Alpha Hunt — June Edition
June has been a net positive sentiment-wise for the crypto market. Pessimism brought about by extreme May FUD has been temporarily alleviated by an influx of positivity, ranging from regulatory to institutional adoption, while Bitcoin continues to be pinned around the 35k-40k region.
1. Celebrity “Influencers” holding sway over sentiment
Extreme FUD negative sentiment subsided as strong momentum propelled the price of Bitcoin above key resistance levels near $40k over the past days. The first wave of sentiment boosters came from the market-swaying thought-leader Elon Musk, who returned to Twitter announcing the possibility of Tesla accepting Bitcoin again when 50% of Bitcoin mining practices clean energy usage. Also, Wall Street legend Paul Tudor Jones has once again come out with another bullish call on BTC — note that this has literally been the first time since May 2020 that he has spoken about this publicly. This is typical of old-school macro trader playbooks, where they build long-term positions early and then get everyone else on board.
This improvement in bullish sentiment refocused many traders’ attention on Bitcoin, fuelling a slight recovery in trading volumes and BTC dominance.
2. Mass adoption in América Latina
El Salvador’s adoption of Bitcoin as legal tender may not be significant enough to instigate changes in the fundamentals. Unlike dollarization in the early 2000s, the current wave of Bitcoinization is hardly motivated by stability concerns — rather, a thinly veiled PR stunt, of which the tangible economic benefits have yet to surface. The upside of El Salvador’s Bitcoinization is, at best, a ripple effect among similarly situated, weaker economies to adopt multi-currency systems with cryptocurrency. Since the announcement, we are seeing chatters from Tanzania, Nigeria, Paraguay, and Panama — each implying varying levels of interest in following suit.
3. Fed’s hawkish turn
The big daddy of macro catalysts didn’t disappoint — despite the lack of any actual tapering action from the Fed this week, the significantly more hawkish dot plots and Interest on Excess Reserves (IOER) hike served as bullish push factors for the USD — with the Dollar Index recovering its entire May decline in a few days. Sentiment arising from this Federal Open Market Committee (FOMC) meeting is likely to tamper short-term bullish sentiment toward risk-on assets. This means the overall crypto market cap is unlikely to break ATHs anytime soon. The next important date to look out for? The Jackson Hole economic symposium in August, where expectations of tapering turn into the root of headache/joy.
4. MicroStrategy went all-in on Bitcoin
The announcement of selling $1 billion worth of stock on the public market went live mere hours after the completion of a $500-million debt offering. While exhibiting Saylor’s “all-in” mentality, this allows MicroStrategy to partially “cash out” without selling its current $2 billion Bitcoin holdings — good news for any Bitcoin HODLer. Unlike its announcement of previous purchases, the latest announcement coincided with a local top, casting little shadow over Bitcoin’s price movement, suggesting that the market might have front-run Saylor Moon this time around.
5. GBTC’s narrowing discount
GBTC will be seeing approximately $1.4 billion worth of private placement unlocks from June 19–22. Assuming the corresponding short BTC hedges haven’t been unwound, there could potentially be decent buying pressure within that time period.
6. DeFi losing steam?
Well, another old narrative in a new bottle, nothing we haven’t heard of before. Does gas price trending low indicate long term structural bearishness? Or maybe it is just part of a cycle — a rotation from speculative activities to more defensive strategies, such as leaning towards interest-earning protocols. While non-stablecoin focused DEX TVL remains stagnant, lending TVL continues to trend up.
7. Back to futures
Despite the spot market seeing upside toward $40k this week, the futures market remains heavily net short on perps and futures (as seen from OI/funding chart). 3M Basis saw some upside to 10% annualized from minor short liquidations, but nowhere near the scale needed to clean out existing shorts. This means that prices are still vulnerable to short liquidations — but this is contingent on any unexpected bullish catalysts showing up.
The options market is showing signs of life with the addition of almost $2 billion of fresh contracts last week — though still far below the volumes we saw in April and May. In line with max pain and dealer inventory gamma, BTC prices were pinned to $40k. Notable flows this week have brought much-needed symmetry to IV smiles across the board, and along with BTC IV at May lows and at a discount to RV — risk/reward going forward is clearly inclined toward long vega exposure.