A New Year of Hope & Actual Strategies

The Rake Review: January 2024

While we hope you enjoyed downtime during the holiday season and a lazy warm January, markets were buzzing with news and excitement. Crypto markets experienced multiple significant waves as massive players entered the market. We bring you another packed Rake Review to fill you in on the important and interesting developments.

News Just In - Rates

Inflation numbers out of Australia showed official inflation (CPI) at a relatively low 4.1% down from over 5% last quarter. The quarterly increase was the smallest in almost 2 years.

Why is this important? Well, everyone is closely following inflation numbers to see if the RBA will be likely to end its record breaking tightening policy and start lowering interest rates. Home owners (Variable Mortgage holders) are hurting from the quick rise in rates over the last year especially and this is starting to bite in the real economy.

If the loosening begins, we may see very bullish conditions for asset prices. Property could rise for the first time since rates started to bite and equities are already on a bullish path. However, Bitcoin and the wider crypto market could be the biggest winners. There are many reasons for this view. Firstly, Bitcoin's higher volatility pays dividends in a bullish and low interest rate environment (not literally). Secondly, Bitcoin could be a winner because this will coincide with the bullish part of the Bitcoin cycle. Bitcoin is already on a winning path with the halving approaching and the US Spot ETF's approved. Adding in to the mix improved homeowner cashflow and we could see a Bull Run for the ages!

In terms of Market Cycles, we are heading to the juicy part of the cycle where the biggest profits are made. If history is a guide, Bitcoin is heading towards the Hope & Optimism stage this year and possibly complete Thrill and Euphoria in 2025. Now History is just a guide and this time could be different but the exact same conditions exist. A whole new wave of Buying (Demand) is here with ETF's buying in bulk against the backdrop of Bitcoins fixed supply. There will only be 21 Million!

On the first day of trading Bitcoin ETF's saw $4.6 Billion in inflows with Blackrock doing over $1Billion alone. The below graph shows the ETF inflows by fund. As the ETF's swallow more and more Bitcoin it will become evident that there is not enough to go around and the price will reflect that monumental demand shift.

FTX - GBTC The Gift that Keeps on Giving

Everyone has probably heard about the disaster that was FTX in 2022. The exchange went down in metaphorical flames and took with it the whole market leading to sub $17,000 Bitcoin and the absolute panic of November 22.

It was all caused by FTX's subsidiary trading company Alameda Research losing Billions on the biggest trade of the last Bull market cycle. The GBTC premium trade brought down some huge names that are no longer here. We won't go into it too deeply here but its really the central issue that brought the last bull run to a premature halt. We thought that SBF (Sam Bankman-Fried's) Trial would be the last we heard of that sorry saga however that hope was a tad premature. The great news of the ETF approvals was dampened by the fact that the FTX bankruptcy estate is now finally able to get rid of its GBTC shares and in turn the sale of BTC which pushed the market lower for the biggest DIP we've seen for months.

The January DIP

After a stellar run for Bitcoin and the Alts, Bitcoin dipped in the post ETF approval "Sell the Rumour" phase spurred on by FTX related BTC sales. BTC fell from over $47K to under $39K USD in a fall described by one crypto OG as "What is this a crash for Ants?"

The old heads know that a 15-20% correction on the way up is a healthy consolidation. It was however interesting to see that many were panicking and expecting BTC to fall below $38K USD. It got us thinking about the fear that investors experience being an even more powerful motivator than greed at times.

In the field of behavioural economics there is a concept called "Loss Aversion". This concept states that the emotional and psychological impact of a fall is perceived by investors as more impactful than a gain of the same exact magnitude.

In other words people are irrationally affected by falls more than they should be. It's an interesting concept and we think it played out nicely in January. Here is an asset that is up over 100% even at the very worst of the DIP since November 22. Every investor on this ride should be happy but yet many were fearful. Here is an asset that is heading to a supply shock (The halving) at the exact time of a demand shock (ETF approval) and yet a small fall sees some want to sell.

Well a week on from the worst and BTC has already recovered 10% and Alts are also bouncing. The constant buy pressure from the ETF's is eating up all the cheap BTC from any panicked weak hands.

Market Update

Top 10 cryptocurrencies by market cap

Here is the fast five of what you need to know about the market in January 2024:

The main change in the Top10 was DOGE moving out and Avalanche moving in. Solana was the biggest mover with the popular coin's ecosystem in the spotlight. The market cap of Solana is now over $40 Billion USD.
BTC is up over 7% over the week beating out Ethereum again and heading towards the 1 Trillion valuation.
AVAX has grown over 12% this week and vying for Layer 1 contention with ETH and SOL.
SUI network has been another extremely strong performer breaking into the top 50 tokens with a $1.76BN USD Market Cap.
Arbitrum (ARB) has breached $2 and is a top performer in the L2 sector with the low fee layer 2 solution offering a fix for ETH's high fees.

Video of the month

The Holy Roman Empire - which continues to be a key influence on our society today is a key history lesson for us. Those that do not study history are doomed to repeat it. This 26 min video takes you through the history of currency in the Roman empire and how emperor after emperor abused the currency to steal money through inflation. The parallel's to today are significant. Today's fiat currencies have zero link to a real asset and inflation caused by money printing is with us for all to see. (Skip the gaming ad at the start).

In the news

Short term pain vs long term gain. FTX/GBTC drawdowns weigh on BTC price in January as ETF demand starts in perpetuity 140,000 BTC was bought in the first 11 days of the ETF's operation.
In signs that the US economy is over the Banking crisis on 2023 and moving towards a new expansionary cycle of interest rates the Fed Board announced it will be ending the BTFP program propping up the banking system.
Coinbase appeared in court defending itself against the SEC. The SEC has come off significant defeats against its crypto over regulation recently with the largest of those defeats to GBTC. Coinbase is also likely to win with the giant exchange trying to work with regulators without any luck so far.
Dr. Arthur Leffer says “You can have a system that uses #bitcoin as the monetary base”, seemingly endorsing the possibility of major economies being based on BTC. An incredible statement from the "Father of supply-side economics".

Understanding Narratives

As the Bull Market of 2024/2025 approaches the importance of understanding narratives.

A narrative is simply a connected story in this case connecting a common popularity or trend within the crypto space. You can think of it as a sector of the crypto world doing well due to a common goal or common sector that has caught the collective imagination.

Previous market cycles have been dominated by various narratives and those that got the jump on which narratives would dominate were able to generate outsized investment returns.

While buying BTC and holding long term is still the trade, those of you that are desperate to outperform Bitcoin and are Risk-Loving will need to understand narratives.

While crypto Bull and Bear cycles rhyme, they do not repeat perfectly. Each cycle brings new themes.

Historical Narratives

2014: BTC Recognition.

2017: ICO Boom, ETH Smart contracts

2021: DeFi Adoption, NFT Adoption, Crypto Gaming, Yield Farming

2024/2025: Ordinals? Modular Blockchain? Layer 2's? Artificial Intelligence? Re-Stakng / Liquid Staking? Tokenisation/RWA's?

In 2014, it was all about Bitcoin.

By 2017 we saw the ICO phase. An ICO is an Initial Coin Offering - similar to an IPO in the stock market. Those that got in early (usually by staying up all night to line up for tokens on some risky exchange) often made incredible returns (or lost their investment). The risk was generally worth it in hindsight with some making quick 10-20x returns. 2017 saw ETH smart-contracts make a whole new world possible.

In 2021 we saw the rise of DeFi (Decentralised Finance). This new narrative saw coins such as AAVE and COMP promise to usher in a new decentralised age for finance where you could borrow and lend on-chain. Billions of dollars worth of tokens were "locked up" on-chain in these protocols and the value of the AAVE et al tokens skyrocketed. Those that got onto that DeFi narrative early made outsized returns. AAVE went 12x (1200%) up in its early days and those that remembered to sell the top were happy indeed. The token peaked in the over $600 range and is now back to under $100. We also saw NFT adoption for the first time. Some made millions while others still hold monkey pics they cant sell.

This year new narratives are taking hold and you need to be aware of them. We can't say with certainty what will be the strongest narrative but one thing is for sure, don't buy coins from 2017 which are highly unlikely to ever see new highs. This year we may see AI related tokens take off such as FET and AKT. Liquid Staking tokens like LDO and RPL are also capturing the collective imagination. Layer 2's such as OP and ARB are well positioned to fly once investors see ETH Layer 1 fees climbing and realise Layer 2 transaction fees are significantly lower. Layer 2 related tokens are already worth almost 20 Billion in total Market Cap.

This is an educational piece and not advice. We are not recommending anything but what you need to know is that outsized returns come with outsized risk and that both of these things will likely be found in coins/tokens that fit the new narratives likely to go off this Bull Run.

Speak to your broker to review your allocations and how they fit the new narratives.

Memes of the month

In case you wanted to know what the worlds leaders were discussing at Davos January 2024. I guess Covid-19 is no longer an issue.

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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.

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