Zayden is currently at start-up incubator, WhatNot Studios in Bangkok, Thailand. Originally from Singapore, his inquisitive nature brought him overseas to gain experience and learn new things.
It is that same nature that got him into DeFi and Web3, often spending hours a day reading up on it. Self-proclaimed Web3 enthusiast, and investor in cryptocurrency.
Guest Author: Zayden Qu
Happy Chinese New Year everyone! Here’s to good fortune this year for everyone reading! The past week has been really positive for crypto holders. At the time of writing (12 Feb 24), Bitcoin has just reached its 52-week high price! Let’s dive into some news this week and explore the potential reasons for why Bitcoin performed so well.
Institutional money is finally flooding in
BlackRock’s IBIT
At the time of writing, BlackRock’s IBIT is ranked within the top 20 of all ETFs in terms of daily trade volume, at around $850 million. Zooming into 2024 alone, IBIT has had more than $3.2 billion in inflows, placing it among thetop 5ETFs in terms of inflows. Right up there with the S&P 500 index funds. Fidelity’s FBTC is also in the top 10 rankings.
My Take: In essence, it is just great news, it suggests that Bitcoin spot ETFs have been a success in driving up demand for Bitcoin.
An easier way to understand this is: Only 900 Bitcoins are mined everyday, IBIT buys up at least 1000 to 8000 BTC everyday. And IBIT is only 1 of the ETFs
This increase in demand is driving up Bitcoin prices.
Grayscale’s GBTC
Grayscale’s GBTC sell pressure is decreasing. In the first fortnight of ETF approvals, they averaged outflows of around $500 million daily. In February, they are averaging outflows of less than$100 million daily. The decrease in outflow most definitely helped in BTC reaching its 52-week high.
My Take: However, we should monitor GBTC news very closely, afterall, they still hold 2 times more Bitcoin than all the rest of the ETFs combined. Thus, any drastic sale by GBTC can still impact Bitcoin’s price significantly.
With that being said, we need to track bankrupt crypto lender, Genesis (mentioned last week) and their potential sale of over $1.3 billion GBTC shares. An approval would almost guarantee a short term dump in price again.
Institutional money is flowing in, what about retail?
(Credits to HODL15Capital on X: https://twitter.com/HODL15Capital)
Institutions here include ETFs and companies that own Bitcoins, e.g., Tesla, Coinbase and Microstrategy.
In my opinion, this is the most interesting metric to look at. At surface level, it suggests that the demand and buy pressure is almost wholly sustained by institutions. In the past 30 days, we have seen a huge net selling of Bitcoin by both retail and rich people, while institutions bought them all up and more.
My Take: I think it is safer to assume the selling by retail, rich & uber-rich investors will continue, as they decide to take profits or invest in other tokens (e.g. ETH). Thus, I believe it is crucial to monitor the institutions and whether they can continue their buying at the same rate.
Back to Genesis: If GBTC is forced to sell $1.3 billion worth of its shares, the institutions are not likely to be able to keep up their buying rate. It will be wise to monitor the Genesis situation closely.
It is also worth noting that if retail and rich/uber-rich investors FOMO back into Bitcoin, we may see even greater demand and buy pressure.
Centralized exchanges (CEX) making ground
News of CEXs seeking regulatory approval are also popping up around the world.
- Kraken continues to expand in Europe, securing their Dutch license after getting licenses in Spain, Italy and Ireland, they
- OKEX offers their exchange services and digital wallet to Argentina as they seek to expand into the South America region.
- Thailand suspends their 7% value-added tax on crypto trading giants from 1 Jan 2024.
My Take: According to google trends, retail attention and demand is relatively low and nowhere near its peak in 2021. Yet, these CEXs continue to aggressively expand and set themselves up nicely for future retail demand. Seems to me that the CEXs know more than us, and are confident in the potential of retail demand in crypto. Hence, seems to be positive news.
However, the most important aspect is to take note of dangers surrounding crypto exchanges, there have been many fraudulent cases (e.g. FTX). The best way to avoid being burned is to not be greedy and use exchanges that are reliable and approved by your local regulatory body (e.g. Coinbase in Singapore).
Tokenomics
Tokenomics is the study of how tokens function within a blockchain ecosystem, similar to economics, it follows the basic principle of supply and demand. The greater the demand for a token, the higher its price will go. Understanding the tokenomics of a project is very important, as it can help you spot potential red flags and issues with a crypto project and decide whether the project is a good investment or not.
Maximum Supply:
- The cap/maximum no. of tokens that will ever be generated by the project.
Total Supply:
- Total no. of tokens that are currently in existence.
Circulating Supply:
- No. of tokens circulating public domain & available to trade.
Market Capitalisation:
- Total value of the project based on all the tokens in circulation.
Fully Diluted Market Cap:
- Total value of the project based on total supply of tokens.
Emissions
- Increase of the total supply
(From CoinMarketCap.com)
From the image above, we can see that the total supply of Cardano ($ADA) tokens has not yet reached the maximum supply. The rate at which the total supply of tokens increases to reach the maximum supply is known as the rate of emissions.
Different projects have different mechanisms for emissions. In our example, ADA increases its total supply via staking rewards using the PoS mechanism. While Bitcoin is via mining. Be sure to ask the community, founders or simply read a project’s whitepaper to understand their emissions and tokenomics.
(From CoinGecko.com)
My Take: It is important to understand the rate of emissions of a project. If a project increases their total supply too quickly and outpaces the demand, the value of the token will plummet.
For example: 900 Bitcoin (~$45 million) is mined daily, but the demand for Bitcoin exceeds 900 daily (IBIT alone buy more than $50 million worth of Bitcoins daily). Therefore, it is a sustainable rate of emission. However, it might not be sustainable for a less popular token do to the same.
In the same train of thought:
It is important to investigate the discrepancy between circulating supply and total supply if it is too large. This could mean that a large number of tokens are staked or vested/locked.
(From ChainDebrief.com)
Most developers and venture capitalists (Private) have a large number of tokens vested/locked up with predetermined unlock windows. If the unlocking of these tokens are not managed properly, it might lead to a disproportional increase in supply and therefore lowering the value of the token.
Disclaimer:
Tokenomics is a far more nuanced topic than what I have explained here, Lady of Crypto (@LadyofCrypto1) has an incredible thread on X talking about Tokenomics. I highly recommend for you to read it!
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