28 Feb 2023

Monthly market wrap-up: A game of hot potato

My short-term outlook has improved after a slow but SEC-heavy February and a BTC push toward $28k could happen sooner rather than later. Further, Shanghai represents attractive narrative-based opportunities in favor of increased weighing in LDO and ETH.
Vetle Wrap Up


  • I believe March represents an opportunity to be aggressive
  • Do not buy the weekly altcoin winners
  • An intriguing Shanghai trade
March represents an opportunity to be aggressive
February has been a wobbly month for BTC, with no material changes in the market. Correlations reign milder than in 2022, a potential side effect of Alameda’s fall, as Alameda had pursued “substantial hedges, in some combination of BTC, ETH and QQQ” in the summer of 2022. The milder correlations and reduced liquidity has set the stage for a schizophrenic volatile, and unpredictable market. Above $25k, the nearest resistance is found at $28k, and I tend to lean towards the market pushing in this direction in March. In unpredictable times, lines on a candlestick chart are our hope. Like clockwork, BTC failed to break through the $25k resistance established in August and is still oscillating inside its post-credit-crisis trading range. From a technical perspective, $25k is important. This area briefly held support as Do Kwon’s House of Cards collapsed and has since been a key resistance area. Two catalysts come close to the heart in order to facilitate moves of strength. Grayscale’s oral hearing in their court case against the SEC on March 7 and the March 22 FOMC meeting. The oral hearing verdict is not expected until this fall, but it might spark needed enthusiasm to push the market higher. Related to the FOMC meeting, positive employment data and negative PCE data have increased the hiking expectations for the nearest FOMC press conference, with implied odds of 25% for a 50bps hike. The FED tends to deliver few surprises, and unless CPI surprises to the upside, a 25bps hike should reflect well on the market. Institutional premiums enforce my short-term optimistic outlook. CME’s futures basis remains wide as institutions pay a premium for the privilege of building long exposure in BTC. It’s been a while since we have seen positive tendencies on CME, and this development is not something one should sleep on, and I will position more aggressively in March as I lean toward BTC being a buy in March.
Do not buy the weekly altcoin winners
The current altcoin cycles are extraordinarily aggressive and unusually short-lived. There are clear signs of continuous rotations and brief-lived niche-specific rallies attached to some half-assed narrative. In three out of the last four weeks, the “Top 50 coin” winner of the previous week has ended up as the next week’s worst performer. Altcoin cycles tend to be short-lived, but this is beyond the norm and has all the hallmarks of a bored market chasing opportunities, in addition to no new capital inflows. Poor liquidity facilitates this erratic pattern, and you do not want to be the one holding the bag when the music ends.
An intriguing Shanghai trade
I expect the one altcoin niche with a somewhat convincing narrative attached to regain relevancy in March, Liquid Staking Protocols. Ethereum’s Shanghai upgrade is nearing and is expected to launch on the Mainnet in late March to early April. SEC’s enforcement against Kraken’s staking services earlier in February highlighted the need for decentralized access to liquid staking, and this narrative will be on top of mind as Shanghai nears. Once Shanghai is live on mainnet, the price effects on both ETH and LIDO are challenging to assess. We know that substantial unstaking will originate from Kraken due to the SEC enforcement, but it’s far from certain that U.S. domiciled traders on Kraken will aim to sell unlocked ETH. We may also experience unstaking from independent validators seeking to realize some returns on ETH that have been locked on the beacon chain for multiple years. However, the effect may be ambiguous. Liquid staking has provided stakers with access to trade a tokenized ETH derivative, and this flexibility may limit sell-side pressure. The ability to unstake ETH will potentially also lead to increased confidence in participating in staking in ETH, which might increase the staked ETH supply. Due to the uncertain and ambiguous direct short-term effects of the Shanghai launch, I do not want to hold significant exposure at launch, but I will play this by holding a sizeable ETH and LIDO exposure up towards the launch and reducing exposure in the days leading into the Shanghai launch.
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