Market Update: 27 Jul 2020

Volatility is back! Hard store-of-value assets in the past week have reached the exponential price phase — reacting to the growth in US money printing that has absolutely dwarfed anything seen in history (Chart 1). The decline of the US politically, resurgence of Europe fiscally, and increasing global risk appetite has driven the USD to the lowest level in 2 years, which has favored every anti-USD asset out there.

Chart 1

This latest charge is being led by the smaller higher-beta under-performers like Silver, which is having its largest gain ever on record, up 33% so far this month, and pushing big brother Gold to new all-time highs above $1920 this morning. (Chart 2 — Blue (gold) vs. Red (silver). The parallel in our world has seen the previously underperforming ETH break out along with Silver last week and drag big brother BTC back to the familiar old range highs between 10k-10.5k again. (Chart 2 — Orange (btc) vs. Green (eth).

Chart 2

All the fundamental building blocks are there for this being a big trend breakout — the only question is ultimately about positioning and how crowded the trade is. While we certainly don’t think it is overly crowded yet — one mark against it is these small high-beta plays being the hallmark sign of leveraged retail traders — with both Robinhooders as well as Private banks all having this as their top trade by a long way now. (Chart 3)

Corona cases however are also back on the rise exponentially globally — and that’s putting a damper on Equity prices. Any forced lock-downs that affect global supply chains and trade will drive a USD short-covering, and we’re most wary of that right now. In the short-term if this divergence continues, between equity prices & gold (Chart 4) then it will be the litmus test of whether BTC can prove itself as a modern day store-of-value asset.

Chart 4

Technically, after the TD 9 buy that started this move last week — we now have the opposing TD 9 sell on the daily (Chart 5), and a TD 13 sell on the 2-day (Chart 6). This will be very important to determine if we fail here or if this can finally be the actual long-term triangle break. (Chart 7). This TD 9 on the daily and TD 13 on the 2-day is the same in ETH as well. Nonetheless we have rolled all our short calls above the double-top 360 level in ETH and above 12k in BTC in the event 10.5k breaks.

Chart 5
Chart 6
Chart 7

One clear sign however is that options are now becoming the tool of choice for many traders. The breakout in ETH last week has seen volumes 10x the usual, with a mixture of both call buyers and put sellers (Chart 8). This has taken the ETH OI clearly above $300m now, from just $25m in April. We are most excited by this growth in options, and with the resultant increase in implied volatility. We believe in this environment it makes total sense to accumulate cheaply (at no cost) the bellwether coins — BTC and ETH, both of which will be supported by this surge in global liquidity. To that end we have initiated our synthetic miner options strategy that will be “mining” us BTC and ETH every week through this strategy that can then be held for the long-term without any fear of liquidation or drawdown.

Chart 8

Digital Asset Trading Firm |