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Welcome to Crypto Long & Short! This week, Katie Stockton, managing partner at Fairlead Strategies, takes a deep dive into technical analysis of the bitcoin market and concludes that BTC may be stuck in a holding pattern price-wise.
Then, Bullish's Sylvia To looks at Tether's outlook and argues that a recent partnership with TON may boost the leading stablecoin further. As always, get the latest crypto news and data from CoinDeskMarkets.com. – Benjamin Schiller, head of opinion and features at CoinDesk
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What Technical Analysis Tells Us About the Bitcoin Market |
Technical analysis has long been relied upon for investing in cryptocurrencies. The discipline lends itself well to the highly-volatile asset class, not only because cryptocurrencies are momentum-driven, but also because they are generally subject to less headline risk than equities, which can muddy supply/demand dynamics. Investors can better understand the risk-reward dynamics of the cryptocurrency market by combining momentum indicators and overbought/oversold measures with the identification of key support and resistance levels. Investors can source relative strength inputs to help spot opportunities. Real-time analysis of the chart of bitcoin shows that, as of early-May 2024, there was a loss of intermediate-term momentum per momentum indicators like the MACD (Moving-Average-Convergence-Divergence), which has a bearish crossover. The loss of momentum suggests that bitcoin is in a corrective phase that should persist for at least another few weeks. Downside risk can be framed by the next support on the chart, near $51,500, which is defined by a 38.2% Fibonacci retracement of the uptrend off the 2022 low and bolstered by a rising 200-day moving average. The loss of momentum should be viewed within a long-term bullish framework. Bitcoin broke out to new all-time highs in March 2024. The breakout extended bitcoin's secular uptrend with implications for the coming months, if not years. This suggests that, once there are signs that a corrective low is in place, the risk/reward ratio will be more favorable for investors. The weekly stochastic oscillator, which is a gauge of overbought and oversold conditions, is a useful tool to help identify when a corrective low has been established. For now, the stochastics have room to oversold territory (20%), increasing the likelihood that a deeper pullback in price will happen before the long-term uptrend resumes. An upturn in the weekly stochastics from oversold territory would be a positive short-term technical catalyst for bitcoin, irrespective of the level at which it occurs. |
A relative strength input that is useful for identifying potential winners and losers in the cryptocurrency market is a Relative Rotation Graph®, or RRG. The RRG shows altcoin rotation normalized relative to bitcoin, which is at the crosshairs of the graph. There is an inherent clockwise rotation by the altcoins in the RRG, helping us determine when certain altcoins are rotating into or out of favor versus bitcoin. Most altcoins in the graph point lower and to the left, which reflects bitcoin's strong position in the market, particularly during a corrective phase which sometimes sees a flight to safety (in relative terms). We would expect most altcoins in the lower left portion of the graph to eventually rotate into favor as more risk-on positioning resurfaces in a sign that the corrective phase has matured. |
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Stablecoin Surge: Tether's Headroom for Growth |
The market cap for stablecoins has grown considerably in the past six months, increasing from $122 billion in October 2023 to $157 billion in April 2024. Among stablecoin providers, Tether (USDT) has captured a significant market share, exceeding $100 billion and accounting for over 70% dominance in the stablecoin market. Building on this momentum, Tether's Q1 2024 attestation report disclosed a record $4.52 billion profit from U.S. Treasury holdings, generating $1 billion in net operating profits. The number of active Tether addresses (non-zero balances) as of April 28 rose to 5.6 million. This poses the question: What is the growth headroom for this stablecoin giant? We delve further into the decentralization of these wallets through the Herfindahl Index. This index, repurposed to measure the market concentration of Tether wallets, calculates the shares of the total supply held by different addresses by summing the squares of each address's balance in the network. A high score indicates that the supply is concentrated in a few hands, while a low score suggests a more evenly distributed supply among many addresses. |
Source: Glassnode as of April 30, 2024. Above, we see the Herfindahl index scores for different stablecoins: 0.00708164 for USDT, 0.00981202 for USDC, and 0.00331652 for DAI. Among the top three stablecoin providers, DAI has the most evenly distributed supply across addresses, followed by USDT, and then USDC. The recent introduction of USDT on the TON network may decrease its Herfindahl score and achieve a more evenly distributed supply. Telegram, which claims 900 million monthly active users, announced in April that USDT will be natively supported on TON. This move could influence the distribution of Tether wallets significantly. |
Source: DefiLlama as of May 6, 2024. When examining the top three blockchain platforms and their stablecoin usage, TRON transactions are heavily dominated by USDT, with a dominance of 98.2%. On TRON, USDT transfers typically range from 95 cents to approximately $2, though gas fees can vary. Meanwhile, the TON wallet is natively integrated into the Telegram app, allowing users to conduct peer-to-peer USDT transactions within the TON wallet for free. Transactions between two USDT users outside the wallet reportedly incur a network fee of 0.0145 TON, which equates to about $0.09 as of May 6 2024. |
Source: Statista as of 2023. The integration of USDT on TON, with its lower fees and faster transactions, could prompt users to switch from TRON to TON for frequent, small transactions. This is particularly relevant in Telegram's top user countries as of 2023: India, Russia, the US, Indonesia and Brazil. Most of these countries are key players in the global remittance market. India ranks as one of the top global receivers, while Russia sees significant inflows from its diaspora in Europe and former Soviet states. Indonesia benefits from remittances sent by its migrant workers in Malaysia and the Middle East. Brazil, on the other hand, is known more for sending remittances through its emigrants in the US, Japan, and Europe. Tether's integration on the TON network, combined with its significant market share and the potential for a more distributed wallet system, could support USDT's expansion among Telegram's user base, boosting its usage in major remittance markets. |
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From Nick Baker, CoinDesk's deputy editor-in-chief, here is some news worth reading: |
- RESTAKING: If you're reading this ensconced in a traditional finance career, you know the deal: If money is idle, make it do more work. Are you, for instance, a broker with collateral quietly sitting in a vault? That's boring! Do that rehypothecation thing! Use it to finance your own operations! (The Lehman-fomented global financial crisis of 2008 helps illustrate what can go wrong.) Crypto has invented its own version of rehypothecation, called something else, of course: restaking. It caught fire on Ethereum (ETH) with the help of EigenLayer (which is inching toward an airdrop of its EIGEN token). As a proof-of-stake blockchain, Ethereum's plumbing relies on folks called validators "staking" their ETH to the network. Validators are rewarded for pledging their assets, given something akin to interest payments. But that ETH is locked up. Sitting idle. Financial engineers hate that, right? With restaking, that locked up ETH is kinda sorta freed up via the creation of a derivative, and the owner of that ETH can earn a bit more money. (So, too, can the restaking platform like EigenLayer that enables this.) Many billions of dollars of ETH are now restaked. CoinDesk's Danny Nelson just reported that several firms are trying to bring restaking to Solana (SOL), including a titan of that blockchain: Jito (JTO). Not everyone is keen on the idea. To proponents, restaking can help make Solana startups' blockchain-powered apps more secure. Critics fret over the systemic risks (if something goes wrong, the entanglements can get ugly real quick, as shown in 2008). Meanwhile, ETH restakers are presumably happily earning more than the current Ethereum staking yield (3.13%, according to CESR). It's all fun until it isn't.
- METAMASK VS MEV: Confession time: I'm both really curious about MEV (aka maximal extractable value) and really befuddled by it. In the broadest terms, MEV involves validators tinkering with the order they add transactions to a blockchain to maximize their profit. To my (possibly naive?) eye, some of it resembles arbitrage. Some is like front-running clients' trades. As you can imagine, some people love it (they're making money, either by engaging in MEV or by building tools that enable it or fight it or whatever it) and some hate it (they're getting sandwiched). Anyway, MetaMask, the widely popular Ethereum wallet, is introducing a new feature designed to protect MetaMask users from MEV. It reminds me of dark pools in TradFi: those stock trading platforms that obscure details of orders until they're executed, to protect from those who want to move prices against the placers of larger orders. Crypto has MEV, TradFi has high-frequency traders. There is (almost?) nothing new in the world of money.
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