Crypto Market Commentary 

15 March 2020

Doc's Daily Commentary


The 3/11 ReadySetLive with Doc and Mav is listed below.

Checkmate's Corner

What A Day!

12 and 13 March 2020 were two of the biggest price moves in Bitcoin and crypto history. It violated almost every hodlers expectations and nuked through a good number of fundamental on-chain support levels and it simply broke ‘DeFi’.

The question is, did Bitcoin and Crypto die? Is the value proposition still intact?

Lets look at an overview of what happened and try to make a call where that leaves us and what has changed.

Context of the move

In terms of Daily price moves on Bitcoin, the last time se saw a daily move like the sell off and rebound on 12/13 March was back in 2012 when Bitcoin was trading under $10. @CeterusParibus produced the chart below showing daily percentage moves since 2015 which shows that both days come in at first and second by almost 2x the previous highs.

No doubt the sell-off was due to global panic surrounding coronavirus, stability of markets and a general need for liquid cash at a time when there is not enough around (relative to debts). The rebound back from the $3800 range was a direct response to what is considered extremely oversold by almost every metric you can think of.

Probability states that on a record day down, expect a record move back up to find equilibrium.

Bitcoin Price Action

There is no technical or fundamental signals that I am aware of that could have predicted this dip, nor the magnitude of it. However, from a fully zoomed out perspective, there are a number of ‘Retests’ that we usually get at the start of a bull market that we never got in this one.

Usually, after the accumulation phase, we get a rally out followed by a retest of the Realised Price. Well we finally got that. The MVRV ratio will equal 1.0 when price and realised price are equal and the chart below shows that we finally got the retest after almost a year of price action since last April. For reference, the Realised Price is currently $5600. That puts the current price within the accumulation zone by this metric.

Similarly, the Mayer Multiple usually retests 1.0 meaning price bounces off the 200DMA after the end of bear rally. Now technically, we did do this back in late 2019 however we clearly came in for a heavy landing that has clearly overshot the mark. The Mayer multiple is currently in the accumulation zone at a value of 0.57. Based on historical precedence, there is a 95% chance that Bitcoin is undervalued at its current price of $5600.

Finally, the Investor tool which was developed by @PostiveCrypto considers the 730DMA (the 2year MA). This average has similarly functioned to the Realised Price and the 128Week MA in that when price dips below, it is usually an accumulation period. In an interesting way, the whole price action from Dec 2018 all the way today kind of reminds me of the 2015 accumulation zone, it just rallied much higher in the middle.

Some studies suggest that most of the price action in 2019 was the result of the plus token scam demand for BTC followed by the selling by the scammers. Either way, we are again back in the accumulation zone by this metric as well.

If we stitch all this together, and we ignore the realities of the outside world, BTC is currently in an unbelievable value position. It is undervalued with 95% confidence based on just about every single metric we have. The chart below shows a summary of all the buy and sell indicators I use in my own system, colour coded by Green for strong buy and yellow for value buy.

Anything below the Realised Price of $5600 is most certainly in the green strong buy zone.

Even the NVT and RVT ratios are back to trending downwards. This is a dual impact from a strong movement of coins on-chain, likely people capitulating, as well as the now heavily depressed prices. There has also been chatter from the team at CoinMetrics suggesting that the vast majority of coins sold during this capitulation event were relatively young coins. By and large, the strong hands remain strong.

Defi destroyed

This flash crash was also not a good day for DeFi. MakerDAO in particular, liquidated $4Million in Ether from undercollateralized CDPs and sold it all for….$0.

That’s right, MakerDAO sold $4M worth of ETH of free. During the flash crash, there was no competition for buyers of the liquidated ETH and an error in the way the system assigned prices to the feed. This resulted in bids for $0 buying up the ETH and by the time the system had come back online and prices had stabilised, the entire system was undercollateralized.

This problem was compounded by congestion of the Ethereum chain where gas prices soared to 200gwei, preventing anyone from adding collateral to their CDPs to restore the balance.

This means that there is no longer $1 worth of ETH backing every DAI, it is no longer holding it’s peg. As a result, this Wednesday, $5M worth of MKR tokens will be sold at auction to recuperate the funds, diluting token holders. Since the entire DeFi ecosystem relies on DAI and often MakerDAOs price feed, this is a fundamentally bad day for DeFi. Many protocols failed to rebalance at target prices, liquidated customers and had systems go offline.

Remember, this is not the end of the world, and these projects will build back stronger and more resilient systems. It does highlight that this is a very nascent industry and we are dealing with new tech, volatile assets, slow and non-scaling systems and centralised young teams.

My suggestion is, be extremely careful with DeFi and seriously, do not invest more than you are willing to lose. These systems are not safe yet and the public (that’s us) ARE the losers in these scenarios.

External factors

Now whilst all these charts and buy signals are great in a vacuum, we must consider them in the context of a global financial and social system that is under stress. My personal read is that the downturn in equities and oil is just the tip of the iceberg and I fully expect a much longer, drawn out process of negative market sentiment.

During times of stress, crypto remains a risk on asset and Tuesdays crash was a signal to that effect. In a downturn, cash is king. My speculative deduction is that many investors who do not believe in this tech, the speculative marginal buyers, capitulated. Only the strong hands remain.

What I will caveat things with, is this price crash is likely a massive turn off for institutions. It could delay things by a period of years. Now for the committed, this could be an accumulation gift. The halving will happen irrespective, miners will get boote doff the network and eventually, supply will constrain.

If you believed in this tech before the crash, nothing has fundamentally changed. As Pomp says, we overestimate what we can accomplish in 2yrs and underestimate what we accomplish in 10yrs.

There is also speculation that BitMEX had something to do with this flash crash. The rumor is that BitMEX closed down their trading engine moments before the flash crash. Other derivatives exchanges like Deribit drew down their insurance funds significantly as the liquidation engine was not able to keep up with the price drop.

The chart below shows that Deribit’s insurance fund acted as intended and paid out 400BTC + an additional 500 BTC they covered themselves. Meanwhile, BitMEX insurance fund spiked up from 35,500 to 36,500BTC. In other words, during the same period, BitMEX gained 1000BTC whilst Deribit, Binance and others paid out. Something is not right with BitMEX and I personally do not support them in as industry players.

Concluding thoughts

If we return to the original question, is Bitcoin and Crypto dead?

Most certainly not.

BTC is currently in an insanely undervalued position on the basis of all fundamental metrics we have at our disposal. These tools are based on historical performance and as we just found out, sometimes there are no precedents for these events. Whether this is an accumulation period needs to consider your financial circumstance and the recognition that we are in uncharted waters, both inside and outside crypto.

We are in a very volatile period of history and crypto is not a safe haven in such circumstances. However, once we get through the initial shockwave and markets accept the reality of what is likely a recession, the central banks and governments are likely to use their one and only tool. The printing press.

Crypto is not a hedge against a downturn.

It is a POTENTIAL hedge against inflation and irresponsibility of central banks. This parallel universe is building an alternative financial stack, freed from the clutches of arbitrary manipulation of price signals, interest rates and quantitative easing.

Should this technology succeed, they will call every single one of us lucky.

I expect the world will eventually realize that digital scarcity and digital, self-sovereign and unstoppable money is here to stay. Those of us who battled the volatility of 50% drawdowns in a single day, will realise the full scope of this opportunity and come out of this process hardened and ready for a new financial paradigm.

There is something to be excited about knowing that a sub-culture of volatility hardened investors who grow up rethinking the notion of money from their early 20s will run the world one day.




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