Market Update: 28 Dec 2020

The SEC decision to charge XRP and its holding company with an unlicensed securities offering proved just a small blip last week (for everything other than XRP), as immediately post-Christmas expiry BTC price rocketed higher on primarily retail buying, and late yesterday we got the usual swapping of BTC profits into the Alts, driving ETH to new cycle highs as well. The ETHBTC bounce happened at 0.023 which has proved a strong level for those looking to diversify their growing BTC balance sheets into ETH. (Chart 1)

The bull story remains clear — growing institutional adoption of BTC driving price higher and feeding the retail Fomo which then extends across all of crypto into the Alts.

At this stage there is a clear lack of sellers, as all the leveraged shorts are liquidated (another $250m over the weekend alone) — with the leverage market dislocation at the extremes of this cycle, in every exchange other than Bitfinex (which is facing its own USDT troubles that’s likely next in line after XRP). The implied funding is now consistently at 200% again which for the short-term trader in us has proved a good indicator of a market needing a breather (Chart 2).

For the investor we still don’t see a reason yet to give up on our core spot longs, and we’re watching the weekly close of the parabolic trend before deciding on trimming our holdings. For our option strategy, we see 20k, 16k and 12k as the key support levels for short puts (Chart 3). With Deribit now extending their order book to Dec-21, this gives believers of the long-term BTC bull story a great chance to sell puts at these key levels with the mindset of a buy limit order, whilst collecting premiums in coin.

Technically today marks the start of the powerful 2-day TD 9–13–9 technical reversal pattern. The first TD 9–13–9 appeared in August which led to the end of Wave i (of 3) and led to an extended Wave ii pause (Chart 4 — Highlighted). On CME as well, following the largest ever gap up in the contract’s history this morning, we have a 2-day TD 13 print as well (Chart 5). This makes selling calls attractive to us at these levels. On puts we are keeping it shorter-dated for now, as we chase the rally but with the option to roll lower should we get this technical pattern play out.

Risk assets will likely close the year strongly in the final trading week into year-end, after congress finally passed their $2tn Covid relief bill. BTC has not been correlated to any asset lately, and we think part of the parabolic move late Sunday was in sympathy to Trump’s indication he will sign the bill, so not expecting much more upside for BTC from this news itself. Longer-term however it’s just another blow to the USD / Fiat unlimited money printing thesis.

Finally the XRP decision gave taste of what damage a security classification by the SEC could do — and why we put such importance on the new SEC chair next year. ETH obviously is the biggest risk for us, but the extremely unlikely but non-negligible risk that some discussion over BTC could come up is definitely the black swan. Such a classification however, if allowed to pass, will no doubt be a game-changer and one we’re most wary of.

Nonetheless the positive takeaway is that there was no systemic contagion from XRP (a top 5 market cap coin), and while USDT might have longer lasting effects, we take comfort that the maturity of the crypto market is now able to compartmentalize risks and that BTC has outgrown these and can remain insulated from 2nd tier Alt risk.

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