Market Recap — Jan 24, 22
Plus: Trade Idea — Long FTM, Short SOL
Is it safe to come out yet? Not calling a bottom, but at least the selling seems to have abided after an eventful week in the markets in general. Fed concerns and over $3.1 trillion in notional equity options expiring on Friday led to stocks selling off aggressively, which means so did BTC, which means, well, it was ugly.
What happens now? Once scenario I have only just started to see is the idea that BTC continues to trade in a wide range going back to late 2020. Geopolitical events, the FOMC, and technical drivers (opex) all played a part in market action the last few weeks, but only one of those drivers is in the past. It is likely the Fed presents slightly less hawkish this week to calm some nerves, but I still the think it’s too obvious. Not to say we don’t get a bit of relief, but futures OI is only slightly down, funding has only just started to flirt in negative territory, and well, up seems too obvious at the moment.
Leverage in COIN margined contracts has shifted to STABLECOIN margined contracts. Less risk of liquidation cascades, but still elevated:
Funding rates have barely started to go negative, after several weeks of generally negative rates in May, June, and July:
Once again, issues with SOL uptime has some concerned it has outran its coverage. This time, an outage of about 48 hours had particularly poor timing, as it hit right at the open on Friday, right as the market was starting its Friday rout, preventing some from posting collateral or closing trades in order to prevent liquidations. This marks the seventh instance of significant downtime caused by network congestion, and while the team is quick to ship improvements, I would venture it’s only a matter of time until users find greener pastures elsewhere.
Or, it already started with SOL the clear laggard since my last update:
SOL had a massive rally in 2021 driven in part by massive marketing and grant programs. Network adoption and development activity paced the group late in the year. However, chronic technical issues are starting to have an effect on the narrative, and other L1’s are gaining traction. Fantom, which also promises extremely fast transaction speeds, is gaining significant developer attention, especially recently as Daniele Sestagalli and Andre Cronje are actively building on FTM, bringing a significant user base (and Twitter following) along with them. FTM is also growing more organically than SOL with limited marketing and a clear embrace of the grassroots culture that typified the early Ethereum days. Perhaps most importantly, MCAP / TVL on Fantom is only 0.44 as of Jan 24, while SOL MCAP / TVL is 3.72, according to DefiLlama. This is compared to 2.48 for Ethereum, which is also about average for other EVM compatible chains.
SOL market cap is $27.8bn while FTM is just $5.6bn, putting FTM/SOL at 0.20. Given no growth in FTM’s TVL and a MCAP / TVL equal to ETH’s at 2.48, FTM market cap should be $31.4bn. While that would make it the sixth most valuable chain, even discounting FTM’s MCAP by half puts FTM/SOL at 1.12.
FTM/SOL is working so far this year, and looks poised to continue in 2022.