Stormrake - Insights #Layer2

Narratives Fade But Bitcoin is Forever

Tue, 28 Feb 2023 13:53:26 +1100

The Rake Review: February 2023

A New Market Regime

As summer draws to a close we’re excited to share some positive news from the world of crypto. February saw Bitcoin hit a new 2023 high as sentiment did likewise. We are trending sideways, however those that bought BTC sub $20,000 USD & ETH sub $1,300 USD are now laughing. They have effectively set-up their 2023 nicely.

We are in a Buy the Dip environment that rewards those that have high conviction and are not afraid to buy when others are fearful. The market seems to be bouncing back after every dive rewarding steady investors. On the below chart, You can see the gain some investors made if they bought almost anytime during the panic created by the FTX collapse. Of late, the second DIP was erased very quickly and BTC went on to greater highs.

Narratives

We have kept a very close eye on the narrative games being played out in 2023. The biggest narrative so far has been Artificial Intelligence (AI) coins. After ChatGPT became an overnight sensation, reaching 100 Million users faster than facebook and TikTok, AI related coins started to pump. By the start of February, new coins started popping up claiming to have the latest AI tech (Ala Bullruns of 2017 and 2022). However, it can be challenging to differentiate between genuine projects that are building innovative technology and those that are simply trying to pump up the value of their coins. So it was a dangerous game. High risk, high reward. Here’s the 3 month chart for one of the biggest pumps - ImgnAI:

As fast as it came up, the narrative has disappeared and left behind many bagholders. The new narrative is China. Chinese Crypto’s such as Filecoin, Conflux, NEO, VeChain and Phoenix Chain have been pumping. The Chinese narrative is based on a huge cash injection of $92Billion USD worth of Yuan to help stimulate the COVID-19 hampered economy in China. As a result, everyone is trying to work out how this will affect markets. Either way it's trading not investing. For the long-term investor - short term narrative trading is a minefield. You may succeed but more likely you will be distracted from the real goal which is to accumulate Bitcoin and grow wealth slowly.

Bitcoin has been growing 200% per year on average and incredibly, that is still too slow for a lot of people as they chase greater opportunities. The downside of chasing 3-5x returns is that you are taking on a tremendous amount of risk and that risk could one day bite you hard. At that point you will say the often repeated words - “I should’ve just bought Bitcoin and sat on it".

As the people of Lebanon recently learned after their currency was devalued 90% in a day, you can’t trust your government to look after your best interests. That 90% was not even enough. The true market value of the Lebanese Pound is actually a lot less than the current official rate. Even prior to this, we saw people breaking into banks to try and make a withdrawal from their own accounts. Now we have people taking to the streets and setting fire to the house of the President of the Banking Federation. Imagine waking up and realising that you have lost 90% of your retirement savings? How would you feel?

February also saw riots in Nigeria where cash is being outlawed. Cash was the only way poor people could transact. A government issued currency where the authorities can decide who gets a bank account and who doesn’t is a way to control the population. But it won’t ever happen in the West - our government doesn’t want to control us. Right?

Bitcoin is not just an investment in your financial future. Bitcoin is a decentralized financial system that prioritises freedom and protects property rights. Bitcoin is Forever.

Market Update

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

Bitcoin has seen plenty of intra-day volatility this month and has put in a 15% range from peak to trough of the monthly low to high. Despite all of this volatility Bitcoin has only risen 1% for the month with the monthly candle showing a lot of indecision around direction.
Ethereum has risen from its underperformance against Bitcoin and has risen 3.9% for the month of February. There are some headwinds coming up with the Shanghai upgrade but for now the momentum is in Ethereum's favour.
The total crypto market cap has maintained the all important 1 trillion USD handle, having added $25 Billion USD in the month of February. We will continue to monitor inflows and watch the 1.30 Trillion USD handle as a clear signal of a secular bull market confirmation.
The best performing coin for the month of February is Stacks (STX) which markets itself as Bitcoin DeFi. The reason for the strong outperformance is due to a new technology called Ordinals enabled via Taproot. Although there is no direct link between Stacks and Ordinals, the drivers of speculation remains the same.
The worst performing token for the month was Aptos (APT). This is driven on the back of VC firms and early stage investors using last month's APT pump as attractive enough valuation levels to exit their initial investment. In last month's Rake Review we warned that this could happen and hope our readers took necessary precautions.

Video of the month

Molly Templeton, an internet enthusiast explained what Bitcoin is over 10 years ago when a single Bitcoin was only worth $20.

Our recent Videos of the month have been 2 hour plus affairs.
This month we want you to enjoy this informative yet lighthearted explanation on the greatest money mankind has ever known.

In the news

Jump Crypto just counter-exploited the Wormhole hacker for $140 Million
SEC sues over TerraUSD stablecoin that rocked crypto as part of crackdown
Optimism airdrops it's second release of tokens to OP network users
U.S. SEC targets crypto 'staking' with Kraken crackdown
The Australian government opens up proposals to its token mapping program
Robinhood received crypto related subpoena request
RBA Chief grilled over shock rate rises. He promised Australian rates would be low in 2023.
Coinbase launches Layer 2 blockchain called Base

Education

In this month's education section, we are going to layout a basic foundational understanding of Liquid Staking Derivatives (LSDs). We will conduct a deeper dive in an upcoming Thunder Trading Article.

Let's first answer the questions; what are liquid staking derivatives and why is it important to understand?

The Ethereum network is validated by users who stake their ETH in a special staking contract. There is currently no way to un-stake from this which means stakers have effectively lost liquidity over their ETH assets, until Withdrawals are enabled via the Shanghai upgrade. Liquid Staking was invented as a derivative market, whereby liquid staking providers offer a receipt token known as a Liquid Staked Derivative (LSD).

This LSD token can then be traded on secondary markets, and is similar to most other crypto tokens as it is fully fungible, transferable, fractional, etc.

LSDs essentially unlocks the liquidity of your staked ETH, as it has a similar value of the underlying staked ETH that is temporarily locked. Using the LSD token essentially allows you to indirectly use your staked ETH in DeFi activities such as selling, providing liquidity, lending it, using it as collateral, etc, to earn additional yield on top of the staking yield that you earn.

Now with that understood, we need to ask ourselves who are the Liquid Staking providers?

Liquid staking providers offer liquid staking features to help you unlock the liquidity of your staked assets. In return, most liquid staking providers take between 5-10% of the staking rewards as their revenue for providing this service.

After the Shanghai upgrade, ETH LSDs will be even more popular as the risks and inconvenience of staking ETH will be reduced. More ETH LSDs also means more revenue generated for liquid staking providers, which is bullish for the liquid staking sector.

In anticipation of this, MetaMask has also integrated staking directly on the wallet, making it more convenient for users to stake their ETH and earn around 5% yearly rewards in ETH. They currently support Lido and Rocket Pool which are the two largest decentralised solutions available.

We will conduct a deeper dive into LIDO and how their liquid staking solution called stETH works in a later Thunder Trading article. For now, what is important to understand is that Lido is by far and away the largest liquid staking solution in the market and for good reason, they were one of the first to innovate and release their own staked ETH solution.

To give some context around their success, here are some key stats to note. Lido is currently the top protocol on Ethereum in terms of "Total Value Locked" (TVL) with over $7 billion. This is around 9x their next competitor, which is Rocket Pool at around $0.9 billion TVL. Lido currently owns 28% of all ETH staked and 72.9% of the liquid staked ETH market share.

There is currently no way to move liquidity from Lido to other LSDs, so it will be interesting to watch the campaigning of these projects in the lead up to the Shanghai fork, as well as the flow of liquidity afterwards.

In summary, Liquid Staking Derivatives such as LDO and stETH are here to stay and will be a mainstay in DeFi for many years to come especially after the upcoming Shanghai upgrade.
Watch this space as it continues to dominate the Ethereum landscape.

If you want to invest in Lido or Rocketpool tokens see your Stormrake broker.

Memes of the month

Can we add "AI" to the name any project now?

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If you enjoyed this Rake Review, feel free to open an account and gain access to more proprietary research and work with your very own dedicated crypto broker.

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.

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

All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.

Copyright © 2022 Stormrake Pty Ltd, All rights reserved

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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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.

Disclaimer

Relief Rally Lifts Risk Appetite

Thu, 24 Nov 2022 11:37:42 +1100

Crypto markets have taken a pause from relentless selling as participants assume most market contagion has been identified. The relief rally has brought along with it an increased risk appetite as traders and investors find ways to claw back losses from a brutal 2022.

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.

Altcoins Catching Bids

Interactive chart: click on image for higher resolution

A wild variety of altcoins have recently caught some attention and have been getting a nice lift in market prices. It includes Proof-of-Work asset, Litecoin as it has recently undergone it's own halvening cycle and had it's supply emissions reduced. DeFi token, Curve has recently undergone a short squeeze, as Aave (lending protocol) has been exploited. The attacker borrowed a significant amount of CRV tokens by posting USDC as collateral and let the debt turn toxic, as the smart contract would have had to liquidate the attacker's USDC and buy back CRV. This causes a short squeeze as the position was on-chain and traders started to pile into CRV long positions. Even embattled tokens such as Apecoin and Solana have managed to catch a bid in this risk-on environment but it would be wise to proceed with caution, markets are trading on a knife's edge and won't take much to turn sentiment around.

Layer 2 Wars Rage On

With all the chaos in the wider crypto markets, the layer two wars have taken a backseat but they continue to rage on. Over the last 6 months, Layer two solutions have overtaken Ethereum maninnet transaction settlement, with Arbitrum counting for nearly half of all layer 2 transactions. Layer 2 solutions have also onboarded 1 million new users over the last 30 days, showing the need for cheaper and faster on-chain transactions, have only accelerated despite the savage bear market. We will keep on watching this space, as the next 6 months will bring plenty of opportunities for traders to take advantage of and etch out some alpha.

BTC/USD key levels

Interactive chart: click on image for higher resolution

Bitcoin has found support at $15,588 USD and now just trades above our pivotal key level of $16,500. It's decision time for Bitcoin for if it holds above $16,500 it can make a run higher and retest $17,189. If it manages to close above $17,189 on the daily chart, watch out for a sharp move to the $18,217 handle. To the downside, if it loses $16,500 it will head right back to its 2022 low of $15,588. Should a risk-off environment pop up over the next few days, a move towards $14,444 cannot be ruled out.

ETH/USD key levels

Interactive chart: click on image for higher resolution

Ethereum had a stellar session overnight and now flirts with our key level of $1,190 USD. If we can close above $1,190 then we will watch for an explosive move to $1,333. Reclaiming $1,333 on the daily chart and a retest of $1,472 by week's end cannot be ruled out. To the downside, if we fail to close above $1,190 on the daily chart, we will look for a retest of the double bottom level of $1,071. If we slice through, $1,071 it can melt a further 6% to the $1,000 handle before finding meaningful support.

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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.

Disclaimer

Bitcoin Provides Strongest Buy Signal in Months

Mon, 31 Oct 2022 16:17:12 +1100

The Rake Review: October 2022

Let’s do something a little different this month.

Here’s a short story a Rabbi once told (Thanks Rabbi Motti):

A poor man in Odessa heard about a distant land where the streets were paved with gold; the precious metal were as commonplace as the dust of the earth. Despairing of his financial future at home, unable to provide for his family, he decides to try his luck.

After an arduous journey, he berths at this exotic island. Lo and behold, the rumours are true! The streets are literally littered with gold. With a burst of adrenaline he begins to quickly pack his suitcases with the shiny precious metal, stuffing them to capacity. Now, he’s very tired. It’s been a long trip – and packing all that precious gold wasn’t easy either. With a newfound sense of bravado, our exhausted friend checks into the finest hotel in town – reserving the most luxurious room in the house.

After ensuring that his room and belongings are secure, he makes his way into the restaurant and orders a meal fit for a king. Satiated, he glances at the bill for his feast and offers the waiter an exquisite gold bar, saying, “Keep the change!”

With a look of contempt, the waiter asks, “What do you expect me to do with that rock?”

“It’s valuable gold,” our friend protests.

“These rocks have no value in our land,” retorts the waiter, “they are mere rubble. Because of our low supply of livestock, we place great value on chicken fat. That’s our treasured commodity.”

The man goes cold as he learns the law of supply and demand – the hard way. How is he going to pay for his extravagant meal? The hotel management promised that they would not charge him criminally, if he paid off his debt by washing dishes. A hard worker, he does so, and does so well. The hotel offers him a steady job, and he begins to acclimate to life on the island. Before long he manages to save some cold chicken fat for himself.

As time went on our entrepreneur prospered and became a wealthy man. He remembers the family he’d left behind in Odessa, and decides to return home in triumph – as a successful businessman.

Notified that he was coming home, his family is waiting at Odessa’s dock. As our friend’s yacht approaches the shore, the stench horrifies the waiting crowd.

“It smells like chicken fat,” they cry.

“Yes, that’s right,” our entrepreneur proudly acknowledges. “The yacht is filled with chicken fat. We are rich!”

“But where is the gold?” asks his confused wife, “the precious metal you went looking for?”

“What value is gold?” scoffs her husband. “They are as common as dust. Only chicken fat has value.”

The wise wife then understands. “You seem to have forgotten the purpose of your trip. You were supposed to collect gold – not chicken fat. Do you perhaps have one little gold coin, a souvenir from your years of hard labour in that strange land?”

The moral is this:

Scarcity: If everyone has it - it’s probably worth nothing.

Saleability: In a world that is as interconnected as ours it isn’t possible to collect free diamonds in one country and sell it in another where they are scarce. So, the only way to gain is to hold the most scarce currency over time.

Borderless: If our hero had access to Bitcoin, he could’ve sent money home without even getting on his yacht.

There will only ever be 21 Million Bitcoin so get yours before people realise its real value.

Predicting The Future

We write this review on Bitcoin Whitepaper day - a celebration of the anniversary of the Bitcoin whitepaper released on this very day in 2008. It was a significant milestone in world history but sure, we are a little biassed.

Bitcoin and the wider crypto market has had a little recovery. Bitcoin sits 5.4% up for the week and 17% off its bottom this cycle. ETH has fared even better this week with a 13.7% rise erasing its post-merge losses against Bitcoin. The action brings some hope of a new bull run in 2023 so let’s chat about this possibility.

For a crypto winter to end you generally need two main attributes.

1. A significant price crash

2. An extended time of hopelessness (Sideways movement).

As we sit here today, I think we have seen both. For those that called a $20K USD bottom and bought in in June 22, the last few months have been long and painful. They were likely right on the price but not the timing. Not enough time had passed to shake out the last of the “weak hands”. But now we have seen almost 6 months of boring sideways action and are set for what could be an epic recovery.

Isn’t there still a chance of a final capitulation event where Bitcoin tests $13,000 USD?

Well, yes there is. The future isn’t set. The future is a set of possibilities. We put the possibility of a final capitulation event as under 20%. Even if it does happen you are likely buying a generationally low time. As long as you are buying with Stormrake and not with leverage you will not be closed out if a fall does happen and you will get all the rewards if Bitcoin hits all time highs again. I for one would be pretty happy buying now if the chart above eventuates despite being down for a brief period.

Market Update

Here is the fast five of what you need to know about the crypto market in October 2022:

Bitcoin finally broke out of an incredibly tight range and gained 5.73% for the month and has eyes set on testing the $22,000 USD level.
Ethereum has had a superb month having added 19.20% for the month as it looks to have shaken off the "post merge" sell off.
The total crypto market cap grew by 7.05% having added $65 billion USD in October.
The best performing coin for the month was DOGE having moved up in value approx. 93% for the month. Elon Musk completing his purchase of Twitter provided the speculative catalyst for the move higher.
The worst performing token was ETHW as it proceeded to slump by 64% for the month of October. This is simply due to the forked token having a dead chain with close to no meaningful activity.

Video of the month

Commercial Director of Stormrake sits down with Ausbiz Tv to share some key strategies

In the news

OPEC cuts oil production to drive up prices creating a potential rift between the once strong US - Saudi relationship.
Elon Musk completes Twitter takeover worth over $44B USD
BNB Chain was halted after $570 Million USD was hacked
Visa partners with FTX to provide the exchange with their own debit card
Grayscale Investments files lawsuit against the U.S. Securities and Exchange Commission
Aptos debuts its blockchain to a near $1 Billion USD valuation
Sam Bankman-Fried, founder and CEO of FTX releases draft proposal of a controversial industry regulation standards
Bitcoin begins to break its correlation with US tech stocks
Australian government confirms Bitcoin and other digital assets will be subject to capital gains tax laws
Liz Truss ends reign as Britain's shortest serving Prime Minister

Education

In this edition of the Rake Review, our education piece will focus on understanding what is layer 2 scaling and why is it so critically important to Ethereum's success.

Layer 2 is a term used to describe solutions that are created to help scale a blockchain by processing transactions away from the main chain, often described as layer 1, while still maintaining the same security measures and decentralisation as the base layer blockchain. Layer 2 solutions increase throughput (transaction speed) and reduce gas fees significantly.

Reducing gas fees (the cost of transacting on-chain) and increasing throughput is critically important to Ethereum, as it aims to be the world's alternative financial system. This comes downs to a simple game of economics, if you can send a wire internationally for $50 and a bit of online hassle, you would much rather that then having to pay over $200 USD in transaction costs on Ethereum to send money via a wallet transfer.

Layer 2 solutions such as Optimism and Arbitrum, have over 10x cheaper transaction costs whilst simultaneously being able to offer near instant settlement of transactions. The benefits really comes to light when interacting with complex smart contracts that enable instant swapping of tokens, adding liquidity to trading pairs, minting and selling NFTS, the whole product becomes incredibly consumer friendly.

It's important to note that each individual solution has its own pros and cons to consider such as throughput, gas fees, security, scalability, and of course functionality. No single layer 2 solution currently fulfils all these needs.

We covered in greater detail one of these Layer 2 solutions, as there is a potential airdrop coming of its very own token. You can learn more about Arbitrum HERE.

Memes of the month

Bitcoin Bears Bruising Beatdown

Wed, 26 Oct 2022 11:55:25 +1100

Just over $328M USD worth of short liquidations got triggered by Bitcoin moving over $20,000. Across other crypto assets over $700M worth of short liquidations has been doled out to the bears. Let's dive in and see where this short squeeze can take us.

Pain & Punishment

As a Bitcoin perma-bull, 2022 has seen its fair share of bull butchering events and has certainly tested the resolve of Bitcoiners and crypto investors alike so please forgive my gloating. Today was the single largest liquidation event on FTX in its history and the runner up isn't even close. Approx. $600M USD got wiped, mainly from shorts as 87.67% of the total liquidation event came from the bears. Across the wider crypto space, well over $800M got liquidated, with almost 86% of that coming from shorts. Prices have started to normalise following this wrecking ball of liquidations, with further upside anticipated if certain key levels can hold and the liquidity faucet gets opened up by the US FED.

Revenue - Back On The Menu

The beleaguered crypto ecosystem is starting to show some signs of on-chain life, as fees and revenue over the last 24 hours have started to pick up. This is critically important and a high quality signal, as users are willing to transact on-chain and pay fees. That gives us an indication that the ecosystem is still operating despite a reduction in valuations. The DeFi, trading and derivatives sectors of on-chain markets have been particularly busy as speculators begin to build their positions and regain confidence. What has been particularly impressive is how quickly Total Value Locked (TVL) has picked up. The ETH chain for example has risen back over $30B TVL. Keep an eye on the Layer Twos, as they are steadily gaining market share from ETH, as we have recently seen Arbitrum crack past $1B in TVL.

BTC/USD key levels

Bitcoin has finally breached the $20,000 USD level. The sharp rise we had seen in prices had us almost retest our key level of $20,554, this will prove to be the first bullish retest for Bitcoin. If we can push past $20,554 then the next level up will be $21,761 which would provide us with a tidy 8% lift from current prices. To the downside we have to watch for a fade back below $19,560, should this occur we can anticipate a breakdown to $18,549. What is most likely to occur now though, will be settlement of prices around the $20,000 level and the same sideways price action we have seen in the past few months.

ETH/USD key levels

Ethereum has had a much stronger lift in prices relative to BTC, up over 8.5% for the day so far. This strength has ripped through most of our key levels with ease and almost retested our key level of $1,555 USD. We currently trade around the 2018 All Time High key level of $1,472. If it manages to hold the 2018 ATH, a run up to $1,721 cannot be ruled out. To the downside, if we fall back below $1,400 then it's back to the magnet of $1,333. A reversal can also have us retest $1,241 before finding meaningful support.

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.

Disclaimer

Market Moving - Resurgence Gives Bulls Hope

Mon, 24 Oct 2022 10:41:04 +1100

Monday morning in Asia has created a 'max bidding' environment where everything from equity futures, commodities and of course crypto has made a substantial run higher.

Up Up and Away

Although green candles are a welcome sight, bulls should be slightly sceptical on whether this is going to be sustained run for the week ahead. We're not only coming into huge overhead resistance but this move is also occurring in one of the most illiquid periods in the trading week. For any sort of sustained rally to occur, we need to see both Europe and the US continue carrying the 'max bidding' mentality. The good news is we have no macro economic events to worry about this week, other than the ECB interest rate announcement set to occur on Thursday at 11:25pm AEDT. This means we have a green light to continue heading higher as there are no expectations that can weigh down bullish momentum.

Altcoin Watch: Optimism

As we're closely watching and monitoring the L2 wars on Ethereum, whilst preparing for a potential Arbitrum airdrop, it's important to keep an eye on Optimism (OP). This will provide us with an accurate sentiment check and risk appetite for L2 tokens, as OP was the L2 to have the most recent airdrop. Worth noting is that OP has broken out of a multi-month downtrend set back in early August. For a sustained run higher, we would like to see it clear the $1 USD key technical and psychological level, if this happens we can anticipate a retest of $1.10.

To the downside, if we lose 0.73 then the next key level of support comes in at 0.65.

BTC/USD key levels

Bitcoin on a lower timeframe really puts the bulls euphoria back to reality. Despite the strength of the recent rally, all we have managed to do is head back to the magnet of $19,560 USD, a level we have highlighted well over a dozen times in recent weeks. It's decision time for the largest cryptocurrency. If we have a strong bullish close well above the $19,560 level by close of trading today, we can anticipate a huge run up to $22,794. A failure to reclaim $19,560 and heading below this key level, can have us retesting the recent swing low of $18,549.

ETH/USD key levels

Ethereum is currently trading above its key level of $1,333 USD and is likely on a path to retest $1,400 and make a push towards $1,472. To the downside, if we track back below $1,333 then a sharp move back down to $1,241 can't be ruled out. Worth noting is that Ethereum is nearly deflationary post merge, with supply growth up only 0.08% over the last 38 days. The reduction in supply should not be discounted too heavily, this can cause a quick acceleration in price once the impact is felt.

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.

Disclaimer

Arbitrum: Airdrop Inbound

Mon, 17 Oct 2022 00:19:19 +1100

Arbitrum is lighting up the crypto trading community with activity as speculation around an airdrop gains momentum. In today's Thunder Trading update, we will jump into the vibrant Arbitrum ecosystem and learn about the hype.

Arbitrum: A Brief History

On Aug. 31, 2021, Offchain Labs, the company behind Arbitrum, announced the official launch of the highly anticipated Arbitrum One mainnet. A number of the top decentralized finance (DeFi) protocols, such as Aave, Balancer, Band Protocol, Curve, Sushiswap and Uniswap are already leveraging or looking to use Arbitrum to increase throughput and lower fees for their users. NFT juggernaut marketplaces such as OpenSea have naturally opened up to Arbitrum, also aiming to provide lower fees to its users.

Since its mainnet launch, the Ethereum scaling solution has been a raging success. Although competing with established ecosystems such as Polygon and up and comers such as Optimism, it's still managed to secure $973M USD of Total Value Locked (TVL) into its ecosystem. It officially has more value locked than Solana and Optimism, some of this though can be attributed to airdrop hype.

Worth noting, that at the peak of the crypto market it had secured as much as $2.66 Billion USD, showing that even at current levels, there is plenty of room for growth.

Understanding Arbitrum

To really drive home how impressive the Arbitrum ecosystem is and how far it has come in a short time, simply peruse the Arbitrum Portal and discover hundreds of decentralised apps (dApps) built on the network.

To understand why Arbitrum and other L2s exist, simply think back to DeFi summer of 2020 where a singular transaction could cost north of $200. The cost of transacting on Ethereum became almost untenable for active users and it went against the ETH ethos of 'banking the unbanked'. The L2s were spun up as a viable scaling solution allowing users to gain all the benefit of the Ethereum security budget, without having to compromise on speed and cost efficiency.

Some of the recent growth in Arbitrum is due to 'airdrop farming'. What airdrop farming boils down to is speculation. When a protocol, dApp or L2 does not yet have a token, traders speculate on if and when this will happen. Timing is one thing but how do users actually "farm"?

In the case of Arbitrum, users farm by bridging their Ethereum over to Arbitrum and participating in the ARBI ecosystem. Participation can be minting NFTs, swapping tokens on DEXs, placing trades on perpetual protocols, providing liquidity to a DeFi pool and countless other on-chain activities. All this activity grows the network, attracts more TVL, increases token speculation and maximises network effects.

Airdrop expectations

For the intrepid crypto investor engaging in on-chain activity known as airdrop farming, the lure of 'free money' and a home run trade deep in a bear market is certainly attractive.
To develop a realistic set of expectations for what can happen with a potential Arbitrum airdrop, we only need to look back at the recent airdrop of its competitor, Optimism (OP).

Looking at the listing it had on Binance OP showed the usual listing pump, as FOMO bids were fired into the newly created order book. Unfortunately, for those who came late, the airdrop farmers also come to harvest their rewards, which promptly created a near 80% sell-off.
This shouldn't be the cause of any dismay for those who are simply wanting to get the token from their broker or exchange, if you're patient you can catch some cheap tokens, as we saw with OP which pumped over 400% from its lows during the bull run. Now that Arbitrum is gaining both market and mind share, OP has been in a slow descending price channel.

For those wishing to build long term positions in L2 tokens, its important to understand that the space is very competitive and just as Arbitrum has usurped the throne from OP, it too can be made redundant with the arrival of a new better L2 solution.

GMX: Arbitrum Kingmaker

For those understandably enamoured by Arbitrum and what the network has built in such a short period of time, it's important to note one of the main risks within the Arbitrum ecosystem is GMX.

Now there is nothing critically wrong with GMX, it's simply a decentralised derivatives exchange allowing traders to access leverage without requiring KYC. The issue is actually the success of GMX, it's the largest protocol in the Arbitrum ecosystem and accounts for 40% of TVL, approx. $394M USD.

Where this can become problematic is when a similar protocol gets built on top of another chain or different L2. If it becomes popular enough this can cause Arbitrum's TVL to reduce over time and have it fade into obscurity. Inversely, if a competitor to GMX pops up on Arbitrum, this could be a boon for the burgeoning L2 and could be the trigger to making it a super sticky ecosystem.

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.