In this week’s episode of In the Markets, Ben Grigus, Director of Product at FalconX, joined Teana Baker-Taylor to discuss what FalconX are witnessing across their client base. They explore the chase for yield amongst financial institutions, recent borrowing and lending trends, and the true cost of yield in crypto.
A surge in Interest from Traditional Finance
There has been a surge in trading interest over the last couple of weeks from traditional financial institutions, a bump that Ben credits to a renewed excitement around BTC and some notable altcoins.
(01:21) “We’ve seen a little bit of healthy consolidation given the run-up that we’ve had earlier in the year and we’re starting to see some of our larger institutional clients, be it traditional asset managers or larger crypto native hedge funds begin to step back into the market and take longer-term bullish positions both in BTC as well as those altcoins,” Ben explained.
Breaking ETH’s resistance
ETH has seemed ready for the past couple of weeks to break resistance at USD 2,700 but, BTC dominance may be pulling it back.
(02:10) However, there is generally a positive market sentiment about ETH. Goldman Sachs recently announced the prospects of introducing ETH
derivatives. Institutional clients as well continue to be excited about the value proposition of ETH more broadly.
(02:30) It (ETH) does seem primed for a breakout but, if you look at
where BTC dominance was two or three weeks back, a little more dominance makes sense. I do think the narrative for both BTC and ETH is cautiously bullish over the coming weeks and months,” Ben explained.
Why Alts have Surged in the past 72 hours
There has been some appreciation in the value of notable alts, especially in the last 72 hours which Ben believes is a result of the excitement of assets managers around the convexity of some of these other coins.
(03:33) “There is a tremendous opportunity to purchase BTC and to own it. The forecast for that is strong over the long term but, people also see potential use cases for some of these DeFi tokens. There is also an interest from a convexity point of view. Clients are looking at these alternative coins and seeing the possibility for much larger returns in the months ahead,” Ben said.
Elon and Bitcoin
(04:00) Elon Musk may be changing his tune again and has recently announced that Tesla would be accepting Bitcoin for payment once uh bitcoin’s power-hungry miners go halfway green well.
(04:20) The market after the news on Sunday saw a jump in the price of bitcoin. Despite the jump, Ben believes the temporary volatility in BTC price is less important than the message that has forced the industry to tackle an issue that it had long ignored.
The concern about the broader power consumption required for proof of work mechanisms like Bitcoin is not a view only shared by Elon but also some of Falcon X’s corporate treasury clients and big institutional investors.
(05:08) “At the end of the day, I think the message was resoundingly positive and, it forced the industry at large to address a concern that was living beneath the surface and, hopefully, it’ll be positive in the
medium to long term for both BTC as well as the broader acceptance of crypto,” Ben explained.
Borrowing and Lending Trends
A recent statistic suggests that 1% of all circulating Bitcoin supply has been wrapped into WBTC. This suggests an increasing demand for yield assets, even amongst large institutions.
Even though crypto yield assets promise more returns, traditional finance continues to probe for what the risk-adjusted yield for crypto truly is.
(07:32) It depends on their risk tolerance and what their risk preference is, Ben argues.
For large institutions from traditional finance, it is usual for them to ask such questions when a yield looks too good to be true.
(07:54) “Who is the end borrower of this and, does it make sense for me to chase
15% to 20% yield if the end-user is unknown or, should I be electing for something in a 5% to 12% range where I’m only lending to a broader institution or, I know that my assets are being over collateralized,” Ben said about questions from traditional finance.
Whether one of optimizing for safe or more yields, crypto optionality for both ends of the market.
(08:39) “Even on the conservative end, the rates are substantially higher than what you would find in traditional finance. I think it’s exciting and, hopefully, it’s the beginning of the new era in yield,” Ben said.
Bitcoin Price at End of Q3
(09:22) All other things being equal, Ben believes BTC would continue trading at a premium. Despite the recent consolidation, not a lot of people are taking short positions on BTC. Instead, traders are taking a step back and identifying where the best opportunity for alpha lies.
(10:14) “Over the past three or four days, we’ve seen some of our largest clients take very large positions on the long side of things. That all said, it is needless to say I’m bullish. Let’s call it USD 60,000 by the end of Q3,” Ben concluded.