 January 14, 2021  Weekly insights, news and analysis for the professional investor Sponsored By:  By Noelle Acheson Director of Research If you were forwarded this newsletter and would like to receive it, sign up here. PRICES (01/13/21 @ 12 p.m. UTC): BTC - $37,957.23 | ETH - $1,127.45 Hello everyone,
In a week that felt like a year and that none of us, wherever we live, will ever forget, it is natural to feel confused, nervous, alarmed. On that note, I have two epic staking updates for XTZ & ADA, and then maybe we're going to delve deeper into world affairs and what they mean for the crypto world.
ADA's Official Staking Pool
XTZ Baking and the Art of Profit
Then there’s bitcoin yet again breaking all-time highs. The “wall of institutional money” that we started expecting a couple of years ago seems to be finally arriving (even if we are still talking about mostly small allocations). Then again, the air is feeling a bit thin up here.
With so much to digest and think about, I wish you all the necessary breathing space to keep a clear head, enough perspective to see a larger context, and a hopeful week ahead.
P.S. Our latest Quarterly Review is out! In this report, we look back over Q4 and 2020, focusing on metrics that demonstrate the growth of institutional interest in bitcoin (BTC) and some of the drivers behind price increase of ether (ETH). You can download it here. SPONSORED BY CRYPTO.COM  Introducing the Crypto.com Exchange VIP Program, where VIP retail clients enjoy exclusive trading incentives and perks. Be rewarded with reduced maker/taker fees, dedicated VIP account manager and API tech support. Receive exclusive VIP swag alongside many other perks. Applications are open, get in touch with us - vip@crypto.com. The Briefing Traditional and crypto markets are starting to converge
One of the fun things about jigsaw puzzles, for those of you that haven’t tried them, is the satisfying snap of pieces fitting together to reveal part of a picture. Another is watching the whole picture emerge as more pieces join.
In July of last year, the U.S. Office of the Comptroller of the Currency (OCC) said that national banks could custody crypto assets. That was a pretty big deal, as, should national banks start to offer this service, investors could in theory ask their habitual institution to custody all their holdings, be they stocks, bonds or crypto. So much easier. A major barrier to crypto investment removed.
In September, the OCC said that they could provide services to stablecoin issuers, such as holding reserves. Banks had been doing this for some time, but in an uncertain regulatory environment. Now they had official approval to do so. Stablecoins backed one-to-one by fiat held in bank reserves are not deemed a risk in one of the most regulated industries in the U.S.
Anyone know what's going on yet?
Everyone knows that all bubbles pop when a needle appears on the scene. It’s hard to imagine anything as messy and noisy as an insurrection being compared to something as small and sharp as a needle, so let’s mix metaphors and go with the sudden appearance of a “bump in the road.”
But that didn’t happen – the main U.S. stock markets continued to go up, and call options saw their fourth highest volume day on record. So, either traditional U.S. markets are not in a bubble, or we have not yet had that bump.
Yet, if it’s not 10-year yields edging over 1% for the first time since March … If it’s not a greater likelihood of corporate tax increases or antitrust legislation … If it’s not, heck, the realization that political polarization has pushed faith in the democratic process to a generational low, then what will that bump look like? I shudder to think.
The optimist in me likes to think that the strength of the market in the face of greater political turmoil than I’ve ever seen, demonstrates unbending trust that the U.S. democratic institutions will hold, no matter what. That’s touching. But it doesn’t feel true.
To confuse things further, crypto assets also had an extraordinary week, with BTC and ETH throwing up returns of over 34% and 60% respectively.  (Yes, I know that all three columns in the above chart are the same – it’s the way the dates worked out. This coincidence is just yet another detail that makes this week particularly weird.)
What makes this confusing from a traditional investment point of view is that bitcoin is a good hedge against “crazy,” and things were definitely crazy this week. But the stock market is telling us that everything is fine.
And it’s not that crypto assets and stocks are becoming more correlated. The 30-day correlation (not useful from an investment point of view, but a handy narrative device) between BTC and the S&P 500 has turned negative for the first time since last February.  As I type, the BTC price is again flirting with $40,000, double what it was three weeks ago. Could this also be a bubble?
The difference between the movements in BTC and ETH is that they have strong fundamental drivers behind them. These include the multiple “bumps in the road” that we referred to above, and the growing awareness from institutional investors that these assets were designed to operate separately from the traditional economy, with different incentives and accounting mechanisms.
(Now is a good time to remind you that nothing in this newsletter is ever investment advice.)  CoinDesk Quarterly Review 2020 Q4
If Q1 2020 was the quarter of market turmoil, Q2 the bitcoin halving and Q3 the explosion of stablecoins and decentralized finance applications, Q4 was the quarter of institutional FOMO for bitcoin and of Ethereum launching the first phase of its ambitious migration to a proof-of-stake blockchain.
The latest CoinDesk Quarterly Review looks at the performance of bitcoin and ether compared to macro assets and other crypto assets, and at their progress, milestones and value drivers over the past three months. Download the free report. Chain Links Investors talking:
· The Stone Ridge investor letter is a must-read – one of the most eloquent and insightful (not to mention amusing and moving) pieces I’ve read in a long time, on the nature of money and why bitcoin matters.
· He also pointed out, in a separate interview, that bitcoin “gets less risky the higher it goes.”
· Skybridge Capital, the hedge-fund investing firm headed by Anthony Scaramucci, confirmed its launch of a new bitcoin fund Monday and said its exposure to bitcoin has already reached $310 million.
· This is the best quote I’ve seen on why even skeptics should be investing in bitcoin, via Lionel Laurent and Mark Gilbert in Bloomberg: “Bitcoin is the perfect vehicle for exploiting mankind’s infinite stupidity," says Julian Rimmer, a sales trader at Investec Plc. “A small percentage of one’s portfolio must be held in this ‘asset’ because gullibility never goes out of fashion.”
· JPMorgan’s Global Markets Strategy team has published a note that puts a long-term theoretical price target on BTC of $146,000, assuming BTC’s volatility converges to that of gold.
Takeaways:
Cryptocurrency exchange Bakkt, backed by NYSE parent Intercontinental Exchange (ICE), is in advanced talks to go public via a merger with special purpose acquisition company (SPAC) VPC Impact Acquisition Holdings, according to Bloomberg. TAKEAWAY: That the first large crypto SPAC is an infrastructure play highlights the difference between now and 2017. Back then it was about shiny new tokens and “decentralized protocols.” Now infrastructure dominates new funding.
The Chicago Mercantile Exchange (CME) is now the largest bitcoin futures exchange in terms of open interest in the world. TAKEAWAY: This is indicative of the growth of institutional interest in crypto markets – the CME is one of the few U.S.-regulated crypto derivatives exchanges, and is therefore the venue for most U.S. institutional activity in bitcoin futures. The growth is spectacular, given that the exchange started Q4 in fifth place (see our Quarterly Review for more on this.)  Source: skew.com
Crypto custodian BitGo has expanded its Wrapped Bitcoin (WBTC) project, which converts bitcoin into an Ethereum-based token, to the Tron network. Previously only available on the Ethereum network, WBTC converts bitcoin into a bitcoin-backed token on a different blockchain. BitGo has also enabled Wrapped Ether (WETH) on Tron. TAKEAWAY: This expands the yield potential of BTC, as well as its potential attractiveness to professional investors. WBTC tracks the value of BTC, but can also be used in decentralized finance applications, some of which offer yields of over 10%.  Source: Dune Analytics
The ban announced in October by the U.K’s Financial Conduct Authority (FCA) on the sale of derivatives and exchange-traded notes (ETNs) to retail investors went into effect this week. TAKEAWAY: This is unlikely to have a material impact initially as professional investors can still access these products, and retail investors can still buy crypto assets. It is a clear indication, however, of how much investment independence the FCA thinks retail investors should have, even with ample information.
The spread between the six-month implied volatility for ETH and BTC has risen to a record high of 46%. TAKEAWAY: This tells us that the market is expecting higher volatility for ETH relative to BTC, which in a bull market implies higher returns.  (Source: skew.com)  Introducing Valid Points, a CoinDesk Newsletter
CoinDesk is staking 32 ETH in Ethereum's historic upgrade, and research analyst Christine Kim and tech reporter Will Foxley are breaking down Ethereum 2.0 and its sweeping impacts on crypto markets, weekly. Using data direct from CoinDesk’s own Eth 2 validator node, Valid Points features original insights about what the future of Ethereum looks like for industry stakeholders and investors.
The Valid Points newsletter launched with Eth 2.0's launch. Learn why CoinDesk staked 32 ETH in the new blockchain protocol and follow our journey and insights by subscribing to Valid Points here. ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is. Copyright © 2020 CoinDesk, All rights reserved.
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XTZ and ADA on the rise: 2 events that will rock your portfolio