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January 8, 2021

Weekly Market Wrap

According to the Chinese zodiac, 2021 is the Year of the Ox, which officially starts on February 12. However, it appears that the market is well ahead of the curve and kicked off the year on a very bullish note.

So much so that year-to-date, Bitcoin is up 31 percent year-to-date (YTD), Ethereum is up 64 percent, and Stellar is up over 100 percent, in part benefiting at the expense of XRP in the wake of the ongoing lawsuit with the SEC. In broader terms, large-cap assets are up 28 percent, while the small-cap MVIS index is up 36 percent.

MVIS CryptoCompare Digital Assets 100 Small-Cap Index

To infinity … and beyond

This express train to the moon derailed shortly after Bitcoin moved above $40,000, careening down to nearly $36,000. For sure, this was a significant move, but the upside has been equally impressive and, for the most part, one-way traffic. Optionality has been in play and caused the spot price to squeeze ever so higher.

The market focus is firmly on $36,000 expiry strike coming up at the end of January, given the open interest (OI) and related gamma hedging play until then – but, in the meantime, it is worth noting the decent size January 8 expiry is biased towards $40,000 calls, the January 15 expiry towards $20,000 puts, and the January 29 expiry is biased towards $36,000, as well as $52,000 calls.

Equally, for Ethereum, the options market is growing from strength to strength, in part due to the soon to be launched CME futures products, with options likely to follow. On that note, recent call buying has been very aggressive, evident was the demand for a $2,240 strike expiring at the end of January, especially considering spot is trading at $1,200, which is still 15 percent off it’s all-time high print.

DeFi’s long game

Looking at the Decentralised Finance (DeFi) ecosystem, total value locked has now risen to over $20 billion, with Maker accounting for $4.17 billion, Aave with $2.78 billion locked, and Uniswap with $2.70 billion.

Maker’s native token MKR is up 87 percent YTD, and the surge higher was in part helped on by a recent approval of an executive vote to increase debt ceilings for a variety of vaults (where a user deposits collateral and generates DAI) to keep the peg intact, which itself was prompted by the sharply increased supply in DAI. Allied to this, the move higher was exacerbated by a technical break-out after range-bound price action that MKR for an extended period.

This price action goes to show that DeFi tokens may be trading particularly cheap relative to non-DeFi counterparts, especially given the revenue trajectories of some of the leading protocols. Furthermore, while the rotation trade out of XRP seemingly benefited LTC, XLM, and ADA to some extent, capital inflows into DeFi assets of the same magnitude are yet to materialise even as the total value locked in the ecosystem has now topped $20 billion.

As it stands, based on the diluted market capitalisation, Uniswap is valued at $6.3 billion, followed by Synthetix at $2.58 billion and then Curve at $2.40 billion. Sushiswap trades at a mere $955 million, despite being the second-largest revenue earner in the DeFi ecosystem.

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