Daily market commentary from 23.11.2020

An overview of what is happening in the crypto markets, summarised daily by Crypto Finance AG Senior Trader Patrick Heusser in the market commentary.

Market commentary

Good Morning!

There is the risk of me sounding like a broken record. But in my view the amount of development going on in the crypto world and the traditional financial sector are the building blocks for a seismic shift/change in how we will invest and trade assets (traditional and crypto ones).

We have Ari Paul from Blocktower Capital

and Su Zhu from 3ac (three arrow capital) who are talking about hedge fund managers and investment banks that are lining up to get a piece of the crypto (mainly bitcoin) pie.

Open Interest and trading volume

All this “talk” is well reflected in the massively growing OI (open interest) and trading volume for the CME Bitcoin futures, which is the best barometer for institutional grade investors and their degree of involvement (or risk appetite).

Market commentary

Increasing interest

Online trading platforms and online payment services, e.g. PayPal, are rushing into the crypto asset space. We see a huge amount of demand out of Germany from the so-called NEO brokers who want to add crypto assets to their normal stock and fx offerings. Additionally, we are starting to see some larger investment banks put out research reports about bitcoin. The last one was a technical analysis written by a Citibank analyst looking for a price target of over $300k for bitcoin. Plus, we are now also seeing large hedge fund managers and CIOs (e.g. Rick Rieder CIO of BlackRock) talking about bitcoin more often.

Outlook

I think the above developments are putting increased pressure on the traditional banking sector to finally “get with the programme”. In the past two to three years they were able to hide behind the fact that the regulatory framework for crypto had not been defined yet. But for once even the regulators are picking up the ball early and have implemented regulatory guidelines and frameworks (with Switzerland definitely at the forefront). However, to open the floodgates for mass adoption, we need banks to embrace crypto assets, and e.g. start supporting all the crypto service provider companies that are out there. It does look like the US has taken some first steps in that direction:

I believe that CBDCs (central bank digital currencies) are partly responsible for all of the regulatory developments. CBDCs have nothing to do with crypto assets per se, but they are needed (or stablecoins, in general) in order to take the next step from traditional asset processing (trading, settlement, and storing) to the DLT process. At some point, banks will realise that just dipping their toes into “tokenisation” will not be enough. They need to fully commit to crypto assets as a serious asset class. Only then can they profit from the full spectrum of efficiency gains and further financial developments (products, infrastructure, or even new concepts of making markets and trading assets).

One last remark, which fits in nicely with all of my comments above and is also an essential factor as to why crypto assets have not taken off like a rocket yet. The most scarce “thing” in the crypto asset trading universe (next to bitcoin itself) is balance sheet. With more banks opening up to it and more VCs investing into this space, it will ease that pain and help to open the floodgates for mass adoption.

As always, please feel free to contact me with any comments, remarks, or questions (on any topic) you might have.

Happy Monday!

 

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About the author

Patrick Heusser

Patrick Heusser is Head of Trading at Crypto Broker AG. Prior to joining the company, Patrick worked as an Interest Rate Trader at UBS and held various positions in the IRCC (interest rate, commodity and foreign exchange trading) in London, New York, Singapore and Zurich. Patrick is an expert in trading and risk management. He also gained experience in other areas, such as building start-up companies. Patrick has a degree in banking from a business school. He has also taken various courses in technical chart analysis.

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