Market Update: 1 Sep 2020

So the pause in crypto last week on Powell’s speech has now been far overshadowed by yet another surge in Defi to monumental proportions this week.

The total value locked in Defi is now closing in on US$10bn — $2bn more than last week, and just 2 days for the latest $1bn of growth. This is versus the 2 months it took to get from $1bn to $2bn starting late May. (Chart 1) This latest $1bn has come from SushiSwap alone — a platform which didn’t even exist last week to now locking up over $1bn in just 3 days.

Chart 1

Participation has gone parabolic — including number of users which now top 400k (from 10k last year), and DEX volumes of $11bn in the month of August (Vs. <$1bn in May). The interest Defi is generating right now brings flashes to the 2017 ICO craze (Chart 2).

Chart 2

All this has been a major boon for ETH miners — as transaction fees spent hit a new record today of over $500k in a single-hour. The surge in gas to definitely unsustainable levels now has also driven a short squeeze in ETH as many scramble to buy enough for their ERC-20 gas needs. On our desk this level of gas costs has reached paralyzing proportions. We believe in Defi for the long-term but this level of frenzy right now cannot carry on in perpetuity without some sense/economics prevailing. Nonetheless the ETH/BTC price 2-year bottoming does appear to have the legs for a trend to develop — especially once it can clear the current resistance level (Chart 3).

Chart 3

In the cross-asset space — the USD set a fresh low with EUR testing 1.20 before backing off this morning (Chart 4 — Candlestick). BTC and Gold have been laggards in this post-Powell move so far (Chart 4 — Yellow & Pink), with the Gold monthly TD 9–13–9 topping likely weighing heavily this month. (Chart 5).

Chart 4
Chart 5

There was a flurry of BTC Put buying yesterday of roughly 4000x notional, spread out over the weekly to month-end contracts — and we think more of such hedging flow will come through in the next weeks as long as BTC remains under 12.5k. On the downside — we have 11k (11.1k) as the major level of support, the 38.2% retracement and double-bottom low & TD 9 reversal low from last week. (Chart 6).

Chart 6

In ETH there is a weekly perfected TD 9 to highlight this week, which has worked in the past at least in stalling the rally (Chart 7). But as long as 360 holds on the downside, we will keep looking higher.

Chart 7



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