No idea where the market’s heading in the short-term, but the trajectory is up on a longer time horizon.
I remember when Crypto “died” in 2018 during the bear market. And then it “died” again after Terra Luna and FTX. Yet they came back and broke all-time highs.
It’s during the down periods that end up having the most opportunity. Stay focused. Now’s the time to plant seeds: research, hire, build, invest, reflect, network.
Here’s what we got today:
- Hopium for Bulls. Notable catalysts to watch.
- AI Narrative Review. An analysis of the price action of AI tokens.
- Around the web. ETHFI season two claim is here, BlackRock might partner with MakerDAO and more.
Today’s email is brought to you by Fluid – the base for the future financial system.
Here’s your Edge 🗡️!
Some Hopium for Bulls
 Photo by Christian Wiediger on Unsplash |
We’ve been trading sideways for some time now, and sentiment’s low. It’s weird how Crypto twitter seems more dead now than the depths of the bear market.
Anyways, I wanted to share some reasons why you should be sticking around.
#1: US Gov Turning Pro-Crypto
Right now, the US establishment isn’t that friendly towards crypto. But there’s a potential shift on the horizon.
Just a few days ago, Trump was shot in an assassination attempt. This unexpected event led to a surge in crypto prices as it increased the probability of Trump winning the 2024 election.
And Trump has made pro-crypto promises. He is even speaking at the BTC 2024 conference.
His new VP candidate, JD Vance, is also crypto-friendly and holds a significant amount of $BTC. This duo can shift the US government’s stance towards crypto.
Trump is quickly becoming a key figure in the crypto narrative.
#2. Spot ETH ETF: Coming Soon
Analysts expect the spot ETH ETFs to launch on July 23rd.
ETFs are great for crypto, especially for ETH prices. If the ETFs see a significant inflow, then this could be a major catalyst for the market.
Compared to BTC ETF, an increase in ETH prices could also have more ripple effects.
Much of onchain activity is backed by $ETH. This means that as $ETH prices rise, on-chain metrics improve. The TVL of dApps will increase and borrowers will be able to borrow more against their $ETH.
These are improvements in fundamentals. And theoretically, these fundamentals can in turn pump prices, creating a flywheel.
#3. BTC Looking Stronger
Meanwhile, BTC is also showing signs of strength.
Germany has now finished dumping their 50k $BTC, removing a major sell pressure.
BTC ETF is delivering. Last week, $BTC had an inflow of $1.355B. Last week’s total crypto inflow was $1.44B. These are gigantic numbers.
Yes, the Mt Gox payments are hitting the market. But, as I explained in a previous newsletter, we don’t have to worry about it too much.
As for the FTX repayments, it can actually be a bullish catalyst. I’ve explained that in a previous issue.
#4. Fed Might Cut Rates
Adding to the optimism, the Fed might soon cut rates:
- CPI data is cooler than expected.
- The odds on Polymarket are 87% in favor of a rate cut by September.
- In his testimony to Congress, J Powell mentioned that the economy isn’t overheated anymore.
Lower rates could lead to more investment in crypto, further boosting the market.
I’m more focused on larger macro events as they can cause more liquidity to enter the system.
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But it’s much more than a lending/borrowing platform. It’s a liquidity layer on which various products like Borrow/Lending vaults, DEXes, dedicated oracles etc., can be built.
Fluid is launching on Arbitrum with a grant from the foundation. This boosts rewards for users.
Fluid’s key features:
- The Highest LTVs. You can open borrow with up to 95% LTV! (The LTV is flexible depending on the pair.)
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The AI Narrative: A Review of Top Tokens
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Narratives come and go.
But sometimes there are some with tremendous staying power that you should pay attention to.
Last week, MV Global, an investment firm, released a report on the intersection of AI and crypto. Their analysis of the price action of the top AI tokens had some insights.
Here’s my summary of that analysis.
(All their data is as of March 31st, 2024.)
Token Returns
The table below plots the returns of major AI tokens and majors ($BTC, $ETH, and $SOL).
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AI-related coins have been strong performers. They outpaced the overall crypto market as well as top L1s (BTC and ETH) over three-month and 12-month periods.
Solana, notably, kept pace with most AI tokens. Interestingly, many AI & DePIN projects are based on Solana.
So, the AI narrative was a successful narrative to play. She’s the hottest girl on campus.
Token correlations
The chart below tracks the correlation between Crypto majors, AI tokens, and AI Stocks. It uses weekly returns of the last 12 months.
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According to the table, the majority of the AI coins strongly correlate with the overall crypto market. However, the correlation between AI stocks is low.
So, the price action has a lot more to do with the crypto dynamics. It doesn’t follow the catalysts of the stock market. They’re more like distant cousins who only see each other at weddings.
Interestingly, BitTensor and AIOZ are significantly less correlated to the crypto market than the average. There weren’t “fundamental” reasons for this difference. In crypto, fundamental analysis is like weather forecasts – sometimes accurate, but mostly just a wild guess.
Analyzing the “Upside and Downside Capture Ratio” can explain if the above divergence is a good thing or not.
The table below does that for all tokens.
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Bitcoin is taken as the proxy for overall crypto performance. So, the $BTC price is the standard.
An upside capture ratio of 1.5 means that for every dollar increase in $BTC, the respective AI token increased by 1.5 dollars. Similar logic applies to the downside capture as well.
$TAO and $AIOZ have outperformed $BTC in weeks with a positive market sentiment. In the downtrend, $TAO underperforms. On the other hand, $AIOZ outperformed in the downtrend as well. It only captured 30% of the $BTC losses.
Using tables that track upside and downside captures, we can find tokens that aren’t underperforming $BTC when $BTC goes down. These tokens are more resilient.
Since AI tokens have already pumped a lot, should we still buy them?
Right now, we are in a downward trend. And we can expect altcoins to follow this trend. But once the bull market returns, we can expect the AI narrative to get hot again.
We are still in the early stage of crypto x AI. So, it is key for projects to translate their visions into tangible results. Keep an eye on metrics such as user growth and revenue.
But be cautious of projects that have already made 10x returns. Insiders and the team will try to take profits. And you’ll be the one holding the hot potato.
Oh and watch out for the narrative hijackers. Basically, AI’s hot so you’ll see a lot of dying narratives try to jump on the AI bandwagon for one last pump.
The full report covers a lot more things. If you want it, click here.
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🚀 DeFi Catalysts
PancakeSwap shared the Q3 roadmap. The list includes V4 and a dual trading rewards program.
Spark Protocol introduced a competition to onboard $1 billion in tokenized RWA to MakerDAO. Even Blackrock is interested in participating.
SEC has ended a 3+ year investigation into the Stacks blockchain and Hiro Systems. There won’t be any regulatory action.
F(x) Protocol introduced new tokens. $cvxUSD will provide CVX yield without volatility. $xCVX will give up to 3X leverage on CVX.
Syrup Finance is now open to the public. It is an institutional yield protocol from Maple Finance.
Worldcoin extended the unlock schedule of 80% of the $WLD held by the team and investors from 3 to 5 years.
Sanctum announced the plan after token generation. It includes Sanctum Launchpad, Sanctum Profiles V2, and Sanctum Pay, an LST-powered debit card.
Rune, the MakerDAO founder, announced a new feature for the NewGovToken. It is part of MakerDAO’s current Endgame upgrade.
Kwenta is live on Arbitrum. They’ve partnered with Perennial for the launch. It is described as “Global Liquidity Layer for DeFi”.
Ethena has introduced a list of governance updates. It includes adding sUSDe Pendle PTs as collateral on Morpho.
Radiant is expanding to Base in July. Base is growing rapidly and it’ll be an attractive market for Radiant.
🪂 Airdrop Alpha
EtherFi‘s season 2 $ETHFI claims are live.
PolynomialFi is running a points program for their L2. There are retroactive points for users who have supported and engaged with Polynomial’s platform.
Sanctum released the website for checking $CLOUD allocation and depositing USDC into the Alpha Vault.
Parcl announced that Schedule 1 vesting claims for the Perpetual Points Program (PPP) Season 1 are active. >3000 wallets are eligible.
🚀 New Launches
Coinbase launched a new Wallet Web App. It’ll bring all your wallets and crypto into one place. It is supposed to be the home for everything onchain.
SuperRare is disucssing a new L2, Rare. It’ll be customized for the onchain art market. It’ll be an OP chain and it’ll use RARE as the native token.
PolynomialFi introduced the Polynomial Chain. They’re claiming to be the only ETH L2 with a native liquidity layer for hyper-scaling derivatives.
Apecoin has released some new stuff. ApeChain website, ApeChain Telegram, and ApeChain Testnet are live.
Polyhedra Network introduced the ZKJ Chain. It’ll be a new L1 blockchain built for joint computing enabled by zero-knowledge.
🐦⬛ X Hits
- Vitalik on elections and pro-crypto candidates
- Low float, high FDV perspective on LDO.
- ETF Volumes are ramping up again.
- BTC is testing the 4-month resistance again.
- Mark Cuban’s vision on why prices will go up eventually.
❗Threat Watch
Squarespace, a web hosting platform, was used to hijack the domain of crypto projects. Over 220 DeFi projects use the Squarespace domain.
Li.Fi Protocol, a bridge, was hacked for ~$11 million. It had a bug with its swapping feature in 2022. And it had resulted in a $600k loss.
Minterest was hacked on its Mantle Network Deployment. $1.4M of $mETH and $WETH tokens were taken.
This is a new experimental section to warn you about the latest hacks. If you want me to keep writing this section, lemme know in the replies.
