this market. We’ll dig deeper into the macro next week.
For now, don’t over complicate this. Risk is set to fly into year end as post election certainty brings cash off the sidelines and major central bank rate cuts alongside rising global liquidity make for a TINA trade (There Is No Alternative) in stocks, amongst traditional assets. Of course, there is an alternative and it lies in crypto. Careers and fortunes will be made by the HODLERS over these next few months 🚀
Native News
Key news from the crypto native space this week.
The Ethereum Foundation (EF) released its financial report for this year and revealed that it holds $970.2 million in cryptocurrencies and non-crypto assets as of 31 October 2024. The EF noted that it holds $788.7 million in crypto assets, 99.45% of which are held in ether, representing 0.26% of the total ether supply as of the end of October 2024. According to the report, it holds $181.5 million in non-crypto investments and assets. The EF said its treasury aims to “fund important public goods for the Ethereum ecosystem.” It added a plan to follow a conservative treasury management policy that ensures it has "sufficient resources even in the case of a multi-year market downturn. This requires periodically selling ETH to ensure sufficient savings for future years, and programmatically increasing our fiat savings in bull markets to fund spending in bear markets.” Read the full report from the EF HERE.
Anchorage Digital, Bullish, Galaxy Digital, Kraken, Nuvei, Paxos and Robinhood have partnered to introduce the Global Dollar Network. The network aims to accelerate stablecoin adoption worldwide and to incentivise new use cases for the stablecoin USDG launched on 1 November. The blockchain infrastructure platform Paxos will issue USDG out of Singapore in compliance with the nation's Monetary Authority. Qualified entities such as custodians, exchanges, payment technology firms and others in the financial sector can join the Global Dollar Network via invite. Singapore bankiing firm DBS Bank will custody USDG reserves. The token is available on Ethereum with plans for issuance on other blockchains in the near future. Kraken Co-CEO Arjun Sethi said "The lack of competition in the regulated stablecoin market has prevented the industry from reaching its full potential. USDG upends this dynamic with a more equitable model that will bring mainstream participants into the ecosystem and accelerate new stablecoin use cases."
Coinbase has announced the release of its wrapped Bitcoin token, cbBTC, on the Solana blockchain. The token is designed to be an SPL asset pegged one-to-one with Bitcoin for reliable value preservation. At the of this the week, Coinbase had already minted approximately 135 cbBTC (valued at about $10 million) and had deployed it in order to kickstart the project’s presence on Solana's network. Major Solana-based platforms including Jupiter, Meteora, Kamino Finance, Raydium, Phoenix, Jito and Drift have already integrated cbBTC into their services.
Block, Inc. is doubling down on its bitcoin mining hardware business as Donald Trump's presidential win opens the crypto industry to a potentially more favourable environment for the crypto mining sector. The payments and blockchain infrastructure company led by Jack Dorsey announced in a published shareholder letter Thursday that it would reallocate resources to focus on mining equipment development. Block is preparing to scale back its investments in TIDAL, a music streaming platform it acquired in 2021 for roughly $300 million and redirect its resources to Proto, its Bitcoin mining initiative, which it claims "has strong product market fit and a healthy pipeline of demand." Read the full letter from Block HERE.
Institutional Corner
Top stories from the big institutions
Detroit will become the largest city in the United States to accept cryptocurrency payments, city officials announced Thursday. Residents can pay taxes and other city fees using crypto through a secure platform managed by PayPal. The option will become available in mid-2025, along with additional improvements to city payment services, said Treasurer Nikhil Patel. It's part of a larger strategy by the city of Detroit to explore innovative technologies that could enhance public services, strengthen civic engagement, and foster economic growth. Detroit Mayor Mike Duggan said “Detroit is building a technology-friendly environment that empowers residents and entrepreneurs. We are excited to be one of the first major U.S. cities to explore blockchains civic applications and allow residents to use their cryptocurrency as a payment option.” Read the full release from Detroit HERE.
Charts of the Week
Because charts are just as important as macro.
BTC/Gold registered its biggest single-day rise since February 2022, rising 12% on Wednesday.
CME's BTC futures saw an all-time high daily trading volume of $13.15bn on Wednesday. 2024s average daily trading volume in CME's BTC futures currently sits at $4.56bn. This yearly ADV is higher than the massive volume surge amidst FTX's Nov 8, 2022 collapse.
The first year inflows into the BTC ETF vs the first year of inflows into the Gold ETFs. Hat tip to Bradley Duke for the chart.
Solana’s DeFi TVL grew by 26% QoQ to $5.7 billion, ranking it third among networks and surpassing Tron in late September. Kamino took the lead in TVL on Solana with a 57% growth rate QoQ, ending with $1.5 billion and a 26% market share. This growth can be attributed to PYUSD and jupSOL being added to the platform.
Top Jobs in Crypto
Well, we all want to work in Crypto don’t we. Here’s a bit of help on your job search!
Ecosystem Growth at Chainway Labs
Crypto Middle Office Engineer at DRW
Associate, Prime Trading Execution Services at Coinbase
Product Manager Payments at Kraken Digital Assets Exchange
DeFi Trader / Developer at Wintermute
Developer Relations Manager at Circle
Data Analyst, Crypto and Payments at MoonPay
DISCLAIMER: The content in this newsletter is not financial advice. This newsletter is strictly educational and is not investment advice or a recommendation to buy or sell any assets or to make any financial decisions. Crypto markets are volatile, please be careful and do your own research.