Bitcoin just keeps going

Bitcoin closed last week at $21,789, down -5% on thinly traded volume. So far this week it has more than made up for it. After yesterday's rally, it is currently trading at ~$24,500 - up +12% for the week so far.

We note that there has been a slight increase in short interest for bitcoin on the BitFinex exchange but it still remains near historic lows. Again, this suggests that investors may be seeing limited downside from these levels. This is consistent with the current shape of the curve in bitcoin futures contracts.

According to the futures chart, investors expect bitcoin price to trade progressively higher further into the future. For context, June delivery contracts are trading for almost $25,000 on Deribit.

In terms of key technical support and resistance levels, we are still watching the 200-week moving average as potential resistance to the upside and the 200-day moving average as potential support to the downside.

We note that last night's move brought bitcoin right up against the 200-week moving average at $24,915, and the level indeed acted as resistance. This will be an important level to clear on the move higher.

In terms of support to the downside, the 200-day moving average is at $19,721.

Remember, it is bitcoin options expiration day this Friday, which typically adds volatility to markets.

Digital Asset Markets:

1. The Honey Badger Don’t Care

The recent headlines around bitcoin and crypto would have you think that Bitcoin adoption should be slowing… but the numbers say the complete opposite. The number of addresses holding balances from 0.001 BTC to 0.1 BTC have all been rising over the last few months. 

The charts speak for themselves, they haven’t stopped moving upwards and to the right. 

There are now over 22 million addresses holding balances above 0.001 BTC, or USD $20 equivalent. There are over 11.5 million addresses holding at least 0.01 BTC, or USD $200 equivalent - and over 4.2 million addresses holding more than 0.1 BTC. 

The lesson here is that we must not let the headlines fool us. While some parts of the world are debating one aspect of bitcoin, an entirely different part of the world is using it to solve their own problems. Whether it was yesterday’s Venezuela or Zimbabwe, today’s Argentina or Nigeria - there is always a country where money is breaking. Finding Bitcoin and stablecoins in these circumstances is a one-way door. You don’t go back to Fiat by choice. This is and will continue to be the case.

A piece of news that has flown somewhat under the radar from last week was JP Morgan’s release of “project Onyx” - a whitepaper which they titled “Deposit Tokens: A Foundation for Stable Digital Money”.

The way the tokens are described in the report, could be best described as “bank-compatible stablecoins”, that is - a stablecoin that can be withdrawn and/or deposited to existing or compatible bank accounts. 

Under this proposed model, banks would effectively mint, hold and redeem the tokens for dollars and vice versa. This could be interpreted as banks wanting to be the sole issuers and controllers of stablecoins.

While the project seems simple, we know that banks are not famous for moving fast.  Project Onyx seems to be a small initiative contained to JP Morgan at the moment. We will continue to track its progress.

Macro

Things have gone from bad to worse in Nigeria after the government’s decision to redesign the local currency. The Supreme Court had to suspend and extend last Friday’s deadline to invalidate the old bank notes. 

People protesting outside banks, sleeping in front of the ATM to be the first to withdraw once it gets replenished… I lived through a very similar experience in Venezuela. The level of anxiety that people experience could only be described as agony. Beyond the people with money trapped in their accounts, 40% of the country doesn’t even have a bank account - and rely on cash for their livelihood. Cash that isn’t being injected into the system.

Search interest in bitcoin remains at historic highs in the main cities. As we’ve said before - this is bitcoin’s time to shine. We hope that more Nigerians are able to find the solutions to their problems in bitcoin and stablecoins.

The Week Ahead 

We’ve started publishing our weekly calendar of market moving data and events on Monday through our @hodlwithledn Twitter account. Going forward, we will publish the weekly calendar on Mondays and our commentary blog/email on Wednesdays.

Looking at the week ahead, we will get the January Producer Price Index data for the U.S. on Thursday - which can be a leading indicator for consumer prices or inflation. We have some relevant earnings in the likes of Shopify, Roblox and DraftKings - and importantly, we have Bitcoin options expiration day on Friday. Keep an eye out for Friday as expiration days tend to introduce volatility. 

As always, here’s a summary of the events and data that could move markets in the week ahead:

Notice for Canadian Residents: As of January 4, 2023, Canadian clients will no longer be able to take out new B2X loans. As of February 1, 2023, Canadian clients will no longer be able to open a new BTC or USDC Savings Account, deposit BTC or USDC to existing Savings Accounts or earn yield on any existing BTC or USDC Savings Account balances.

Notice for U.S. Residents: Effective April 4, 2022, U.S. clients will no longer be able to earn interest on any newly deposited funds in their BTC and/or USDC Savings Accounts, where available; however, they will continue to earn interest on their pre-existing balances in their BTC and/or USDC Legacy Savings Accounts.

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