The Wolf Den #670 - Does A Bitcoin Premium Exist?
Fiat is the poison and Bitcoin is the antidote.
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In This Issue:
Does A Bitcoin Premium Exist?
On-Chain Analysis Of Crypto Assets Price Performance And Stablecoin Supply - IntoTheBlock
Legacy Markets
Coinbase Catches A Break
Crypto Exchanges Are Narrowing Their Reach
Silvergate is Facing An Investigation
Solana Is Thriving, Here’s What Is Driving Adoption | Austin Federa, Solana Foundation
Does A Bitcoin Premium Exist?
Recently, rumors have circulated that Bitcoin is trading at a steep premium in Nigeria. On Monday, Yahoo Finance reported that Bitcoin was trading at $38,000 in Nigeria while other major outlets shared similar news.
Something sounds suspicious.
The success of the story can be attributed to its resonance with the prevalent belief that Bitcoin serves as a panacea for nations grappling with excessive inflation. This notion was further reinforced by the coincidence of the news of Lebanon's currency devaluation by 90% on February 1st, as decreed by its central bank.
However, the story is flawed in its interpretation of the reasons behind the elevated price of Bitcoin in Nigeria. Articles often attribute the premium to the Central Bank of Nigeria's recent imposition of restrictions on domestic ATM cash withdrawals as part of its push towards a cashless economy. While the statement about the ATM restrictions is accurate, the application of the facts is erroneous.
The flaw lies in the disregard for the dual exchange rate system in Nigeria - a central bank rate and a black market rate. In Nigeria, obtaining cash is a major challenge, hence, citizens rely on the black market rate for daily transactions.
Reports on this story are remiss in considering the widely used black market rate and instead base the price of Bitcoin solely on the central bank rate, which does not reflect the true value of currency exchange in daily commerce.
At the time of writing, Google indicates that $1 can be exchanged for 460 Naira. However, according to a black market exchange rate cited in an article, $1 can fetch approximately 750 Naira. With this information, the price of Bitcoin can be calculated to align with its true value in USD.
The notion that Nigerians are paying a higher price for Bitcoin is misleading. They are, in fact, paying a premium on the dollar, which affects the perceived value of Bitcoin and creates the illusion of a higher trading price. Given the difficulty in obtaining cash from the government, it is unlikely that Nigerians would even be able to buy Bitcoin at the central bank rate if they desired. In countries facing such issues, Bitcoin has always traded at the black market dollar rate, a phenomenon that is not new.
The existence of a premium in markets with low liquidity and restricted access to Bitcoin is to be expected. However, the rapid expansion of liquidity negates the impact of such premiums, and the root cause of the problem lies with governments that impose inflationary exchange rates, disregarding the well-being of their citizens. Despite the inaccuracies in the story, the underlying truth it reveals is why Bitcoin holds significance.
Fiat is the poison. Bitcoin is the antidote.
There are no charts today, as I am not in front of my desktop.
On-Chain Analysis Of Crypto Assets Price Performance And Stablecoin Supply - IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market. This section is written in conjunction with IntoTheBlock (ITB). ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data. The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
On-Chain Analysis of Crypto Assets Price Performance and Stablecoin Supply
As crypto prices experience their best month in over a year, there is growing optimism that the bear market has ended. Some are even comparing this recent rise to the rise in the second quarter of 2019, when Bitcoin rebounded from $3k to $13k in just four months. This time around it's important to take into consideration macro economic influence over the crypto industry. Experiencing a decorrelation in price movements during the FTX crisis, crypto, and stocks are now once again showing a similar trend. The correlation between the Nasdaq and Bitcoin is currently very strong, as indicated by their correlation coefficient of 0.9, which indicates a strong positive relationship between the two.
The current market growth is directly linked to the recent decrease in Reverse Repo and the balance of the US Treasury General Account.
As inflation decreases, the markets have generally risen in anticipation of a potential shift in the Federal Reserve's policy.
Even though the Federal Reserve recently stated they will keep raising interest rates through 2023, investors may be anticipating a change in policy as it has been observed that increasing the money supply has resulted in a rise in the value of financial assets in the past.
The rising liquidity in the market has begun to affect the supply of stablecoins in the ecosystem, which is seen as a positive sign for the overall crypto industry.
The majority of centralized exchanges base their trading pairs on stablecoins, and thus the amount of stablecoins available has a direct impact on the liquidity within the cryptocurrency market.
In recent years, it has been observed that the market capitalization of stablecoins has trailed prices, as they continued to rise in Q1 2022 even as the market reached its peak.
This time, the market cap of stablecoins appears to have bottomed out a week after the FTX crash and has started to rise gradually, indicating a return in demand for entering the cryptocurrency market.
If this trend continues, which is likely given its delayed relationship to prices, it would support the growing optimistic outlook.
Legacy Markets
S&P equity futures fell after earnings reports from tech giants Apple, Amazon, and Alphabet showed a slowing economy and decreased demand for their products. Investors are now focusing on the upcoming US job report for further insight on the Federal Reserve's actions. Treasury yields held Thursday's drop and the dollar was steady. Investors had previously been optimistic due to a dovish outlook from central banks, but the tech earnings reveal cracks in the economy. The Stoxx Europe index also declined, with French drugmaker Sanofi and carmakers weighing on the index. Asian shares were mixed, while oil is headed for a second weekly drop and gold rose slightly after a 2% drop on Thursday.
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.5% as of 8:05 a.m. New York time
Nasdaq 100 futures fell 0.9%
Futures on the Dow Jones Industrial Average fell 0.2%
The Stoxx Europe 600 was little changed
The MSCI World index rose 1.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.2% to $1.0935
The British pound rose 0.2% to $1.2253
The Japanese yen rose 0.2% to 128.44 per dollar
Cryptocurrencies
Bitcoin rose 0.2% to $23,508.11
Ether rose 0.8% to $1,650.29
Bonds
The yield on 10-year Treasuries was little changed at 3.39%
Germany’s 10-year yield advanced seven basis points to 2.15%
Britain’s 10-year yield was little changed at 3.00%
Commodities
West Texas Intermediate crude rose 0.2% to $76.03 a barrel
Gold futures were little changed
Coinbase Catches A Break
It seemed that major cryptocurrency exchanges were becoming targets of an increasing number of lawsuits, but Coinbase has finally secured a triumph. In October, a class-action lawsuit was filed against Coinbase, alleging that it had sold unregistered securities and failed to register as a broker-dealer.
However, the case was dismissed on the basis of contradictory claims made by the plaintiff, and the fact that Coinbase does not possess ownership over the assets sold on its platform. The judge's dismissal of the claims against Coinbase also included the dismissal of a class-action lawsuit against Binance, making this a win for the entire industry. The news was met with great excitement as Coinbase's shares rose by 20%.
Crypto Exchanges Are Narrowing Their Reach
The trend of major exchanges extending their global footprint is undergoing a reversal. During the bull market, exchanges sought and obtained regulatory approval in remote markets. However, the situation has since changed. One year prior, Kraken established an exchange in Abu Dhabi, however, due to downsizing, the office is now undergoing closure. The silver lining in this development is that these nascent regions require additional time to cultivate a homegrown interest in cryptocurrency. As a result, when exchanges return, there will be a substantial demand base to support them. In the interim, Kraken will concentrate on maintaining their operations and readying themselves for the eventual market recovery.
Silvergate is Facing An Investigation
The Department of Justice is reportedly conducting an investigation into the conduct of Silvergate Capital in relation to their dealings with FTX and Alameda. Despite there being no explicit allegations of impropriety at present, the news of the investigation arrives amid a challenging period for the financial institution. In recent months, the firm was forced to implement significant workforce reductions and divest a portion of their assets, all while grappling with elevated levels of withdrawals fueled by bankruptcy concerns. As a result, Silvergate finds itself in a precarious position, with their back against the ropes as they work to defend their practices and weather the current turbulence.
Solana Is Thriving, Here’s What Is Driving Adoption | Austin Federa, Solana Foundation
Austin Federa is the Head of Strategy & Communications at Solana. In this podcast episode we discuss how Solana managed to survive the FTX crash, what are the driving forces behind the project, economic theories that are being built in the blockchain space, identity management, blockchain gaming, and why Austin is so excited about crypto that he can hardly imagine working anywhere else.
In this episode with Austin, we discussed:
Solana is back
FTX impact
Launch of Solana in the midst of the crisis
The foundation vs project
Solana’s community is the core of the project
Solving the most significant problems of blockchain
Projects built in blockchain
Moving fast and breaking things
The failure of centralized finance
Multichain world or just Solana?
Velocity of innovation
The costs of running Solana validators
Economic theories & blockchain
Blockchain gaming
Bad ideas for blockchain
Will you ever work outside of the blockchain?
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.