🧘♂️What Next For Crypto?
Market Meditations | June 15, 2022
Recently the crypto market has felt more like a very expensive pay-to-play game of Jenga. As each block is pulled, the tower of crypto protocols comes closer to crashing down. Unfortunately, someone out there keeps pulling and this week the Jenga block belongs to Celsius.
What’s more, starting yesterday, rumours started to spread like wildfire on Twitter that Three Arrows Capital (3AC), led by the charismatic co-founder Su Zhu, had been margin called on their crypto loans.
Is there any substance behind this hearsay?
- How Investors Can Use Nansen
- The Truth About 3AC
- Breaking Down Celsius
With Nansen’s On-Chain data, you get an edge over everyone else by tracking the behaviour and on-chain activity of prominent wallet addresses.
- Exciting New Opportunities. Follow Smart Money, identify new projects, and trace transactions down to the most granular level.
- Perform Due Diligence. Get more information on projects or tokens before you invest.
- Defend Your Positions. Create real-time custom alerts and get notified when and where a wallet has been moving its funds.
- Track The Biggest NFT Traders. See what the most profitable NFT wallets are investing in.
⏰ Top Headlines
- Three Arrows Faces Possible Insolvency After Unforeseen Liquidations
- Celsius appoints Citigroup to advise on possible solutions after withdrawal freeze: sources
- ‘We didn’t get to say goodbye.’ Laid-off Coinbase employees pick up the pieces
- Chainlink integrates with Moonbeam to provide price data to Polkadot developers
➡️ Investors, Take the Next Right
Last week we broke down Nansen’s report (which you can read in full here) on using smart money indicators to improve your profitability in the crypto market.
This week, in part 2, we dive into their breakdown of fundamental market indicators that anyone can use to improve their strategy.
By assessing investor behavior we can understand whether holders are looking for short term profit or displaying faith in its long term potential. One such metric is Token Seniority Distribution:
Nansen.ai: 15/06/2022 – Token Seniority Distribution for wBTC
- This shows the % of tokens and the % of addresses that have held wBTC for different periods of time
- Over 60% of wBTC tokens have been held for more than 1 year. This indicates that investors have a high level of conviction.
Token Accrual Mechanisms
Understanding how a token may give a holder value can be instrumental in working out fundamental value. Example mechanisms include:
An airdrop is when a project issues its token to a list of wallet addresses. A token may have value simply because it allows you to be part of a community that receives valuable airdrops.
2️⃣ Staking / Yield Farm Opportunities
In theory, an asset that allows you to earn yield has more fundamental value than one that does not. However, be careful! Tokens that generate yield can create an environment that incentivizes users to dump the token causing downwards price pressure.
Some assets give you voting rights on the future of that protocol. This can be highly valuable as it can dictate almost any element of a project including airdrops, fee-sharing schemes, and other rewards programs.
✅ Tip: You can use Nansen’s token god mode to assess exactly who holds project tokens and understand who holds the most voting power.
4️⃣ Burning Mechanism
A project may implement a burning mechanism to reduce supply, creating scarcity of a token. Whilst burns do not create any real value, increasing scarcity, in theory, increases the price.
Whilst assessing these indicators can be key to profitable long-term investing, it can also be misleading as fundamentals are often not reflected in the current price of the asset. Given that demand is highly speculative, volatile, and often not based on fundamentals it may increase significantly faster than the intrinsic value, leading to a situation where a token is overpriced.
However, understanding an asset’s true fundamental value can be a successful component of a wider investment strategy, especially during periods where projects might be undervalued. For Nansen’s full report, click here.
? Red Arrows
3AC is a fairly well-known hedge fund in the crypto space that focuses on projects with high-risk returns.
- They hold a wide basket of investments across different sectors, including Axie Inifinity, BlockFi, Aave and Terra.
- It was believed that 3AC were quite exposed to the collapse of UST and LUNA last month, with their losses compounded by other projects being hit by the macro environment.
- Then late last night The Block reported that 3AC had suffered hundreds of millions in liquidations by its lenders.
- Several accounts on Twitter are tracking the current Loan to Value ratio, and Wu Blockchain reported that the company had begun making repayments via sinofate.eth.
- After a short silence on social media, Su Zhu tweeted on Tuesday that they were “in the process of communicating with relevant parties and fully committed to working this out”.
It is quite the reversal in fortune since the co-founder promoted what others dubbed the ‘Zhupercycle’, where the market would continue to gradually rise, rather than fall back into a bear market. Su himself admitted he had got that price prediction ‘regrettably wrong’ last month.
? Crypto Jenga
Celsius is a centralized crypto-staking platform, founded by Alex Mashinsky, offering yield to those who deposit and stake assets on their site.
- You could think of Celsius as an asset manager, after you stake your crypto on their platform, they use it in defi to generate higher yield, rewarding you with a portion of the profits.
- Over the past few years, Celsius was able to generate returns by taking advantage of arbitrage opportunities like the one between bitcoin spot markets and the Grayscale Bitcoin Trust that eventually dried up.
- Then came their trouble with Anchor Protocol. Although they had invested a large amount of user funds in Anchor, onchain analysts at Nansen discovered that a Celsius wallet was among those who partook in the UST attack.
- Finally, the staked ETH (stETH) from lido finance began trading at less than 1 ETH. Celsius was a large holder of stETH and liquidity was drying up, thanks to selling pressure by Three Arrows Capital. This prompted more questions about the ability of Celsius to redeem customer withdrawals, causing yet another bank run.
- Celsius is also at risk for a margin call; if bitcoin reaches $18,300 they stand to lose 17,900 wBTC, another transparent position up for attack.
- On June 12, the official Twitter account for Celsius shared a message stating that Celsius Network was pausing all withdrawals, swaps, and transfers.
As Celsius hires a legal team and considers its restructuring options, bitcoin maxis remind us of the old adage “not your keys, not your crypto.”
- To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve will withdraw 2.5 billion #TRX out of binance. – TRON DAO Reserve
- We are in the process of communicating with relevant parties and fully committed to working this out – Zhu Su
- The real winners in bear markets are the plebs that continue to stack sats while many whales become forced sellers.The on-chain data shows plebs are undeterred by market conditions. – Pomp
Sequels are usually disappointing. Just ask Independence Day: Resurgence.
However, Ethereum has rolled out the red carpet for part 2, promising to captivate audiences with a stunning performance as the world’s largest smart-contract platform in a proof-of-stake ensemble designed by Buterin.
Pull up a seat with us tomorrow, as we put on our investor hats and bring out the popcorn to dig into the Investor’s Guide to Ethereum.
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??♂️✍️ Stories in this newsletter were written by D. Beverly, Isambard FA, Nick T., Max P., Kimia K., Ellen B. and Koroush AK. Graphics were produced by Ellen B.
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