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May 28, 2021

Crypto RFQ

This week in the markets w/ Crypto Finance AG’s Patrick Heusser

Featuring

Patrick Heusser
Head of Trading, Crypto Broker AG

In this episode of This week in the markets, Patrick Heusser Head of Trading, Crypto Broker AG reviewed the past week in crypto with host, Paul Gordon.

Triggers For the Past Month Events.

The events of the past month in the crypto markets were a result of several factors, rather than a specific trigger, Patrick believes.

(01:27) Patrick shares a similar perspective on the subject with the Head of trading at Alameda research who said in an interview when asked about triggers that the market had gone a little bit ahead of itself in April seeing a lot of leverage coming back even though the bitcoin dollar price didn’t move too much.

(02:04) Ether got a lot of attention, making almost a 100% jump in a short time and was dragging the market up.

The first trigger of the sell-off was the liquidations which coincided with news from China about regulators clamping down on “dirty mining.”

(03:07) “…when the market is already weak on the derivative side by being hit on a lot of liquidations, if spot sellers come in, the market can just not handle it,” Patrick added.

Then came a second wave where both BTC and Ether were going down but Alts were having a stable performance but suddenly the Alts also came crashing down.

Some Good News

(03:07) In the myriad of down news came some glimmers of hope. Goldman put out a comprehensive report announcing cryptos as an asset class. Esteemed investor, Ray Dalio has had a lot of good things to say about crypto and Carl Icahn is prospecting to invest about 1 billion to a billion and a half dollars in the space.

An Overdue Consolidation

Patrick believes the happenings of the past month are a result of an overdue consolidation but is not sure how long it will take.

Although regulation is needed to accelerate the growth of the digital asset space to allow incoming commitments from traditional finance, it would take time, Patrick said.

(07:03) “…there’s no way this market can grow further at that pace without having some sort of regulation so that the money that is trying to flow in can do so and regulation as I said before it usually takes longer than what everybody thinks so that consolidation might take a little longer,” Patrick added.

(07:26) Patrick predicts the winners would be visionaries who go in big and invest even at this point where there is a lot of uncertainty in the market.

(08:20) “…the bridges between traditional finance and crypto or decentralized finance are getting built and it’s good that we have consolidation phases because it gives people time to develop. After all, when the market is so crazy, no one builds. Everybody is just trading,” Patrick explained.

Scalability and UniSwap Version 3

(09:41) UniSwap v3 was badly needed due to the capital efficiency that is the biggest advantage, Patrick said. With more capital efficiency, comes much deeper liquidity which is needed to compete when dealing with big institutions.

(10:17) “It’s a solid foundation that the decentralized exchanges are getting to a stage where they’re going to be as liquid as centralized exchanges so there is almost no difference between executing a large trade or a centralized exchange which is a very good development in my point of view,” Patrick explained.

(10:36) Scalability is still a problem, as Ethereum, the host blockchain on which UniSwap, was clocked up with super high gas fees, Patrick said.

(10:54) “…there are other solutions out there and let’s name it. The Solana ecosystem is working and it worked well during the crash. We have the Terra-luna system which worked kind of okay, and then everybody seems to kind of forget about the Iota project which is also very cheap in fees and very high speed in transactions…we just need to figure out how we can build bridges between the different blockchain ecosystems,” Patrick explained.

Already there exist bridges between Solana and Ethereum, Ethereum and Polkadot. Patrick believes, the maturity of these connected systems is just a matter of time, and when they do mature, issues like those we see when the market crashes would cease, and scalability would not be a problem.

Closing the Gaps in ETH

Crypto Broker AG manages its internal portfolio to have an “ETH hedge” instead of an Ether killer because it doesn’t think that exists, Patrick said.

(13:25) “Some of these projects in market cap terms have some potential to close the gap to ethereum and it’s just a matter of how you deploy your capital between these tokens but it’s worthwhile,” Patrick added.

While the improvements to come on Ether, including a new proof of stake mechanism, looks good on paper, its implementation would show how good they really are, Patrick said.

Futures Funding Rates & Contango

The sharp decline in Bitcoin Contango is a pity because it was a money-making machine for most trading desks, Patrick said jokingly.

(15:50) The decline shows that we are at a neutral point in both price and hype, and adds up to the list of reasons for consolidation.

Although the market has no clear bullish or bearish stance, the futures curve is not entirely dependent on them. A lack of dollar in the market would favourably allow the contango to prevail ahead of backwardation

(16:38) Traditional asset managers who reached out to Crypto Broker AG in February and April showing interest in contango have had their interests waned but Patrick believes dexs would jump at these trades again when the prices come up.

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Paul Gordon
Following a 20+ year career in financial markets, Paul first became interested in Bitcoin in 2011 and helped to establish one of the world's first Bitcoin meetup groups, Coinscrum, in 2012 since when he has grown the community to over 6,500 members, hosting over 250 events and introducing many of the leading projects and thought leaders in the industry.  Paul currently produces the weekly Coinscrum Markets video podcast series and is an active investor and advisor to a number of crypto and blockchain related projects.

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Crypto-tokens and equity investments are high risk in nature and you should always take the advice of a professional financial advisor from within the jurisdiction in which you reside before making any investment decisions.

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