Good morning and happy friday!
This’ll be short as I’m just summarizing my twitter thread here, updates on August and outlook for September.
In August, we saw flashing signs of retail coming back, not on doge & shib like I was watching, but we’ve had dogechain with up to 200k+ unique wallets, a new free mint NFT project getting $200M in funding to build a game, sudoswap nibbling on opensea’s lunch, and the under*dog* BONE catching attention with rumors of a Shibarium L2 chain.
Most CEX metrics are still very much so underwhelming, as are NFT trading volumes, but if we have bullish price action into the merge in a few weeks, we definitely will have a little bit of momentum to grab attention from the cash-heavy macro guys and retail-alike.
In August, we printed local highs on the Nasdaq and crypto majors, now we are looking to see if they form a higher low or selloff to new lows like the rest of the bear market rallies this year. Currently, I’m expecting a higher low before a push into the merge & September FOMC.
Nasdaq
- ran highs from May & June, now coming into weekly/daily support levels
- market reacted heavily to Powell’s language at Jackson Hole meeting, where he re-iterated that FED would not pivot or pause without significant data that showed inflation nearing their 2% target
- Powell also commented on pain coming to households & the economy, as they are looking for the labor force to weaken a bit as demand slows
- Today we have the NFP (non-farm payrolls) numbers which will show whether their hikes are working as intended or not
- chances of 75 bps hike are currently around 70-75% chance for September meeting, if we see weaker jobs & another lower inflation print that likely gets repriced to a lower %
- regardless of market expectations, think that Powell will do 75 bps in September which may be a surprise to the upside depending on what market expects in a few weeks time, but that would give them time to see a third lower inflation reading before their next meeting in November when they may decide to slow down or pause
- *If* we see continued strong jobs data & a higher inflation reading then I think we’ll see stocks make new lows relatively quickly
SPX vs. Federal Funds Rate
- every bear rally this year has coincided with a divergence in the fed funds futures of what the Jan ‘23 rate would be
- whenever market rallies expecting Powell to pivot and it isn’t priced into the curve then we end up selling off shortly after
- current estimates of ~3.75% by end of year I think are pretty accurate from what FED officials have said most recently, there aren’t any cuts priced into the curve for all of 2023 which reflects what they have said as well
30-day Fed Funds Futures
FOMC Expectations
Crypto vs. Trad Correlation
As I said a few weeks ago, crypto has seen an excessive amount of selling due to the Luna crash + 3AC blowup and associated contagion, it is not likely that we see any forced selling of that magnitude anytime soon, which is why new lows would likely be only be cause by continued weakness in tradfi indices. After this most recent local top, crypto has outperformed ndx & spx so far, possibly pricing in some of the fundamental catalysts that crypto has coming up in September + the lack of aggro sellers that are left.
In August the top performers were Chilliz, Atom, and GMX, followed by ETH.
ATOM
- Cosmoverse conference end of September, announcing ATOM tokenomics redesign
- hype surrounding launch of Interchain Security which will have consumer cosmos chains use the ATOM validator set to launch, allowing ATOM stakers to receive more fees from various chains
- speculation on use of ATOM as a settlement layer & value accrual through IBC fees
- here’s a good interview from the Delphi guys talking w/ Zaki about Cosmos’ history and path forward
Chilliz
- hype surrounding beginning of futbol season and world cup later in November
- CHZ launching their own L1 that will host all of their partnerships/collaborations with teams and fans, creating an ecosystem for them all to use alongside each other
- one of the few chains that has a large target market using their products already
GMX
- decentralized derivatives platform on Arbitrum, one of the premier L2s for Ethereum
- user growth, revenue growth, platform fees all have been trending up steadily throughout the bear market
- if they are able to even dent a portion of the CEX derivatives market a tad then this has a lot of upside
- profit-sharing is also redirected back to stakers/users of the platform which is very rare
- just recently broke out to all-time highs on usd & /eth pairs
- this project has been threaded about on twitter incessantly so I won’t go into much more detail, this contains a lot of the more specific information
This market is very different from 2021 as a lot less alts are going up, money is spread much thinner than it was last year. Narratives are driving a lot of the rotations here so if you’re actively trading this would be sure you are picking the right coins to be in.
Ze’ Merge
We have one of the most important network upgrades in crypto occurring during one of the worst macro backdrops possible, ETH 2.0 vs. global growth slowdown. There will be a ton of eyes watching this event whether you are long or just spectating on crypto from afar because it’s success would show meaningful technological advancements, but also seeing the most speculative asset class decouple to the upside given the current conditions would be very surprising for most I imagine. Instinctually this is one of the clearest sell the news events in my mind, and personally I’ll probably be de-risking any long positions ahead of time if not shortly after, but I do think there’s a possibility that we actually continue trending up if there’s enough momentum.
Three main camps:
retail
- 600M+ liquidations in the past few weeks after the selloff from $2k, wiped a lot of the fomo longs from the lower cpi print reading
- given funding has been consistently negative since the last selloff don’t think there are a lot of people long here, they will likely be chasing w/ lev longs going into the event if market turns around
crypto natives / native funds
- mostly spot long & are the ones who put in the lows absorbing 3AC & co’s selling, probably good amount of them hedged via futures on BTC [long ETHBTC synthetically] or on ETH futures
- don’t think this cohort is really in a rush to sell if they plan on holding through the event, probably unwind hedges + wait to see what market does after dumping the forked tokens they receive
tradfi funds / high NW individuals
- slant for most tradfi ppl is predictably bearish, given the current economic situation and the recent blowups we’ve seen in crypto this year I don’t think there are many people excited to be long one of the most speculative asset classes if they weren’t long already
- this is the group that could be buyers after the event in my opinion, depending on how stocks look around this time
- merge date around Sept. 15 is right around the FED’s September FOMC meeting on the 20th so it’ll be interesting to see the volatility that week and what gets bid / de-risked
Overall a successful merge could be an event that shifts momentum, but specifically it’ll be a great catalyst for drawing attention to rollups, of which there are a ton launching tokens and incentive programs the next few months. Arbitrum Odyssey in September, Starknet targeting September token launch, zkSync targeting end of October, and Optimism Bedrock/Fuel/Scroll/Polygon Hermez all around the corner as well. The reason I say it’s most bullish for rollup activity is that the merge is the first upgrade of many to optimize Ethereum to be a performant data availability + settlement layer, and to shift most execution to rollups. For ETH to maintain its’ current mainnet fees and estimated p/e ratios that analysts have been predicting, rollup activity has to increase significantly first; so the L2s and their tokens should get a large windfall as activity moves over. It’s definitely worth it familiarizing yourself with these other rollups’ testnets before their mainnet launch, so you can look into some of the projects that will be the first to launch (and also possibly get some airdropped tokens).
Mr. Hayes has outlined some of the trades you could take if you are bullish going into the merge the next few weeks in his post ETH-Flexive. Timing on these should be decent r/r here as we aren’t far off the lows + you should see today with how trad indices respond to the economic data if we’re reversing this short-term downtrend of the past three weeks.
Other cool stuff
Sei Network testnet
DeGods & DUST + y00ts launch
Quicksilver planned token airdrop
PASG chain launch
Agoric public launch
NEARcon September 11-14th & Sweatcoin app launch
Secret Network + Shade Protocol LP campaign launch + SHD bonds
DFK migration to Klaytn
Kujira stablecoin launch
XMON → Sudo tokenomics info
DPX & Atlantic straddles
Premia v3
Thanks for sharing
Thank you for writing this piece. Very informative!