Welcome to the Three Ts with CoinJar. Each fortnight we explore a big Theme, an interesting Trade and some good, old-fashioned Technical Analysis (courtesy of Carl Capolingua of ThinkMarkets Australia).
 

Spring cleaning

Times are tough for CeFi lenders. The collapse of LUNA-UST and 3 Arrows Capital have sent shockwaves through the rickety house of cards that was the crypto yield economy. As it turns out those unsustainable 20% APYs were, in fact, unsustainable.

Well, they were sustainable as long as the good times were going and the money was flowing. But when prices crashed and customers actually wanted their money back, it turned out that much of that money didn’t really exist anymore. (Why yes, that is the literal definition of a Ponzi scheme.)

The only way that Voyager, BlockFi, Celsius, Babel, Coinflex et al were able to offer such economy-defying yields – let’s keep in mind that the TradFi interest rate was essentially 0% – was by building an ever more complex daisy chain of highly leveraged positions in the same suite of protocols and products.

When leverage grows to unhealthy levels, the only cure is to burn it out of the system. This means margin calls, forced selling and bankruptcies. It also means pain for the millions of retail holders who trusted their assets to these services and a reputational hit to the crypto economy that it will take years to recover from. (Hello, regulation!)

Leverage can be seen as a proxy for greed. While greed may be good, too much of it distorts and clouds what’s actually going on. The hope is that on the other side of the carnage we’ll have a clearer idea of who’s trustworthy, who’s strong and what remains that might kick off the next bull run.


 

30% off Bitcoin sale!

Well, kind of. GBTC is the tradable unit associated with Grayscale’s legendary Bitcoin Trust. Designed to give institutional players access to Bitcoin without actually holding any Bitcoin, the idea is that you give Grayscale your money and they give you an amount of GBTC equivalent to the amount of Bitcoin they purchased on your behalf.

The catch is that you can’t just cash out your GBTC for Bitcoin whenever you want. Grayscale is holding these coins until some as yet undisclosed time – perhaps when/if they get SEC approval to transition to an ETF.

In the first phase of the bull run, GBTC was the biggest story in town. All those institutional capital inflows were running directly into Grayscale and the Trust ended up with around 3.3% of all Bitcoin in existence.

Then the market turned. As players looked to exit their positions, GBTC started trading at a discount to the actual BTC price. Since then the discount has grown and grown, until it’s now hovering around 30% – essentially giving you Bitcoin exposure at US$14k a coin.

At some point those two prices will converge. But the question is: will that be because the GBTC price comes up to meet the Bitcoin price as new capital flows see value in the discount? Or will it be because the Bitcoin that Grayscale holds finally gets unlocked and 650,000 BTC hits the market en masse, driving the price into Hades and beyond?

Either way, convergence could mean the worst is over. At what price that will occur is the trillion dollar question.


 

Nothing to see here

Alright, that dip to US$17,600 was pretty gnarly, but that’s the bottom, right? Right?

According to Carl from ThinkMarkets, there’s some unfortunate resonances brewing with the previous swing low at US$25.3k – namely a short-term 20-30% bounce with little follow-through that gets stymied by the next available resistance.

Well, now that resistance level is US$25.3k and absent a decisive push above there, new lows are starting to feel like a formality. US$13.8k was the 2019 bull market high. Could that be the 2022 bear market low?

Image: ThinkMarkets

Ethereum looks marginally better, but the outlook is far from rosy. ETH is up more than 40% and the volume profile of the candles around the US$880 low reek of capitulation. (See overleveraged yield platforms above.)

Image: ThinkMarkets

However, much like Bitcoin, the rally is showing signs of stagnation, hemmed in by the short-term trend ribbon overhead. If ETH has any hope of revisiting the previous low at US$1700, it’ll need to crack US$1280 with conviction.

CoinJar is Australia’s longest-running crypto exchange. Since 2013, CoinJar has helped more than half-a-million Australians buy and sell billions of dollars in cryptocurrency.

ThinkMarkets is a premium multi-asset online brokerage that provides quick and easy access to a wide range of markets including forex, CFDs on equities, cryptocurrencies, commodities, indices, futures and more.