Market Meditations | March 31, 2021
? We recently heard news of the the Uniswap v3 upgrade:
“At the heart of the upgrade is the ability for liquidity providers (LPs) to make markets within customised price ranges, an approach dubbed concentrated liquidity.”
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Crypto. Bitcoin approached resistance just shy of the $60,000 level during Asia hours. At the time of writing, we remain comfortably above $59,000. A rally led by positive fundamental developments of PayPal and VISA getting into cryptocurrency payments.
Legacy. Technology shares led U.S stocks higher and Treasury yields inched up before U.S. President Joe Biden unveils an economic plan including a $2.25 trillion infrastructure boost.
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UNISWAP V3 AND LIQUIDITY PROVIDERS
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? Uniswap announced on Tuesday its plans to roll out Version 3.0 this spring. At the heart of the Uniswap v3 upgrade is the mechanism known as concentrated liquidity, the ability for liquidity providers to make markets and allocate capital with customized and granular price ranges.
Liquidity providers? Concentrated liquidity? Making markets?
Don’t worry if you’re lost, because in this article we’ll review the benefits and risks of the upgrade and show you how you can utilise the information to profit ?
Traditionally traders are required to go through middlemen like brokers who assume the responsibility for matching buyers (demand) and sellers (supply). Market makers in the form of large financial institutions are tasked with ensuring there’s enough volume and liquidity in the market. They do so by being ready to buy and sell at a moment’s notice in order to keep the market functioning and help traders move in and out of positions. In a centralised world, there is no market to trade without middlemen ❌
Uniswap, however, is a decentralised exchange and automated market maker that facilitates secure, direct, peer-to-peer transactions. Put simply, we can trade with each other without the need for a middleman. Automated market makers remove the need for middlemen by using blockchain based liquidity pools to ensure there’s volume and liquidity. Here’s how it works: anybody (including you) can be a liquidity provider by depositing their crypto holdings into a liquidity pool. A liquidity pool is a collection of crypto that independent liquidity providers have locked into a smart contract. Liquidity pools then use this crypto as the liquidity to facilitate trades among buyers and sellers, thereby “making the market.”
If you’re looking to maximise your profit during this bull market you may consider the financial upside of providing liquidity on an exchange like Uniswap. In return for providing liquidity, pools compensate liquidity providers with revenue from fees. Uniswap has more fees being generated daily, for example, than any other exchange and sees more than $30 billion in trade volume. Liquidity providers are paid in direct proportion to the share of the pool they own. ? If you understand the ins and outs of providing liquidity to right pools at the right time, you can profit 1000%+. Take a look at my FREE Passive Income ? Guide ? for details on where and how to provide liquidity.
Let’s take a look at Uniswap and how v3 could influence your decision to provide liquidity.
Uniswap V3 focuses on “up to 4000 times capital efficiency” by way of a concentrated liquidity mechanism. Concentrated liquidity allows liquidity providers to choose to provide liquidity only within a certain price range of an asset rather than require your capital to be available for an infinite range of prices. This comes with real benefits and risks.
✅ The benefit is that concentrated liquidity allows you to maximise profit. More specifically, the ability to set a desired price range allows you to earn more fees without deploying more capital. This is because the liquidity you provide is more targeted. You can then take money that otherwise may have been used inefficiently and deploy it against other trading, investing, or liquidity-providing strategies. Put simply, your money works harder and smarter ?
? A risk to be aware of is that depending your position and market volatility, if the price of your asset moves away from the range you’ve preset, you will be exposed to a high degree of impermanent loss. This is a risk where there is a temporary loss of funds due to extreme volatility. The tighter the range you preset, the faster the loss is ?
It’s quite clear that decentralised exchanges are becoming even more essential every day. They are at the heart of the DeFi boom and play a pivotal role in the movement with potential to extirpate economic inequality through lending and staking protocols, yield farming, and much more. DeFi is a promise to revolutionise the financial system as we know it that empowers you to empower others.
Dapper Labs, Creators of NBA Top Shot, Get $305M Funding
Canadian blockchain technology company Dapper Labs secured $305 million in private funding – some of it from current and former NBA players, including Michael Jordan – to scale up its virtual NBA trading card site ?
The virtual cards come in the form of a floating digital cube that includes a video highlight of an NBA player and come with a non-fungible token, backed by blockchain technology, certifying its authenticity and scarcity.
Remember, NFTs fall into 5 different categories: collectibles, game assets, virtual land, crypto art and other. NBA Top Shot is an example of a digital collectible. Collectibles derive their value from the narrative surrounding the asset. So, if you want to get involved, it is essential to do your research and understand key narratives in the space. As always, avoid investing in NFTs purely for financial gain; the key is to connect emotionally with an item. In the process, you have proven the item is capable of creating that connection ✅
This is a risky and exciting space that high profile celebrities are continuing to pile into. If you haven’t done so already, be sure to check out our podcast with Andrew Steinwold: only the founder of the first ever NFT investment fund.
Altcoin Pick 4
Yesterday we shared our Top 3 Altcoin picks for April 2021 and promised to share our last one today. And we are not in the habit of breaking promises, so here you have it:
Following a strong bounce from the 0.618 level our bias is bullish with an upside target of $50.
? However given the heavy retrace it’s risky to buy before we see a clear breakout of $44. While price is above $37.5, we are presented with a high risk accumulation zone.
High risk accumulation zone = area where one can build a position with a lower probability of success but higher potential upside.
?$31.6 acts as an invalidator to our bullish bias.
MARKET NEWS & ANALYSIS
CoinShares CEO Calls For ‘Multi-Decade Supercycle’
CoinShares, which became listed on Nasdaq’s Nordic market in Sweden earlier this month, reported Wednesday that it had doubled its earnings in 2020 as a bull market caused the value of its assets under management to surge during the second half of the year ?
“Not only are we going to keep accelerating in our digital asset journey but the market is already giving us some interesting indications that digital assets are in the early phases of a 12 to 24 month bull market cycle, itself part of a bigger, longer, multi decade supercycle” says the CEO.
A supercycle is a sustained spell of abnormally strong demand growth that producers struggle to match, sparking a rally in prices that can last years or in some cases a decade or more. It can be visualized through the Gartner Hype Cycle.
? There is much debate on crypto twitter as to whether bitcoin is steadily on the ‘slope of enlightenment’ and heading toward the ‘plateau of productivity’. If we are indeed on the last crypto Gartner cycle, then it stands to reason that the rally will extend many years and engender mass adoption.
Investing in NFTs, Web3 and the Future of Crypto with Charles Read
? This section of today’s newsletter is made available to our premium community only.
Always understand what you are investing in.
New projects are constantly entering the space and the fundamentals behind each token can vary hugely. Do your research and understand key drivers of value before investing.
Get ahead of the curve.
Dive deep into any new opportunities in the space. By understanding the entire ecosystem you will be able to spot narratives at an early stage.
Do not get complacent due to the bull market.
Many investment decisions will be correct solely due to current market conditions. Stay humble and do not mistake this for an ability to outperform the market.
Understand how listings work.
Due to early stage funding rounds, many investors will have already purchased the token at a lower price than at it’s listing. Always consider that there are those who will profit by selling to you on listing day.
The space is moving forward at a rapid pace. The only way to stay ahead of the curve is to constantly research and engage with the community.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.