The Wolf Den #797 - Legacy Investors Are Closing The Gap
Reviewing Citi’s Securities Services Evolution
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In This Issue:
Legacy Investors Are Closing The Gap
Bitcoin Holding Support
Nvidia Gone Wild!
Deciphering Crypto Funding Rates
Tornado Cash Founders Are F***ed
Is Friend.tech Running Out Of Friends
Bitcoin In Trouble? DeFi Broken? What's Next For Crypto?
Legacy Investors Are Beginning To Get It
Among the pivotal choices confronting a crypto investor, few hold as much weight as the selection of their content sources. While some may wander towards Yahoo or Bing's articles for boomers, others might find themselves engrossed in the allure of YouTube, immersing themselves in price prediction and hype videos until they slowly become a die-hard maximalist to the extreme. The reality is that certain content outlets indeed outshine others in their quality and reliability.
While not flawless, CryptoTwitter generally stands as the preferred platform for diligent investors. But beyond ‘CT’ lies an entire world of research studies by established institutions, a realm that often goes unnoticed but provides a professional window into the broader crypto landscape. This content's significance lies in its ability to mirror the external world from our insular crypto bubble. Today, I chanced upon one such study, unveiling findings that underscore my point perfectly.
Introducing, Citi’s Securities Services Evolution 2023.
The study I am about to unpack is written on the topic of market infrastructure development, encompassing more than just crypto. However, a significant portion of the study is dedicated to DLT, distributed ledger technology, and I have to admit, I was blown away by Citi's findings and perspective on our industry. Legacy markets are beginning to catch up and prove themselves to be an insightful beacon of knowledge within our industry. To best share Citi’s findings, I have copied and commented on the highlights below.
DLT and digital asset engagement have continued to grow
The balance of these two conflicting narratives has been strongly positive in the last year, with the volume of firms working on DLT and digital assets growing from 47% in 2022 to 74% in 2023.
- The two narratives Citi is referring to are the idea that crypto is dead, thanks to 2022, and that the industry is recovering as billions of dollars are flowing into a vast number of global initiatives.
“The pressing issues that firms face today are usually not with technology, but with the people and processes that put it in place.”
- I liked this quote because it couldn't be closer to the truth. Technology has always been our best foot forward, whereas, the people have almost always been the root problem.
Using DLT today: Is DLT still a banker’s game?
“Still under-developed is the understanding of the ‘phase two’ benefits of DLT and digital assets — namely how they change the fundamental value and liquidity of the securities that we hold and trade every day.”
- From banks to bond issuers, to private markets, Citi understands that DLT is going to do a whole lot more than turn the current system digital. This question is barely beginning to be answered by the financial industry.
Tokenization, digital issuance, or smart contracts?
“Given the choice of issuing natively digital securities or tokenized representations of traditional securities, 79% of respondents see their core growth as coming from tokenization. Tokenizing can be like a club in that everyone only needs to agree on the rules to be a member and the presence of traditional securities (and cash) gives providers the option to limit their risks as they build.”
- If only all of CryptoTwitter could see this and internalize it because believe it or not, there are some things legacy markets understand better than we do.
Assuming the legacy burden
“Most often manifest in core banking and treasury systems, the central question is how to reflect and manage digital assets (and balances) alongside traditional ones in systems that may be up to 40 years old.”
- We can't just build crypto without legacy in mind. That being said, DLT has begun to accept this burden and make the transition more accessible. However, there is still a lot of work in this category that needs to be done.
“How can a bank that employs 500,000 staff become comfortable partnering with a firm of 20 people to execute its digital strategy?”
- This is another one of those philosophical legacy challenges that requires significant consideration. The issue isn't crypto because as the saying goes, ‘less is more and more is less.’ Decentralization is the very definition of less.
Last but not least, before I wrap up, there were a few images from the study on topics I didn't cover above, but spoke for themselves. The images cover growth in the sector, forms of digital money, and barriers to widespread adoption. Take a minute with these images, they offer valuable insight into where the future of crypto is headed.
Bitcoin Holding Support
We still have a perfect retest of $25,214 on the weekly chart, with the current candle looking like a reversal. Does that matter? Not yet. We need to see it close this way on Sunday, with the long wick down and green (grey for me) body.
Price is currently below the 200 MA, which is now resistance for the second time in history. The first time was after the 3 AC collapse last summer. You can see this on the chart above. The daily 200 MA is also currently resistance.
I bought around $25,000, so I would love to see this bottom here!
Nvidia Gone Wild!
Nasdaq futures and tech stocks rallied due to Nvidia Corp.'s strong outlook and an 8.3% rise in premarket trading after it exceeded sales forecasts for the third consecutive time. Nvidia's success highlights the ongoing demand for AI technology, making AI-related stocks and tech shares appear as potential safe havens. European semiconductor firms also saw gains, while the Stoxx 600 rose 0.5%. The broad equity market is enjoying a week of gains, and the MSCI Emerging Markets Index jumped 1.5%. Bond markets were higher, and Nvidia's estimated sales of $16 billion for the next quarter illustrate its crucial role in the AI boom. Despite these positive trends, concerns persist about China's economy and global investors remain watchful for potential risks. In commodities, European natural gas prices fell on signs of a resolving labor dispute in Australia.
Key events this week:
US initial jobless claims, durable goods, Thursday
Kansas City Fed’s annual economic policy symposium in Jackson Hole begins, Thursday
Japan Tokyo CPI, Friday
US University of Michigan consumer sentiment, Friday
Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.2% as of 10:38 a.m. London time
S&P 500 futures rose 0.4%
Nasdaq 100 futures rose 1%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index rose 0.9%
The MSCI Emerging Markets Index rose 1.5%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.1% to $1.0851
The Japanese yen fell 0.4% to 145.38 per dollar
The offshore yuan was little changed at 7.2846 per dollar
The British pound fell 0.4% to $1.2679
Cryptocurrencies
Bitcoin fell 0.5% to $26,446.09
Ether fell 0.9% to $1,669.54
Bonds
The yield on 10-year Treasuries was little changed at 4.19%
Germany’s 10-year yield declined three basis points to 2.49%
Britain’s 10-year yield declined six basis points to 4.41%
Commodities
Brent crude was little changed
Spot gold rose 0.2% to $1,919.93 an ounce
Deciphering Crypto Funding Rates
Finance and crypto in particular use a lot of jargon that is entirely foreign to everyone outside the tight circles that regularly use the language. Funding rates and perps fall into this category, which is why I decided to share this thread above, which you can also view HERE.
As the text above shows, the funding rate pertains to the cost associated with maintaining an open position in a perpetual swap contract (perp). It's determined by the discrepancy between the price of the perp and that of a spot-based index.
If ‘perp’ is an unfamiliar term, let me briefly explain: "Perp" is a type of derivative financial instrument commonly used in cryptocurrency trading. Perpetual swaps are designed to mimic the price movement of an underlying asset, typically a cryptocurrency, without requiring the trader to own the actual asset. They enable traders to speculate on both rising and falling prices.
Now back to funding rates, when the funding rate is positive, the perp's price is higher than the index, implying a premium. Long positions bear the funding cost, while short positions benefit from it. Conversely, a negative funding rate indicates that the perp's price is below the index, denoting a discount.
If this isn’t your thing, I totally understand, but if you are enjoying this explanation, I highly suggest you revisit this section after you finish because I have only scratched the surface. CryptoCred does a really good job with this thread.
Tornado Cash Founders Are F***ed
A concerted effort by law enforcement has formally revealed an unsealed indictment targeting Roman Storm and Roman Semenov, both founders of Tornado Cash. The indictment encompasses an array of allegations, notably involving the laundering of $1 billion including alleged assistance to North Korea. Authorities contend that the founders were knowingly aiding criminals, although concrete evidence awaits the trial. Presently, both sides of the case are locked in debates, suggesting a layered narrative that promises an intriguing legal journey.
What strikes me as perplexing about this case is the public’s acceptance of VPNs without raising eyebrows, despite their frequent use for illicit activities. However, in the world of crypto, privacy tech appears to have assumed the role of the villain. If anything, my impression is that law enforcement aims to make an example of the founders rather than establish an equitable precedent, as the indictment highlights: "today’s indictment is a reminder that money laundering through cryptocurrency transactions violates the law, and those who engage in such laundering will face prosecution."
Did these founders simply create code that encourages privacy? If so, this is astonishing overreach. If they actually participated in criminal activity directly, then they deserve what is coming.
Is Friend.tech Running Out Of Friends
It’s too soon to tell if the hype is ‘dead’ but the activity on Friend.tech has certainly cooled off over the past couple of days. My guess is that Frend.tech is just another fad that foreshadows future platforms once the tech and social aspects are really figured out. Not to mention, as I said a couple of days ago, “This is the very definition of an unregistered security in that regard… a marketer or promoter giving an expectation of profit on an asset that has not been registered with the SEC.” Friend.tech is on the fast track to be friendless if the hype doesn’t pick back up.
Bitcoin In Trouble? DeFi Broken? What's Next For Crypto?
Joshua Frank and Chris Inks joined my show to break down everything that's happening now with Bitcoin and DeFi.
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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.