Why traders Bitcoin is trading “heavy”
1/ BTC has lagged the performance of other crypto assets through the last cycle
— Joshua Lim (@joshua_j_lim) August 29, 2022
most traders intuitively feel that BTC trades “heavy” – why is this happening?
there’s two simple metrics we can look at to validate what we intuitively feel: pic.twitter.com/wOB30wJi6X
2/ first metric is the ETH/BTC ratio, ETH price divided by BTC price, which is 0.0733. this is still near multi-year highs of 0.0880 which we touched prior to the Fed-induced meltdown in risk assets in Dec 2021
— Joshua Lim (@joshua_j_lim) August 29, 2022
3/ the “flippening” when ETH mkt cap = BTC mkt cap occurs at ETH/BTC ratio of 0.0159. sizable positioning in ETH calls reflects mkt consensus of continued ETH outperformance
— Joshua Lim (@joshua_j_lim) August 29, 2022
charts below show ETH put/call ratio is only 0.24, substantially lower than BTC’s at 0.53 pic.twitter.com/Cttbg601bd
4/ second metric is BTC dominance, measuring BTC’s % of aggregate crypto mkt cap. it's stayed at historical lows of 40% despite the bear mkt.
— Joshua Lim (@joshua_j_lim) August 29, 2022
historically, BTC dominance rises in bear mkts, but we have yet to see it perform this cycle, likely because of ETH’s increasing share pic.twitter.com/rSNLiYnUJT
5/ what explains BTC's persistent heaviness? we present three qualitative reasons:
— Joshua Lim (@joshua_j_lim) August 29, 2022
first, the institutions are no longer “coming”… they are already here. BTC is accessible to everyone using CME futures, exchange-listed products and even via direct investment (see Coinbase AUC) pic.twitter.com/U6kbaOqGao
6/ as the historical gateway asset into crypto exposure, BTC is already a sizable % of the crypto allocation for most tradfi investors – this not only means it’s the asset that gets de-risked when the market turns, but also the asset that gets shorted as a beta hedge
— Joshua Lim (@joshua_j_lim) August 29, 2022
7/ which brings us to our second point, going short BTC is the easiest alternative for both tradfi and cryptonative investors. BTC linear derivatives trade around $30bn per day and still make up 44% of all open interest, despite the uptick in ETH speculation pic.twitter.com/L3yxzFAUU4
— Joshua Lim (@joshua_j_lim) August 29, 2022
8/ BTC is not only being used as a short leg vs alts, we're also seeing macro PMs trade it vs equities / other risk assets, weighing on it further pic.twitter.com/AlKW5FLV66
— Joshua Lim (@joshua_j_lim) August 29, 2022
9/ on a more practical level, ETH lenders are likely to recall going into the Merge to avoid fork complications, resulting in higher borrow costs (AAVE rates ticking up nearing optimal utilization now)
— Joshua Lim (@joshua_j_lim) August 29, 2022
BTC is the hedge instrument of least resistance pic.twitter.com/Zclm3HFrh0
10/ finally, BTC forward prospects are challenged, the mkt knows it:
— Joshua Lim (@joshua_j_lim) August 29, 2022
a) BTC’s store of value proposition is being trumped by ETH’s sound money narrative
b) long-only funds finally understand what ETH is this cycle and are favoring it as the new entry point into the asset class
11/
— Joshua Lim (@joshua_j_lim) August 29, 2022
c) every cryptonative fund in the world is positioning for the Merge in some way
d) ETH is looking deflationary post-Merge, while BTC has an uncertain supply event from the Mt Gox distro hanging over it
e) we just had 9% inflation, and BTC "failed" as an inflation hedge pic.twitter.com/RE3A7dBmSX
12/ can BTC remain king going fwd? only time will tell if the ETH narrative post-Merge is strong enough to overthrow the status quo
— Joshua Lim (@joshua_j_lim) August 29, 2022
in the meantime, expect BTC to continue to trade like a funding asset and preferred hedging instrument for the entire asset class
Over $3B stolen from DeFi since 2021
1/ Over the past year $3B has been stolen from DeFi with 2/3 of that total coming from bridges.
— Messari (@MessariCrypto) August 29, 2022
For the "multichain future" to survive, these risks must be resolved.
Let's discuss bridges, hacks that have occurred, and how bridges are mitigating risk. pic.twitter.com/z0EQ7rQ2ro
2/ A cross-chain bridge enables the transfer of data, primarily token assets, between blockchains.
— Messari (@MessariCrypto) August 29, 2022
A bridge derives security from either the parties that oversee its operation or the underlying chain and the algorithms that operate the bridge. pic.twitter.com/ysQohiPq03
3/ Bridges are an attractive target for hackers.
— Messari (@MessariCrypto) August 29, 2022
All of the previously noted bridge heists fall into one of three categories:
+Backend exploit
+Multi-signature compromise
+Smart contract vulnerability/implementation error pic.twitter.com/xSMNs61R9O
4/ Protocols like Rainbow Bridge are adapting to these exploits.
— Messari (@MessariCrypto) August 29, 2022
The Rainbow Bridge transfers assets between @Ethereum, @NEARProtocol, and @auroraisnear networks.
On two separate occasions, Rainbow Bridge avoided the attacks through its automatic mitigation system (watchdogs). pic.twitter.com/483dszjeP3
USD could break things if it keeps going
If the dollar keeps going, it's going to really break things. It has literally done parabolic… pic.twitter.com/hZExmpFVSc
— Raoul Pal (@RaoulGMI) August 29, 2022
There is literally nothing until 120 if we break this weak trend line… pic.twitter.com/463QZvax8D
— Raoul Pal (@RaoulGMI) August 29, 2022
And deviation from trend suggests it can get to 120 too… pic.twitter.com/wFIutgVuVK
— Raoul Pal (@RaoulGMI) August 29, 2022
That is not good for oil…its already $60 over valued versus the ADXY pic.twitter.com/TYvMDURPWi
— Raoul Pal (@RaoulGMI) August 29, 2022
But it could cause a nasty week in risk assets. I dont think equities make new lows but Im not sure of that. Same with crypto.
— Raoul Pal (@RaoulGMI) August 29, 2022
Personally, I think we get saved by weak economic data this week. pic.twitter.com/tzpMPmTg5X
And if the bond market turns, everything eventually turns. Bonds are their most overvalued vs the business cycle, ever…Fair value is 1.5% and 1% or lower in ISM hits 40 early next year. pic.twitter.com/Gq1JI1qWo0
— Raoul Pal (@RaoulGMI) August 29, 2022
And no, CPI is not going to stay high..I think it goes negative. pic.twitter.com/t9AFs9IzIe
— Raoul Pal (@RaoulGMI) August 29, 2022
