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In This Issue:
This Airdrop Has Huge Potential
Bitcoin Thoughts And Analysis
Legacy Markets
Standard Chartered Predicts an ETH ETF Approval
Ethereum Reclaims The NFT Crown
Germany Just Collected a Lot of Bitcoin
Solana Skyrockets, Should You Buy Altcoins? Bitcoin To Test $46,000?
This Airdrop Has Huge Potential
For a title like this one, I need to provide a MASSIVE disclaimer.
Disclaimer: Airdrops Are Not My Usual Topic. I don't actively pursue or endorse airdrops, and they come with inherent risks. Furthermore, the airdrop I'm discussing isn't guaranteed. DeFi remains fraught with risks, and even well-known and reliable protocols are susceptible to sudden hacks. Today's newsletter only aims to highlight a point of interest for your own research. Please note: This is NOT financial advice; it's a means to assist your exploration. Enjoy responsibly.
Last week, I shared a quick news snippet about Eigen Layer's announcement regarding the opening of the restaking window for deposits. This window will be active from February 5 at 12 PM PT to February 9 at 12 PM PT. In my previous update, I didn't delve into the details or discuss the potential for an airdrop. Today, I aim to provide a comprehensive overview, presenting what could be a unique opportunity for everyone, given that we are still ahead of the curve.
Many of us are acquainted with the concept of staking on Ethereum. You lock up your coins, contribute to network security, and receive a variable reward as an honest staker. Staking served its purpose, but investors weren't fond of locking up their assets. Liquid staking was subsequently introduced as a popular solution, offering liquidity to stakers. Platforms like Lido, Rocket Pool, and Coinbase have introduced stETH, rETH, and cbETH, which you might be familiar with or even own.
When have crypto innovators ever been content with a specific level of yield or security?
Introducing Eigen Layer.
From the official Eigen Layer Docs, “EigenLayer is a protocol built on Ethereum that introduces restaking, a new primitive in cryptoeconomic security. This primitive enables the reuse of ETH on the consensus layer. Users that stake ETH natively or with a liquid staking token (LST) can opt-in to EigenLayer smart contracts to restake their ETH or LST and extend cryptoeconomic security to additional applications on the network to earn additional rewards.”
In simpler terms, Eigen Layer allows staked assets to be restaked, providing an opportunity to earn extra yield. If you're skeptical, thinking it's just about squeezing more juice from the lemon, here's good news: the project's purpose aligns sensibly with its 'why.' From my understanding, Eigen Layer is not a solution looking for a problem. It is a suitable solution that was designed for a specific problem in mind. Understanding the 'why' is crucial for grasping Eigen Layer.
Here’s a concise ‘why,’ taken from a Consensys article I found.
“At a very high level, middleware and non-EVM (Ethereum Virtual Machine) applications built on top of the Ethereum network are responsible for generating their own trust network. This is inefficient in many ways. Bootstrapping security is expensive, resource-intensive, and takes a considerable time to generate. Moreover, once launched, a decentralized security network requires ongoing effort to maintain and to scale. As more applications are built, cryptoeconomic security becomes increasingly fragmented across the network.”
Yes, this is rehypothecation if that's what you were thinking, but not all rehypothecation is bad.
Now that we understand Eigen Layer, let's delve into the exciting possibilities - the potential of an airdrop. As stated in the disclaimer above, Eigen Layer has NOT announced an airdrop; this is purely speculation from within the crypto community. Polymarket actually assigns a chance of an Eigen Layer airdrop before April at less than 20%. I see this as a positive factor in terms of timing and the risk/reward potential.
Let’s now cover how to be eligible:
If you visit the Eigen Layer website and click on 'restake,' you will be directed to the destination where restaking occurs and your metrics are tracked. Almost every popular LST is available for restaking, in addition to beacon chain ETH if you already have 32 ETH staked. The point system at the top tallies one point per ETH staked per hour.
“For instance, a user who stakes 1 stETH for 10 days should accrue 240 restaking points over this time period (1 ETH × 10 days × 24 hours/day = 240 ETH hours).”
Even if you don't have a large stack of LSTs that you own or are willing to restake, we are still early enough for smaller investors to accrue a significant number of points over time.
This brief explanation from a Bankless blog discusses the financial implications of an airdrop. Keep in mind that this is highly speculative.
“Assuming that the EIGEN airdrop does not occur for at least another 180 days from the next time they raise their deposit caps and that the amount of ETH under management linearly increases to 1M over this period, there will be approximately 4.8B points in existence at the time of airdrop.
With an estimated valuation range from $10B to $20B and assuming 10% of the total EIGEN supply is airdropped, depositors can expect to earn $0.21 to $0.41 per point, representing a claim opportunity ranging in size from $907 to $1,814 per ETH deposited the next time EigenLayer raises their LST caps on February 5th.”
That all sounds pretty good right? ETH’s price appreciates over time, LST’s earn yield, restakers earn additional yield, and earned points could lead to a massive airdrop.
It sounds great and it could be great, but let’s come down from the high and discuss risks.
First off, read the following from the Eigen Layer docs:
“EigenLayer is launching with a maximally conservative withdrawal delay, which is intended to only decrease over time.
A 7-day delay window should give ample time to review withdrawals for anything suspicious and pause relevant functionality if needed.”
If you don't mind the lack of liquidity, that's great, but there are still plenty of risks. In no particular order, the risks involved include project continuity risk, tech risk, liquidity risk, counterparty risk, sustainability risk, and complexity risk. There is no secret that DeFi is susceptible to various risks, including those accidently created by the very team who want to see the protocol succeed.
It is very possible that there could be a headline at some point in the future that looks something like this: 'Eigen Layer Hacked for Millions.' I don't want to see such a headline, but hacks happen, and they are part of the industry. Everyone who does their own research and decides to stake should consider restaked assets completely gone. Ethereum has risk, LSTs have more risk, and restaked ETH has the most risk.
I won't participate in the airdrop because I am most comfortable with a pure and basic strategy, but a younger and hungrier version of me very well might have. Again, this is an extremely personal decision that will vary from investor to investor.
With great risk comes great reward.
I hope this helps all of you stay informed about what is out there. Topics like this one are not my usual forte. Always remember to stay safe and invest what you can afford to lose. For those of you who do participate, I look forward to hearing about positive outcomes later this year.
And yes, there are plenty more airdrops, all very different from each other. Eigen Layer just happens to be the one I chose to look into.
Bitcoin Thoughts And Analysis
Oh what a difference a day makes. Yesterday the world was celebrating the break of the 50 MA as resistance, now we are wondering if it can hold after showing weakness into the daily close and follow through to the downside. This is a chop fest, really difficult to trade. Bulls and bears should have relatively low conviction. Let’s see how the daily candle closes.
Bitcoin has bearish divergence with overbought RSI on the 4-hour chart - the exact opposite signal that it gave us at the bottom, when we had bullish divergence with oversold RSI.
I was not paying much attention yesterday, but this was a clear signal that I should have noticed. RSI is already half way to oversold, so this does not necessarily mean a big move is coming. A lot of chop here, honestly.
Legacy Markets
US equity futures took a hit as earnings from major tech companies like Microsoft, Alphabet, and AMD didn't live up to the high expectations set by the recent buzz around tech megacaps and AI. The Nasdaq 100 futures dropped by 1.4%, and S&P 500 futures saw a 0.6% decline.
In the broader market, media company Paramount Global saw a significant jump after an acquisition offer, while Tesla faced a dip following a legal ruling against Elon Musk's compensation package. Globally, Europe showed mixed results, with Novo Nordisk's value soaring due to its obesity treatment success, while H&M faced a slump after disappointing profit reports and leadership changes.
Investor focus is now shifting towards the Federal Reserve's upcoming interest rate decision. The expectation is for rates to remain steady, but traders are eyeing a possible rate cut in March, with a 40% chance predicted. Fed Chair Powell's upcoming statements are eagerly awaited for insights into future rate movements, given the current economic resilience and inflation trends.
In Europe, the potential for rate cuts by the European Central Bank is growing amidst signs of cooling inflation, affecting bond yields and currency values. Meanwhile, in Asia, Japanese bonds and stocks are reacting to the Bank of Japan's hints at a potential interest rate hike, a move away from its long-standing negative interest rate policy. Australian markets hit record highs, buoyed by expectations of monetary easing. However, Chinese stocks struggled amid ongoing contraction in factory activity.
On the corporate front, several key announcements and results are making waves, with companies like Novo Nordisk, H&M, Novartis, GSK, and Samsung Electronics reporting significant developments and financial outcomes. The global market is witnessing a dynamic interplay of monetary policies, corporate earnings, and geopolitical tensions, notably with the impact of rising conflicts in the Middle East on oil prices, marking a complex and cautious investment landscape.
Key events this week:
Boeing announces earnings amid US government safety probe, Wednesday
Federal Reserve interest rate decision and Fed Chair Jerome Powell’s news conference, Wednesday
US Treasury quarterly refunding, Wednesday
China Caixin manufacturing PMI, Thursday
Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday
US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday
Apple, Amazon, Meta, Deutsche Bank, BNP Paribas earnings, Thursday
Bank of England interest rate decision, Thursday
US employment report, University of Michigan consumer sentiment, factory orders, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.6% as of 6:03 a.m. New York time
Nasdaq 100 futures fell 1.4%
Futures on the Dow Jones Industrial Average rose 0.1%
The Stoxx Europe 600 was little changed
The MSCI World index
was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0828
The British pound fell 0.2% to $1.2671
The Japanese yen fell 0.2% to 147.84 per dollar
Cryptocurrencies
Bitcoin fell 2.6% to $42,419.5
Ether fell 3.9% to $2,286.53
Bonds
The yield on 10-year Treasuries was little changed at 4.03%
Germany’s 10-year yield declined four basis points to 2.23%
Britain’s 10-year yield declined one basis point to 3.89%
Commodities
West Texas Intermediate crude fell 1.1% to $77 a barrel
Spot gold was little changed
Standard Chartered Predicts an ETH ETF Approval
Everyone loves a good Standard Chartered prediction, so how about we take a look at what the bullish multinational bank is saying about Ethereum. First up, Standard Chartered said the following about approval: “We expect pending applications for ETH U.S. spot ETFs to be approved on May 23, the final deadline for the first of the ETFs under consideration - the equivalent date to Jan. 10 for BTC ETFs.”
Following that statement, Standard Chartered then drew out a price prediction: “Ethereum's price could hit $4,000 before late May if the token is able to secure its own spot exchange-traded fund.” Three conditions were shared for that target: “Expectations for the approval will have to be low. Market-side implications for an approval will also have to miss the mark, and a number of ETFs must be approved by the May deadline.”
Standard Chartered's prediction is as good as anyone else's, but I do believe there is merit in believing that ETH will rally leading up to the approval date, similar to Bitcoin. Now that the market has a better understanding of what to expect, the price appreciation may be more moderate than Bitcoin's, but anything is possible. If Ethereum is approved, coins like Solana will likely experience a rise in anticipation of the news as well.
Ethereum Reclaims The NFT Crown
Ordinals are an exciting development, but as expected, Ethereum has retaken the NFT crown and will probably hold it (most of the time) going forward unless massive shifts happen. NFT analytics platform CryptoSlam reported some interesting findings between Bitcoin and Ethereum: “After surpassing Ethereum in December with $881 million worth of NFT sales, Bitcoin’s January volume has sunk to $314 million as of two days before month-end. Meanwhile, Ethereum has maintained a steadier pace, registering $328 million in sales over the past 28 days. NFT sales on the Bitcoin network plummeted over 60% compared to December’s record highs.”
By no means do I see these declining numbers as the end for Ordinals, but I don't foresee the recent hype sustaining. Surely, Ordinals can slowly work their way back to these levels, but strong communities aren't built overnight, which is what Ethereum has already established. If anything, Ordinals have foreshadowed what they are capable of, similar to the way NFTs once exploded on ETH. Both chains are going to succeed in this coming bull market. The true NFT summer will likely be one of the later developments.
Germany Just Collected a Lot of Bitcoin
It's not every day that a single country seizes billions of dollars’ worth of Bitcoin. For reference, the U.S.'s largest Bitcoin seizure is $3.36 billion from November of 2021, which is not too far from what Germany just acquired. The Bitcoin obtained by Germany came from an ongoing investigation, so the details are limited. However, what we do know is that the two suspects were believed to be running a piracy website until the end of 2013, and Bitcoin was purchased with the earned money. Currently, there are no decisions regarding cashing in the bitcoins.
Solana Skyrockets, Should You Buy Altcoins? Bitcoin To Test $46,000?
Join James Seyffart, ETF Research Analyst at Bloomberg Intelligence, and John Wick, veteran options trader, as we discuss what's going on with the Bitcoin ETFs market, Bitcoin, Solana and altcoins.
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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.