Monthly Update || July 2024

“The absolute best buying opportunities come when asset holders are forced to sell, and in those crises they were present in large numbers.”

— Howard Marks, on markets with less crises than crypto

Opening Remarks

Greetings from Ikigai Asset Management¹. We welcome the opportunity to bring to you our seventieth Monthly Update and hope these are helpful in better understanding some of what we’re doing and what we’re seeing. We have the privilege of deploying capital on behalf of our investors into a new technology and asset class that has tremendous potential to make the world a better place and create trillions of dollars of value in the process.

We believe we are obligated to be shepherds of this technology – to do our part to push crypto towards fulfilling its potential. We strive to be an objective, reasonable, well-intentioned voice of truth amongst a chorus of biased, fallacious, pernicious opportunists. It’s an honor that we take seriously.

To that end, June was relatively quiet for crypto although still bringing significant events, mostly on the regulatory side. After the enormously positive surprise month we had for crypto regulations/politics in May, ETH marched towards launching spot ETFs in June and we’ll likely have them trading in July. The SEC sued Consensys over MetaMask, named Lido and RocketPool as securities, but left out ETH, appearing to finally acquiesce after 6+ years of mixed signals and uncertainty about ETH’s security status.

You would have thought all of that would have added up to strong price performance for ETH, but that wasn’t the case. ETH was down 9% in June, slightly lagging BTC’s -7%, despite ETH ETF timing getting essentially locked in for July. That’s a bit confusing, and had market participants (those that bothered to be in front of the screens during summer) a bit nervous about crypto markets broadly.

It’s worth highlighting that ETH is currently ~30% below prior ATH and BTC was ~35% below prior ATH immediately before the BTC ETFs started trading. So from that perspective, ETH is pretty much acting like BTC did. You recall what happened next- BTC ETF inflows blew expectations out of the water and BTC ripped to new ATHs. Given that, wouldn’t you expect ETH price to be frontrunning strong ETH ETF inflows, after seeing what happened with the BTC ETF inflows? My best guess is that there weren’t enough deep-pocketed bulls that believed initial ETH ETF inflows would be strong to drive ETH price higher in June – at least not relative to folks willing to sell ETH here. That’s my best explanation for ETH price action in June. TBD on where those initial ETH inflows will end up shaking out.

ETH also may have been dragged down a bit by Bitcoin’s supply overhang issue–

That all adds up to billions of dollars of BTC coming to the market, although we don’t know the US and Germany’s pace of selling or what Mt Gox creditors will end up doing. But it was enough to weigh on BTC price action in June. My guess is the BTC supply overhang will get worked out and price is heading higher later this year. Not financial advice.

June Highlights

Gensler Tells Congress ETH ETFs Will Be Approved This Summer
ETH ETF Issuers Receive Round of Light Comments from SEC, ETH ETFs Likely to Start Trading in July
US Government Moves ~4k BTC Seized from Silk Road to Coinbase
German Government Moves ~6,500 Seized BTC, Presumably to Sell, Out of ~50,000 Total
Mt Gox To Begin Distributing BTC in July
BTC Spot ETFs See $667m Inflows
MSTR Issues $800mm Convertible Senior Notes, Purchases $786mm BTC at $65,883
Trump Continues Public Support of Crypto, Hosts Crypto Fundraising Dinner, Says He Wants All the Bitcoin to Be Mined in America
Paradigm Raises $850mm Venture Fund
SEC Sues Consensys for MetaMask, Alleges Lido and RocketPool Are Securities, ETH Not Mentioned as Security
Coinbase Sues SEC, FDIC Over FOIA Requests
Multiple Spot Solana ETFs Are Filed
IRS Favorably Finalizes Tax Reporting Rules for Crypto, Punts on DeFi Treatment
SEC Head of Crypto and Cyber Unit Leaves After Nine Years
Publicly Traded Semler Scientific Buys $17mm BTC After Previously Purchasing $40mm, Announces a $150mm Capital Raise to Buy More
RobinHood Acquires Bitstamp for $200mm
Head of Jump Crypto Kanav Kariya Resigns
Gemini Settles with NYAG for $50mm in Fraud Case
Abra Settles with US Regulators, To Refund $82mm of Customer Funds
Judge Dismisses Part of SEC Case Against Binance, Secondary Sales of BNB Not Securities
Binance Resumes Mastercard Payments for Crypto
Terraform Labs Agrees to Pay $4.5bn in SEC Case, Will Dissolve
Paxos Launches Lift Dollar (USDL), First Regulated Stablecoin Offering Daily In-Wallet Yield
Federal Reserve Issues Enforcement Action Against Evolve Bancorp
FTX Estate Settles $24bn Claim with IRS for $200mm

    


    
   

Asset Class
Jun
May
Apr
Q2-24
Q1-24
YTD
Q4-23
Q3-23
Q2-23
Q1-23
2023
2022
2021
Instrument


Bitcoin
-7%
11%
-15%
-12%
69%
48%
57%
-12%
7%
72%
155%
-64%
60%
BTC

NASDAQ
6%
6%
-4%
8%
8%
17%
14%
-3%
15%
21%
54%
-33%
27%
QQQ

S&P 500
3%
5%
-4%
4%
10%
14%
11%
-4%
8%
7%
24%
-19%
27%
SPX

Total World Equities
1%
5%
-4%
2%
7%
9%
10%
-4%
5%
7%
19%
-20%
16%
VT

Emerging Market Equity
2%
2%
0%
4%
2%
6%
6%
-4%
0%
4%
6%
-22%
-5%
EEM

Gold
0%
2%
3%
5%
8%
12%
12%
-4%
-3%
8%
13%
-1%
-4%
GLD

High Yield
0%
1%
-2%
-1%
0%
0%
5%
-2%
-1%
3%
5%
-15%
0%
HYG

Emerging Market Debt
-1%
2%
-3%
-1%
1%
-1%
8%
-5%
0%
2%
5%
-22%
-6%
EMB

Bank Debt
0%
0%
0%
0%
0%
-1%
1%
0%
1%
1%
3%
-7%
-1%
BKLN

Industrial Materials
-3%
3%
12%
12%
-2%
10%
-5%
7%
-11%
4%
-6%
-13%
29%
DBB

USD
1%
-2%
2%
1%
3%
4%
-5%
3%
0%
0%
-2%
8%
6%
DXY

Volatility Index
-4%
-17%
20%
-4%
4%
0%
-29%
29%
-27%
-14%
-43%
26%
-24%
VIX

Oil
6%
-5%
0%
1%
18%
19%
-18%
27%
-4%
-5%
-5%
29%
65%
USO

SOURCE: TRADING VIEW. AS OF 6/30/24.

Food For Thought From Nietzsche and Dostoevsky

It’s summertime. There’s not all that much going on in crypto that’s particularly pressing. I could give you 30 charts on macro. I could give you 1,500 words on how there’s a dearth of use cases in crypto. I could give you 1,500 words on ETH ETF expectations. I could be the 7th source to give you 1,500 words on Telegram’s TON ecosystem.

But we’ll do something different. This month’s main section is inspired by this tweet from Avi Felman-

It’s a great tweet. And I happened to see it at a moment when I had been spending a good amount of time in my personal studies with Nietzsche and in particular Nietzsche and Dostoevsky together – as compliments, maybe adversaries, and maybe goalposts.

I won’t pretend to be experts on either of them. Not even remotely close. You can get PhD’s in either of them. You can dedicate 40 years of professional life to either of them. Their writings are deeply complex and the application of their ideas to modern life is properly heady philosophical stuff. But it so happens that I’ve been doing some of that, so Avi’s tweet struck me.

If you haven’t spent any time with Nietzsche or Dostoevsky, I couldn’t recommend it enough. I believe they both illuminate important truths about humanity in profound ways. God and religion. Morality and the human condition. Freedom and responsibility. The thirst for power and the struggle for redemption. They actually agree on a fair amount despite often coming at concepts from completely different perspectives.

Nietzsche you need to be more careful with than Dostoevsky. Nietzsche isn’t a nihilist but if you’re not paying enough attention, his ideas will come off that way and it can be a slippery slope because his points are compelling. Dostoevsky I’m more naturally aligned with. He places an importance on faith that resonates with me. But Nietzsche might actually be more thought provoking. Even in instances where I feel I disagree with him, Nietzsche will make me think deeply about why I disagree, and think deeply about the level of conviction I have in my disagreement. That’s good stuff.

So what follows is 15 quotes from Nietzsche and 15 quotes Dostoevsky with some humble commentary from me.

Nietzsche

1. “God is dead. God remains dead. And we have killed him. How shall we comfort ourselves, the murderers of all murderers? What was holiest and mightiest of all that the world has yet owned has bled to death under our knives: who will wipe this blood off us? What water is there for us to clean ourselves? What festivals of atonement, what sacred games shall we have to invent? Is not the greatness of this deed too great for us? Must we ourselves not become gods simply to appear worthy of it?”

Have to start with the most famous of all his quotes. Nietzsche was an atheist but his relationship with God and with Christianity was complicated. His point here was that humanity’s belief in God served as a scaffolding upon which morality and in turn civilization were built upon. Nietzsche felt that humanity losing this scaffolding would have grave consequences, and he was right.

2. “All things are subject to interpretation. Whichever interpretation prevails at a given time is a function of power and not truth.”

A slightly different perspective on “history is written by the victors”. It’s a view I agree with. What we think is the “truth” about what happened, whether it’s 5 years, 500 years, or 5,000 years ago, is likely not all that much like what actually happened. Act accordingly.

3. “What, if some day or night a demon were to steal after you into your loneliest loneliness and say to you: 'This life as you now live it and have lived it, you will have to live once more and innumerable times more' ... Would you not throw yourself down and gnash your teeth and curse the demon who spoke thus? Or have you once experienced a tremendous moment when you would have answered him: 'You are a god and never have I heard anything more divine.”

Powerful. A strong dose of nihilism juxtaposed against the impactfulness of the most important events of your life. Most lives have a mix of both. The point of gratitude is to focus on the latter, and to find the beauty in it.

4. “All truly great thoughts are conceived while walking.”

Go for a walk!

5. “There are two different types of people in the world, those who want to know, and those who want to believe.”

Matters of the brain versus matters of the heart. Matters of logic versus matters of emotion. I have a tendency to lead with the brain, to lead with logic. I think the fullest lives are lived trying to balance both, and use each when most appropriate.

6. “Meaning and morality of One's life come from within oneself. Healthy, strong individuals seek self expansion by experimenting and by living dangerously. Life consists of an infinite number of possibilities and the healthy person explores as many of them as possible. Religions that teach pity, self-contempt, humility, self-restraint and guilt are incorrect. The good life is ever changing, challenging, devoid of regret, intense, creative and risky.”

Like a lot of Nietzsche, this is one that I partially agree, partially disagree with. I believe humility and self-restraint are good things – good for the individual and good for humanity as a whole. I think guilt is a good thing, so long as it doesn’t devolve into shame. But there is certainly something to be said about intensity, creativity and risk. Fortune truly favors the bold. A life well-lived is about finding a balance of all those traits.

7. “Without music, life would be a mistake.”

As a massive lifelong music fan of many genres, this one resonates. He had a lot of great quotes about music and dancing. It’s a contrast to so much of his writing that feels so nihilistic. But I wholeheartedly agree – music is an amazing gift.

8. “Sometimes people don't want to hear the truth because they don't want their illusions destroyed.”

So true! It’s easier to see in others than in yourself. In what ways do I turn away from the truth because of my closely held illusions?

9. “He who has a why to live for can bear almost any how.”

Purpose. Purpose is an incredible thing for humans. When I imagine the future, it’s easy for me to imagine robots taking more and more of our jobs. We don’t have to do anything at all – just hang out all day while the robots do everything. At first glance, that might seem like a utopia. But without a sense of purpose, humans unravel quickly and utterly. In that scenario, it’s humanity’s lack of purpose and the knock-on effects that I worry about the most.

10. “The man of knowledge must be able not only to love his enemies but also to hate his friends.”

An example of Nietzsche’s complex relationship with Jesus Christ and Christianity. Because this sounds like it was written in red letters. Regarding loving your enemies, Nietzsche and Christ were probably referring to the same thing – compassion, empathy and turning the other cheek. Regarding hating your friends, they probably differed. Nietzsche was probably referring to calling out your friends when you think they’re wrong, to hold them accountable and even distance yourself from them if necessary. Jesus was probably referring to putting God above all else, even your friends, so that you “hate” your friends compared to how much you love God. Deep.

11. “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

A beautifully eloquent way to describe the madness of the crowd – something as dangerous now as it was when he wrote it.

12. “Is man merely a mistake of God's? Or God merely a mistake of man?”

Here’s one with a framing that I don’t agree with, but is thought provoking nevertheless. Nietzsche’s point is to juxapose – if God isn’t real, then humans mistakenly made the concept of God up. If God is real, then God made a mistake by creating humans to be the way that we are. I happen to believe wholeheartedly that God exists – I can’t really PROVE it, but that is my expression of faith. But even if I didn’t think God existed, I still don’t think of humanity’s belief in God as a mistake. I strongly believe we are better off acting AS IF God did exist. And I don’t believe God made a mistake in the creation of humanity – with all our faults and hurtful tendencies. Humanity’s tendency towards sin is a function of scarcity and we live in a world of scarcity. I don’t know why God made this world so full of scarcity, but I would never be so arrogant as to call that a mistake. We simply cannot begin to comprehend why the world is the way that it is.

13. “The surest way to corrupt a youth is to instruct him to hold in higher esteem those who think alike than those who think differently.”

What a wonderful ideal to hold near as a parent. Teach your children to seek first to understand, and do the same yourself.

14. “They muddy the water, to make it seem deep.”

This is the flipside of “the definition of genius is taking the complex and making it simple”. People in power want to obfuscate. Arrogance wants to make things appear to be more complex than they really are. Truth isn’t always clear, but finding clear truths is always beautiful.

15. “One repays a teacher badly if one always remains nothing but a pupil.”

We are obligated to pay it forward. Humanity progresses by learning lessons and passing those lessons down. To whom much has been taught, much is expected to be taught.

Dostoevsky

1. “If there is no God, everything is permitted.”

One of his most famous, and a complement to Nietzsche’s “God is dead”. But they both sort of speak to the same thing. Human morality is inextricably linked to God. Humanity’s triangulation of good and evil has always occurred in reference to God, and trying to do that triangulation without God is a dangerous exercise.

2. “Man only likes to count his troubles; he doesn't calculate his happiness.”

It’s so easy to lose perspective and in turn lose gratitude. If you’re reading this, you likely have a lot to be grateful for. Most of you reading this have hit the life lottery 10 or 100 different ways. Acknowledge that, daily.

3. “Man is sometimes extraordinarily, passionately, in love with suffering...”

I feel this in my own life. I feel I have a unique relationship with stress, with struggle. I think I want to avoid struggle, yet I find myself drawn to it, subconsciously or maybe just dressed up as something else. It is an undeniable fact that growth comes from suffering. Muscle is torn so that it can be built back stronger.

4. “If you wish to glimpse inside a human soul and get to know a man, don't bother analyzing his ways of being silent, of talking, of weeping, of seeing how much he is moved by noble ideas; you will get better results if you just watch him laugh. If he laughs well, he's a good man.”

Man I love to laugh. I try to find excuses to laugh wherever I can get them. A night spent laughing hard is one of the best possible ways to spend a night. It is medicine.

5. “I love mankind, he said, "but I find to my amazement that the more I love mankind as a whole, the less I love man in particular.”

This resonates! I don’t know if it’s part of getting older? Getting more stuck in your ways? More ornery? But I can feel myself tending towards thinking about humanity as a whole more. Being more deeply concerned with having a positive impact on humanity. While simultaneously wanting to spend less time with a lot people. Maybe that’s worth fighting back against?

6. “People speak sometimes about the "bestial" cruelty of man, but that is terribly unjust and offensive to beasts, no animal could ever be so cruel as a man, so artfully, so artistically cruel.”

Is it cruel for the lion to run down the zebra? Is it cruel for the spider to entangle the fly? We don’t typically think so. That is just the nature of things - “nature is metal”. But the thug that pushes the old lady down and steals her purse? The derelict father of the young children? That’s cruel in a way that the Great White shark could never be. Because the human has a choice. Or at least we perceive it to be that way.

7. “To love someone means to see them as God intended them.”

What a beautiful definition of love, and a beautiful definition of God. I don’t even know if it’s accurate in terms of how God sees humans. That is incomprehensible. But humanity would likely be better off if we all acted AS IF this quote was true.

8. “Your worst sin is that you have destroyed and betrayed yourself for nothing.”

As deep of a Dostoevsky quote as you’ll find. It is incredibly easy to slip into a life without intention. If someone knew everything you did and every thought you had, what would they think your priorities are?

9. “Besides, nowadays, almost all capable people are terribly afraid of being ridiculous, and are miserable because of it.”

There is just so little benefit to caring about what others think of you. Depending on your personality type, which is a function of nature and nurture, this will be varying degrees of difficult to let go of. For many, it is tremendously difficult to decouple life satisfaction from how you perceive people feel about you. But you’ll always be better off answering to yourself for yourself, rather than to others.

10. “If you want to be respected by others, the great thing is to respect yourself. Only by that, only by self-respect will you compel others to respect you.”

A hundred self-help books rolled into one short quote.

11. “Nothing is easier than to denounce the evildoer; nothing is more difficult than to understand him.”

Empathy is a lot easier for a loved one, or for someone you identify with. What about empathy for someone whose actions you hate? What about someone who hates you? Can you still seek to understand a person you loathe? Can you find love for that person? The world would be a better place if we all tried hard to “understand the evildoer”.

12. “I think I could stand anything, any suffering, only to be able to say and to repeat to myself every moment, 'I exist.' In thousands of agonies -- I exist. I'm tormented on the rack -- but I exist! Though I sit alone in a pillar -- I exist! I see the sun, and if I don't see the sun, I know it's there. And there's a whole life in that, in knowing that the sun is there.”

You could write an entire dissertation on this quote. Our consciousness is a tremendous gift. The good, the bad, the ugly – it is a tremendous gift. Bearing witness to other beings and having them bear witness to you – it is an honor.

13. “And what's strange, what would be marvelous, is not that God should really exist; the marvel is that such an idea, the idea of the necessity of God, could enter the head of such a savage, vicious beast as man.”

Do trees comprehend the existence of God? What about bonobos? What about Neanderthals? At what point along the evolutionary path did our ancestors start to contemplate the existence of God? And at what point were we saddled with some sort of obligation to God because of our ability to contemplate God’s existence?

14. “A fool with a heart and no sense is just as unhappy as a fool with sense and no heart.”

I have a tendency to lead with “sense” rather than “heart”. But I’m old enough to know myself well enough to try and counteract that when it makes sense – to try and use the heart for matters of emotion and use sense for matters of logic. It’s a lifelong journey.

15. “God has such gladness every time he sees from heaven that a sinner is praying to Him with all his heart, as a mother has when she sees the first smile on her baby’s face.”

I believe God is utterly incomprehensible. We can try, but we will inevitably fall far short of actual comprehension. We try to personify God so that we can comprehend God’s nature, and love is the best personification of God we’ve ever come up with. And we personify a love that is deeper than any love humans can ever have for one another – because God is personified as perfect so God’s love is perfect, and you can’t ever give or receive love from a perfect person here on Earth…I don’t know how accurate that personification is, but I know that humans would be better off acting AS IF it God was actually like that – like an impossibly pure love.

So What?

I hope you found those quotes to be thought provoking. If you’re not familiar with the works of Nietzsche and Dostoevsky, I hope I sparked your interest enough to dig deeper. If you were already familiar with their works, I hope I reminded you how profound they are.

I considered writing this section in a way that weaved the quotes in with crypto, similar to how I take a Howard Marks quote at the beginning of each monthly update and make it about crypto, even though it wasn’t originally intended that way. It wouldn’t have been too much of a stretch to structure it like that. But I didn’t want to round peg/square hole these quotes. We’re talking about two of the deepest thinkers literally ever. The quotes stand on their own and depending on the reader, can resonate on a variety of topics in a variety of ways. Perhaps I’ll come back another month and drill deeper into some of these quotes (or others) as it relates to crypto, decentralization and other topics that we typically discuss here. That would be time well spent. For now, I’d love feedback on what you just read. Feel free to reach out.

Market Update – Liquid Crypto Asset Investing

    



    
   

Symbol
Jun
May
Apr
Q2-24
Q1-24
YTD
Q4-23
Q3-23
Q2-23
Q1-23
2023
2022
2021


BTC
-7%
11%
-15%
-12%
69%
48%
57%
-12%
7%
72%
155%
-64%
60%

ETH
-9%
25%
-17%
-6%
60%
50%
37%
-14%
6%
52%
91%
-67%
399%

XRP
-8%
4%
-21%
-24%
2%
-23%
19%
9%
-12%
58%
81%
-59%
278%

BCH*
-15%
4%
-37%
-44%
121%
24%
33%
-24%
117%
16%
157%
-75%
6%

EOS
-29%
7%
-31%
-48%
30%
-32%
45%
-22%
-37%
38%
-2%
-72%
17%

BNB
-2%
3%
-5%
-4%
94%
86%
45%
-10%
-24%
29%
27%
-52%
1269%

XTZ
-17%
5%
-35%
-43%
40%
-29%
47%
-15%
-28%
56%
39%
-84%
116%

XLM
-14%
-1%
-24%
-30%
40%
-29%
15%
1%
1%
55%
81%
-73%
108%

LTC
-10%
5%
-24%
-35%
44%
-29%
10%
-39%
21%
28%
4%
-52%
17%

TRX
11%
-6%
-3%
1%
14%
16%
21%
16%
27%
10%
98%
-28%
181%

Aggregate Mkt Cap
-9%
13%
-17%
-14%
63%
58%
40%
-3%
1%
49%
119%
-64%
186%

Aggregate DeFi*
-15%
27%
-26%
-21%
47%
17%
72%
-5%
-5%
50%
132%
-77%
581%

Aggr Alts Mkt Cap
-8%
16%
-20%
-15%
58%
35%
53%
-2%
-5%
33%
90%
-64%
479%

SOURCE: COINMARKETCAP AND COINCECKO. AS OF 6/30/24. BCH INCLUDES SV.

BTC was -7% in June, -12% in Q2 and +48% in 1H. That’s pretty solid performance YTD but honestly that Q2 performance was pretty crappy all things considered. For example, NASDAQ was +8% in Q2 with BTC -12%. Another example - Q2 BTC ETF inflows were $2.4bn and BTC was -12%.

Earlier this month I wrote a tweet thread that went pretty viral where I unpack some of the factors the market is worried about. One thing that I think we can say with confidence is that the BTC ETFs have a lot of arb flow in them. We discussed this last month – you can look at the 13Fs and see arb guys in size and I have heard about it from multiple folks. There’s NAV arb that gets laid off into futures and spot markets and then there’s the same basis trade that’s always been present in this market. At this point I don’t get the sense you can glean ALL that much from just looking at daily ETF flows. The trend matters, but there’s just a lot of other stuff going on under the hood.

In June, the US government sold ~4k seized BTC and the German government sold 6,500 seized BTC. This amounts to ~4% of their combined holdings. I have no idea what the future pace of sales will be, but if both those governments continue to sell 4% of their stack every month (not my base case), BTC price will almost certainly struggle over that time. It’s a weird spot for BTC price to be beholden to US and German governments due to their stack of seized BTC, but here we are.

Last month I gave you this chart for BTC-

I think that chart still holds, although the white vertical ETH ETF line has moved out a few weeks. As mentioned above, the pace of government selling will matter here, but so long as they don’t hammer it (I doubt they will but maybe), and so long as Mt Gox creditors don’t aggressively dump en masse (I doubt they will but maybe), the above chart is probably a good look.

There are reasons to be excited about BTC price action in the near term. First you have nice July seasonality for NASDAQ, which hasn’t had a down July since 2014-

BTC also has very nice July seasonality in years when June is negative-

BTC has had negative Junes in 2013, 2018, 2020, 2021 and 2022. Every year, July was positive, averaging +19% in July. Nice.

I’m not a huge fractal guy, but after doing this job for 6+ years, the June we just experienced did kinda feel like typical summer doldrum price action. Below is the fractal from last summer overlaid with current price action. I could see it.

Another noteworthy factor is BTC hashrate. Hashrate has currently declined ~8% from its recent peak. It is typical for hashrate to decline after the halving, as unprofitable miners roll off. Hashrate will also decline from significant declines in BTC price. The current 8% decline is in-line with the last significant decline we saw after the FTX collapse, which marked the bottom in BTC price.

This next one is courtesy of Pladizow. Top panel is BTC in white and the 200D moving average in red. Bottom panel is weekly Bollinger Band Width, a measure of realized volatility. As you can see, BTC realized volatility is at historically low levels – only been this low 8 other times (green vertical), to be precise.

6 out of 8 times price went up after, 2 times price went down. But when you add the 200DMA to the mix, you can see that whenever price is above the 200D, the low realized volatility resolves with higher prices. When price is below the 200D, volatility expands with price going lower. Basically, when you’re in an uptrend, low vol means a price increase is coming next. Nice.

Last month we took note of the ETHBTC chart on the verge of breaking out of its 18-month downtrend, after experiencing a +20% weekly candle on huge volume. Fast forward a month later and we saw virtually zero follow-through on that volume-

ETHBTC was actually down 2% in June and is currently hugging that downtrend line. This is the backdrop for ETH ETFs to begin trading, which will likely happen in July. Solely from a price perspective, there’s been pretty minimal frontrunning IMO. If the first couple weeks of inflows are weak, I would expect ETH to trade off, but it could end up being a good buying opportunity.

As you can see, ETH price is currently 12% off its recent high (which is in-line with BTC over that period), and only 12% above where price was when the ETH ETF approval news broke. 12% down from here is where price was when the market was assigning little probability to ETH ETFs near term.

Is there a chance the initial ETH ETF inflows disappoint, and price pukes all the way back down there? Yes there is. Specifically, the Open Interest profile on ETH is a potential cause for concern, should initial ETF inflows disappoint.

Above in green is aggregate ETH OI (in ETH terms, not dollar terms). You can see the big spike up on the ETF news. That was a ~19% increase in OI. That’s a pretty big move. If initial ETF inflows disappoint and all the OI runs for the exits (or gets liquidated), you could see a pretty nasty move to the downside – perhaps 20%. But I would expect that to get gobbled up pretty quickly. Like I said, only 12% down from here and price is where it was with no ETFs priced in. The market will likely anchor to that and see it as a buying opportunity, should it occur.

I’ll leave you with one last point-

One lens that may be helpful to look at the ETH ETF inflows through is the following – if you are any kind of crypto whale (except maybe a BTC whale), you want the price of ETH to go up. Obviously if you’re an ETH whale, that true. But it’s true for Solana whales and Aptos whales and Chainlink whales and Uniswap whales and Dogecoin whales and all the rest. Regardless of the size of your ETH bag, if you have big bags of ANY Alt, you want ETH price to go up. If you’re Paradigm, Polychain, Pantera, Galaxy, Multicoin, Brevan Howard, Blocktower. You name it. The BEST POSSIBLE THING that can happen to your bags, is for ETH to go up a lot. Because first you get a crypto wealth effect, and then your bag magically becomes “cheap” to ETH. SOL’s market cap is current 16% of ETH’s. If ETH doubles and SOL stays flat, SOL is then only 8% of ETH’s market cap.

If you’re a crypto whale, you know this to be true. So you are incentivized to make it so. You are willing and able to make it so. So don’t you probably make it so?

Closing Remarks

1H-24 in the books. Welcome to 2H! 1H-24 was an exciting one for crypto in general. We got BTC ETFs and then we got a huge pile of inflows into those ETFs. MicroStrategy raised billions and bought BTC. We got a new BTC ATH before the halving for the first time ever. BlackRock started tokenizing Treasuries. We had a major about-face on the Democrats’ stance towards crypto, which led to an ETH ETF approval when virtually no one thought we’d get one. There were more negative things that happened too but I won’t harp on them here. You can go here to peruse the historical list of bulleted Monthly Highlights.

2H-24 will likely be exciting too. The election is set to be a wild one. I don’t have a good sense of the likelihood that Biden will actually be the Dem nominee. If you were one of the 51mm viewers that watched the debate last week, or you’ve been paying attention to the Defcon 5 aftermath of the debate, you know how dynamic the Biden situation is at the moment. If Biden is going to bow out, it seems like that needs to happen rather quickly, certainly by the Democratic convention on August 19th at the latest. And before that, we’ll get a Trump sentence for his 37 felonies. Crazy times.

The outcome of the election will certainly matter for crypto. If you get a red wave (which is a whole lot more likely today than a week ago), crypto will likely rip. In fact, if the polls are looking that way, crypto should be trading well in advance of the elections. A red wave will likely bring sensible crypto legislation along with much higher crypto prices. If the White House, Congress and Senate are some mix of red and blue, it’s anybody’s guess about how crypto legislation would work out. But even a Trump presidency alone likely ushers in a favorable de facto crypto framework via executive orders and settlements and no action letters from the SEC and CFTC. So if you care a lot about crypto, you should want Trump to win.

That’s a tough pill to swallow for the crypto bulls who loathe Trump, of which there are plenty. I’m certainly not a fan, but he’s absolutely better than the alternative. Watching the debates last week was a reminder of how sad and strange our political process is at the moment. How did we end up here? How do we move on from this to something better and then make sure our political process never gets this broken again?

Those are important questions. The kind of thing that will have you reading Nietzsche and Dostoevsky.

“A wise man changes his mind, a fool never will.”

-Japanese Proverb

Travis Kling

Founder & Chief Investment Officer

Ikigai Asset Management

P.S.

Included below is an incomplete list of memorable tweets from the last month. Twitter is not investment advice and my views could easily be wrong. That being said, like it or not, Twitter matters for crypto. I have no interest in being a talking head for a living and babbling about on Twitter is a long way away from being a good steward of investor capital. However, this is a community with open-source software in its DNA, and participants want to crowd-source the truth. We are shepherds of this technology. Answers to fundamental questions about this asset class are not currently clear, so having a public platform to share your views with the community is important. After all, you’re helping shape the future :)

1. Ikigai Asset Management is the trade name for a collection of advisory and consulting businesses operated by Travis Kling, Anthony Emtman, and their team.

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July 2024 - Monthly Market Update