Stormrake - Insights #GMX

Dissecting The Crypto Market Surge of 2023

Tue, 31 Jan 2023 14:26:12 +1100

The Rake Review: January 2023

A Bull Trap or the Start of a New Bull Market?

It brings us great pleasure to write this Rake Review on a positive note after a terrible 2022. 2023 has started well, with a rebound led by Bitcoin, that has spread to the Alts. BTC was a mere $16.5K USD and ETH was just $1.1K USD when we wrote the Rake Review last month. Now BTC is $22.8K USD and ETH is $1.5K USD.

Crypto Twitter (CT) has quickly turned from doom and gloom to positivity and predictions. How quickly sentiment can change. Just when you can’t see any hope, you get a glimmer of light through the window that turns into a great new day. The greed and fear index has even passed the 50 /100 point. This was as high as 61/100 yesterday. It was 6/100 on the 19th June 2022 after the fallout from the LUNA collapse.

The Alts are also rallying, led by AI coins. As you may be aware Artificial Intelligence (AI) is the talk of the town. A series of technological breakthroughs coupled with the public release of several AI tools has brought the power of AI to the world. Public schools have resorted to banning AI for their students because homework can be completed by your friendly AI bot in 2 minutes flat. ¾ of jobs may become obsolete over the next 10-20 years with everything from copywriters to graphic designers in the firing line. As a result we felt that the next narrative in Alt coins may just be AI backed projects.

We tweeted a thread that listed AI coins of interest on the 3rd of Jan and they have taken off. Projects like FET (Fetch.ai) have gone 2.5x in price since that tweet. Is there more to the AI trend? Time will tell. One thing is for sure, in this market you want to be speaking to your broker regularly!

Many have been wowed by the abilities of #AI recently. Did you know there are already many AI #crypto projects? Here are some already available through your Stormrake broker: pic.twitter.com/CCGihym5sX
— Stormrake (@StormRake) January 3, 2023

Bull Trap?

A bull trap is a false signal. It sucks investors in through a temporary positive move. The move "traps" traders or investors that acted on the buy signal and generates losses on resulting long positions. Many investors are rightfully asking the question of whether this current month's positive move is just a bull trap. Am I being suckered into buying a loser?

Proponents of this line of thinking point to the fact that interest rates are still rising. The US Fed is signalling more rate hikes and the RBA is likely to keep raising for some months. A major recession is still on the cards with some major indicators already showing problems in the US economy. In this environment shouldn’t you wait and see and look for opportunities to buy if things get worse?

Also, you would not expect Bitcoin to ever go straight up. Even in the crazy days of the 2017 bull run you still had multiple significant drawdowns.

Finally, it’s too early. The 4 year cycle has played out quite nicely over the last 10 years. Bull Runs were 2013, 2017 and 2021. Wouldn’t you expect a 2025 Bull Run post the halving in May 2024. 2023 may see a crab market i.e. sideways movement.

A New Bull Market?

Each halving cycle is a little different and the halvings become less important over time. That’s because each halving is half the impact of the previous one.

What’s important is the stage we are at in the market cycle. We have seen 2021’s top, 2022’s Anxiety, Denial and Sheer panic. We may have even seen an overreaction due to the collapse of FTX and the Anger stage. We have since had sideways action and December's outright depression. But is January the disbelief rally? Proponents of the “New Bull Market” view would argue that this is indeed the disbelief stage as investors refuse to believe that a new run is beginning.

From a macro perspective, it's true that interest rates may rise further and mortgage stress continues to build up, but there is another factor that needs to be considered. Those very same interest rate rises create a problem for the US government (and others). That problem is that with a 31.5 Trillion USD debt (that's only government debt) repayments become increasingly expensive. Estimates vary but the US might be paying well over a Trillion USD in interest this year. That’s more than double the amount that the whole country receives in corporate taxes. Here’s a dashboard view:

With the US Debt to GDP ratio of over 130%, there is no hope of paying back that debt. But it's worse than that, with over a trillion dollars in interest the US risks being forced to print more dollars at a level not seen in its history and in turn may cause a devaluation of the dollar against everything with a better supply schedule. That’s when BTC moons.

Barry Sternlicht explains below:

#Money Supply, #Rates & #Weimar https://t.co/A4RQppAyA6
— Stormrake (@StormRake) January 31, 2023

To add to that, the Democrats recently proposed an end to the debt ceiling in the US. This would mean an end to the regular arguments over the next debt ceiling and allow debt to balloon. If this was to happen we are even more likely to see money printing occur in the US. That’s when you want to have your money in something with a known supply schedule that can’t be changed.

Bull Trap or Bull Market: Either way clients of ours that bought under $20K USD (You know who you are) are currently sitting pretty. The important part is that people that had the conviction to buy in the midst of the FTX debacle really do deserve their gains. Luckily, it’s not too late for everyone else...

Market Update

Here is the fast five of what you need to know about the crypto market in January 2023:

Bitcoin has put in a heap of work to start off the new year and has had a resurgence in market cap dominance. Bitcoin has risen by 37.5% at the close of the month and has generally led each market rally. It has slowed down after a retest of $24,000 USD but looks primed to make a move higher should it close above the all important $25,000 level.
Ethereum continues to underperform against Bitcoin but has managed to put in some work. During the month of January it has gained an impressive 31%, the cause of the under can mainly be chalked up to fears surrounding the Shanghai Upgrade. This ETH upgrade will allow for staked ETH to be finally withdrawn and the market assumes there will be plenty of selling to realise profits.
The total crypto market cap has surged past the all important 1 trillion USD handle, having added $233 Billion USD in the month of January. Another month of similar inflows and the total crypto market cap will reclaim levels not seen since May 2022. This was when the market was embroiled in the Luna/Celsius/BlockFi collapse and would indicate a real shift in the market sentiment.
The best performing coin for the start of the new year is currently Aptos having put in a gain of 393.2%. This is an alternative layer 1 touted as an ETH killer and has plenty of venture capital support and although the performance is quite impressive, we encourage caution. The price action is a common bull trap and provides exit liquidity for VC funds.
The worst performing token for the month was Chain Token (XCN). This is primarily due to a previously well established arbitrage opportunity between a number of exchanges having been broken and very little demand for the token itself.

Video of the month

Vance Spencer, Co-Founder of Framework Ventures joins the Bankless podcast to dissect whether we are in a bull trap or bull market.

Please note that this Video of The Month is nearly one hour in length.

In the news

Swyftx abandon merger plan with share trading platform Superhero
Elon Musk wants Twitter to support crypto payments
Genesis filed for bankruptcy and the wider crypto market shrugged it off
Bitcoin has erased all post-FTX related price depreciation
Valkyrie Investments wants to manage Grayscale Bitcoin Trust
DefiLlama launches DEX aggregator to much fanfare
Gemini and DCG CEO's duke it out over Twitter claiming fraud and bad practice
AWS partners with Avalanche to scale blockchain solutions

Education

In this month's education section, we are going to layout a basic foundational understanding of narrative trading. We will conduct a deeper dive in an upcoming Thunder Trading Article.

What Is Narrative Trading? And why is it important to understand?

Crypto and the global financial markets in general is primarily dominated by cycles - think BTC halving → bull run → bear market → bull run → etc. This isn’t a unique quality inherent to crypto but is instead a trait that can be seen across any market in general.

But in these cycles, there are “mini-cycles” otherwise known as rotations in which certain “themes” of tokens gather extreme momentum, with some recent ones being the DEX Narrative post-FTX or the L2 narrative. All of which we have covered extinsevely in our articles, most recently covering Arbitrum and GMX. These rotations and pumps are quite crypto-specific, as the crypto markets are quite inefficient and mispricing between exchanges is a regular occurrence, as well as rumours being generated by crypto twitter move extremely quickly and reflect on the price chart.

No one really knows how they come about, nor is it necessary to. Narratives are a function of price - i.e price almost always moves before the narrative arrives. Most of the time, people will come up with “reasons” price moves in a certain direction, and that reason - be it true or not, will be the overarching theme. Think of the recent GALA pump - why it happened is secondary to the front-running that happened afterwards with SAND and MANA, as people slowly internalised that we were having a “metaverse pump”.

Another narrative that has sprung up in late 2022 and continues to gather momentum is the "AI token" narrative, riding the coat tails of the cultural zeitgeist that is OpenAI and ChatGPT. This sector and rotational pump into AI tokens goes to show how uniquely inefficient crypto markets can be compared to their TradFi counterparts.

For a stock or company to change lanes into the AI sector, heaps of SEC filings need to be made and compliance checklists have to be ticked off, whereas a protocol or blockchain can simply tack on AI elements or even simply change their name to include AI and it will be considered an "AI token". We highlight these narratives and inefficiencies not to disparage the crypto markets but to show how hyper vigilant one has to be if they wish to outperform a benchmark such as Bitcoin or Ethereum.

In essence, trading narratives is all about identifying broader trends in the media and macro environment and then extrapolating which tokens/coins can be impacted by these events. You can then build yourself a bullish or bearish thesis on the direction of the impact and start deploying your strategy. It's also handy to give your Stormrake broker a call.

Memes of the month

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The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

Disclaimer

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Macro Olympics Will Bring Volatility

Mon, 12 Dec 2022 11:13:38 +1100

Bitcoin has been stuck in a near 3% range for the entire month of December, this tight range is set to be broken as the macro olympics commence. This includes headline inflation print out of the US and interest rate decisions from the BoE, the FED and the ECB.

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

Packed Economic Calendar

We start the week with some data out of the UK and AUS, these won't be large market movers but should provide some life for local markets to start moving. The major headlines kick off mid-week with the release inflation data out of the US and the FOMC meeting set to occur within 6 hours of each other. For us traders on the east coast of Australia means no sleep but we eagerly anticipate the volatility, so its welcomed.

The setup is quite simple from a headline perspective, if we get US inflation print less than 7.1% and receive a 50bps or less rate hike out of the FOMC, risk assets and Bitcoin will have. a substantial move the upside. A possible reclaim of the $20,000 USD is on the cards for Bitcoin in this scenario. The risks are also clear, if we get a greater than 7.7% inflation print and a greater than 50bps rate hike, risk assets and Bitcoin will get sold off heavily. This scenario can trigger a breakdown of the lows set for 2022 and print fresh new lows for the year.

Altcoin Watch: GMX

Interactive chart: click on image for higher resolution

Crypto prices and sentiment both in a deep winter yet GMX continues to make new all time highs against both USD and ETH denominations. Whilst it remains in this expanding channel and holding above the $53.85 USD handle, it can print a new all time high at the $64 level. For those looking for value, a breakdown below $53.85 can have it retest $49.14.

As GMX plays an integral role in the continued growth of Arbitrum, it's a decent way to attempt in capturing value from a speculated Arbitrum token airdrop. As it stands now Arbitrum has an approximate total value locked of $1.1 Billion USD, of which GMX compromises 40% of that value captured.

BTC/USD Key Levels

Interactive chart: click on image for higher resolution

Bitcoin continues to remain locked in an incredible tight range. Throughout the weekend it peeked above our key level of $17,189 USD but failed to close above that on a daily chart. If it manages to close above $17,189, it sets up a move to the key resistance level of $18,217. If macro economic news is healthy, it can even retest $19,673 by end of week. To the downside, if we close below $16,500 then major support is found at the local lows of $15,588.

ETH/USD Key Levels

Interactive chart: click on image for higher resolution

Ethereum continues to struggle with our key level of $1,300 USD as it eyes a move higher. Should it finally close above $1,300 on the daily chart, the next major resistance level comes in at $1,386. If macro events turn positive then a strong move $1,555 cannot be ruled by end of week. To the downside, if it closes below $1,190, then a retest of the local lows coming in at $1,071 is on the cards.

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The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Disclaimer

FOMC Announcement Awaits Crypto Bulls

Wed, 02 Nov 2022 11:19:42 +1100

There are only two meetings left in the 2022 FOMC calendar. Today will provide a signal whether there will be any relief in 2022 for risk assets. Should we get a light rate hike, a Christmas rally would definitely be on the cards.

Carrot or Stick - JPow will decide

The RBA fired out a soft 25 bps rate hike whilst Australia gathered to watch a horse race. The rhetoric from RBA Governor, Philip Lowe was a lot stronger and created a rift between actions and words. This divergence between trying to talk markets down and having a soft rate hike caused the AUD to weaken and the ASX to catch a strong bid. Although the RBA never leads the FED in policy, it can give us an indication of what we can expect tonight. If FED chair, Jerome Powell comes out tonight with sub 75 bps and a strongly worded speech about continued rate hikes, we might just see the early signs of softening policy. We're not calling for a "FED Pivot" just yet as that may be premature but we're quite close to apex rates.

Altcoin Watch: GMX

Interactive chart: click on image for higher resolution

Lately we have been covering the Ethereum L2 landscape, where we have provided education on, "what is a layer 2?" and a potential Arbitrum token airdrop. All this research has given us an insight on which protocols and dApps have the best chance of capturing some value and attention. This brings us to GMX, the decentralised exchange that has the most on-chain activity on Arbitrum and accounts for more than 40% of its total value locked (TVL). Without having to expose oneself to the risks of bridging ETH assets over to Arbitrum, one could gain exposure to the ecosystem, through GMX exposure.

Diving into the technicals, the first key level comes in at $42.39, if we can close above this level we can anticipate a retest of $45.67. To the downside, if it closes below $40.85 then the next major level of support comes in at $38.05.

BTC/USD key levels

Interactive chart: click on image for higher resolution

Bitcoin currently sits a few ticks below our pivotal key level of $20,554 USD and will likely get retested several times heading into the FOMC meeting. If we hold above this level, we can quickly shoot towards $21,761 as the first level of resistance, which if we manage to clear can have us track up to $22,794.

To the downside, if we close below $20,554 on the daily chart, we'll be anticipating a retest of our previous magnet area of $19,560. Losing $19,560 can have us spiking lower towards the local low of $18,161 before we find support.

ETH/USD key levels

Interactive chart: click on image for higher resolution

Ethereum has hit a snag and now trades sideways, for it to continue its strong lift in prices, it will need to close above $1,664 USD. If it reclaims $1,664 then expect a strong push to $1,761 which provided a huge level of support until it broke down in mid June 2022. When support becomes resistance, from a technical perspective it's generally a pretty sticky area but if we clear $1,761 then its clear skies ahead.
To the downside, if we close below $1,555 then a retest of $1,472 cannot be ruled out. Losing the 2018 high of $1,472 can have us retest $1,333 if the downside momentum is strong enough. A severe sell-off is likely to come on the back of an aggressive rate hike out of the FOMC meeting.

No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.