Dispatch #18: Is the Bitcoin Bull Making Its Way to Alts?

In this patch of your weekly Dispatch:

• Indicators that the market is shifting from Bitcoin to altcoins
• A big week for an altering regulatory landscape
• Growing convergence between crypto and traditional markets
• Nexonomics is back for a second season…

The Big Idea

From Bitcoin to Alts?

Let’s be clear: Bitcoin is off to an insane start in 2021. Last weekend, BTC hit a new all-time high just under $42,000 before a major selloff on Sunday into Monday, getting all the way back under $30,000 before rebounding to the mid-30s where it has been all week.

While Bitcoin is working to find its footing at a new price level, there are some early indicators that trading activity and price action may be moving away from BTC and into alts.

The first indicator is simply history. Once Bitcoin hits new all-time highs, value tends to start to flow downstream to other crypto assets. Bitcoin has not only reached new all-time highs but more than doubled its last cycle record. ETH has been within spitting distance of its previous high. Most other alts however still haven’t come close, making many think there is room to grow.

What’s more, even as Bitcoin has backed off from its weekend ATH, a number of alts have grown. Polkadot’s DOT was up 16% over the last seven days; Stellar’s XLM soared 57%; Cardano’s ADA rose by nearly 20%, and the one token that grew in front of our very eyes – the NEXO Token – gained 17% and counting.

Perhaps unsurprisingly, many expect the next alt season to heavily involve DeFi tokens. A number of them such as AAVE, ZRX, and MKR have seen double-digit growth over the last few days. Last month, volume on decentralized exchanges was up more than 95%.

In short, while it is too early to shout “alt season,” there are certainly indicators that this huge Bitcoin rally is quickly starting to spread its way across the industry.

The Latest In…

Regulations

If theme one for the beginning of 2021 was the crypto rally, theme two has to be regulatory intrigue. This week alone we saw:

• reports of the resignation of the acting head of the OCC (you know, the one who just decreed that banks can use public blockchains like SWIFT);
• rumors of MIT blockchain professor and former CFTC chair Gary Gensler as the new SEC chair;
• the UK’s derivatives ban go into effect;
• statements from the ECB’s Christine Lagarde that Bitcoin needs global regulation; and
• two lawmakers trying to lure crypto mining to the state with tax incentives, for good measure.

Buckle up for a wild year in governments and crypto.

The Latest In…

Traditional Markets x Crypto Markets

A couple interesting points of intersection between crypto and traditional markets this week. First, Visa has dropped its $5.3B acquisition of Plaid after a DOJ lawsuit. Plaid is a bank services API used by companies like Coinbase. Bakkt also announced plans to go public via a SPAC, and will be launching its consumer facing digital assets wallet soon. Finally, Anchorage received the first OCC national bank charter to go to a crypto company – a bullish sign for the industry.

The Latest In…

Nexonomics

The first phase of our token overhaul Nexonomics and its eight milestones and five records are now in the history books. We, over at Nexo, however, are just getting started.

Kicking off Nexonomics 2.0 this past Thursday, we unveiled a major hike of the loan-to-value (LTV) ratios for the Instant Crypto Credit Lines™. Тhe 10 cryptocurrencies available as collateral on the Nexo platform got an up to 70% LTV bump, with BTC and ETH reaching a 60% LTV. The highest increase was reserved for the NEXO Token (of course 😉), making it much more cost-effective to borrow against it, boosting its liquidity and utility. In a nutshell: same crypto, more credit.

The Latest In…

Institutions

Institutional (read banking) chatter around Bitcoin and crypto remains strong. JPMorgan dropped a head-scratcher in a report arguing that an ETF would be bad for Bitcoin. Goldman Sachs said that institutional buying could dampen volatility, which is the least mean thing they’ve ever said about us. Finally, HSBC is not allowing customers in the UK to cash out their Bitcoin and crypto profits. HFSP, guys.

The Latest In…

Stablecoins

Last week wasn’t just big for Bitcoin. Stablecoins also saw a surge, with Tether minting more than $2B – a new single week record for them. Even as it remains a critical piece of crypto infrastructure, Tether FUD has once again taken root as one of this cycle’s starting points for TradFi skeptics.

The Week’s Most Interesting Data Story

Bitcoin: Liquid and Illiquid Supply

One of the major drivers of Bitcoin's demand is its digitally programmed and enforced scarcity. To wit: in a world of unlimited fiat printing, a 21-million hard cap is extremely valuable. However, the real story of Bitcoin scarcity isn't just about supply, but about liquidity. New research suggests that 14.5M BTC – approximately 78% of the circulating supply – is held by illiquid entities, a.k.a not available for trading. This has two potential impacts on the market. First, it helps ensure that new demand coming from institutional and other new market participants is likely to continue meeting limited offerings, with the requisite impact on price. Second, for active traders, it may make a move into other cryptos even more opportune.

Hot Topics

What the Community Is Discussing

By and large, the crypto community is cautiously optimistic about Gary Gensler as the new SEC Chair.

The attention so far may have been on Bitcoin, but when the acting head of the OCC is writing about DeFi, you know something is happening.

Our Take

@AntoniNexo This Week

• BTC won’t sit still, and neither will Antoni. Ever the vocal Bitcoin commentator, he told The Independent that “Bitcoin smashing through $40,000 proves that the Covid crisis is powerful enough to shift the incumbent monetary order. The new all-time high is palpable evidence of a major social conversion – a metamorphosis from a dollar-dominated economy to blockchain-based, deflationary, and limitless finance.”
• The ensuing correction, according to his comment to Decrypt, was due to profit-taking by “small investors who are, understandably, more prone to panic (and excitement) and resort to selling faster.” Discussing the same topic with CoinTelegraph, Antoni added: “There has been a flurry of sell-off transactions in recent days - the BTC price drop is the result of an accumulation of these transactions.”

What to Watch for Next Week:

• Will Bitcoin erase its dip from last week?
• Will a new Biden administration send any early signals about its approach to crypto regulation?
• When will ETH finally hit a new all-time high?