Market Recap — Jan 5, 2017

Market Ride

Yesterday, I wrote that the reaction off range lows was consistent with previous attempts to break down, but today is a different story. Risk markets broke down after the FED minutes showed officials are considering an earlier rate hike AND an earlier start to tapering in light of recent inflation concerns. Markets were risk off across the board, and crypto was no exception. BTC and ETH dropped 9.4% and 11.4% from the highs, although both regained some of those losses by the daily close

The move down also cleared out a decent amount of longs, with over 100m BTC PERP contracts liquidated on Binance in the afternoon. Yesterday’s vol buyers won this round.

While these types of liquidation events can take a few days to play out, the good news is OI was not as elevated as early December. That said, OI still has room below to reach the levels that kicked off the late September rally. Historically, slow selloffs have only lead to a build up of OI, so I think we go lower before we go higher. If we see another wash out in the next few days that resets OI to around $4.5b (bonus if it sweeps the September lows around $40,900), I’d start looking for longs.

At least that would give the best opportunity to go long. BTC could just sweep the Dec 6 lows and chop around for a while before going higher. Either way, I do think the end of this range is near.

Institutional Adoption

It’s no secret the “institutions” are here as they have been slowly increasing their exposure to digital assets over the last 12–18 months, but one of the primary roadblocks to actually participating in what cyrpto actually offers (like the multitude of DeFi protocols) is AML/KYC requirements for regulated firms. The utopia of a censor-proof and permissionless financial system cannot peacefully co-exist in the US regulatory framework, and Aave’s “Aave Arc” is the first major step to breaking down the current barriers for those firms. With Fireblocks as their first whitelisted partner, effectively vouching for the new platform and instantly providing access to over 600 Fireblocks customers, this is an important step towards greater participation in DeFi. Longer term, I think there will be decentralized solutions to the AML/KYC challenge, perhaps a new type of token only cleared wallets will hold, but for now, this is progress.