RESEARCH
BEQUANT Crypto&Coffee
Those following the slide across equity markets, with technology names taking particular beating lately, will be no strangers to the ongoing “negative gamma tremor”. As Nomura's Charlie McElligott so tactfully points out that the latest slide is an extension of last week's "dealer (negative) gamma tremor"-induced price-pain in trend/consensus equities positioning, and the "net-down" exposure trimming off the back of the dealer hedging looks to be metastasizing. Furthermore, this is best exemplified by the uber-crowded US Equities “long” in secular-growth Nasdaq futs -290bps vs everybody’s cyclical / economically-sensitive “short” in the Russell 2k “just” -30bps, while USTs are bull-flattening once again in sympathy with the optical "risk off." The uber-crowded trade in US equities is nothing compared to the crowded nature of DeFi space and given that the bubble burst (likely temporarily) when the head chef decided to call it a day, the spillover effects turned out to be significant, given that almost $10bln worth of capital was splashing around in DeFi ecosystem. Of note, XRP’s market cap is just over $10bln. Going back to the recent price action and as demonstrated in the past, crowded trade unwinds are extremely painful and broad-based but eventually green shots emerge. There are several potential scenarios to contemplate. Market participants acknowledge that the likes of OMG and other scaling solutions need to be embraced, resulting in the said tokens outperforming, otherwise competing chains will soon look to pounce on the well documented Ethereum weaknesses. The competing chains in the alternative scenario include the likes of Cardano and Tezos, an outside contender which may also come with an outsized reward is EOS. All of the above command significant financial firepower and a competing platform to rival Ethereum’s DeFi is likely a matter of time. It may also turn out that the market simply got spooked by the head Sushi chef leaving unexpectedly and then surrendering control to FTX. The capital drain will eventually abate and given the aggressive reduction in Ethereum gas levels will likely spur on the vicious circle to resume course once again. What has been interesting to note about the pull back in the total amount locked across the DeFi ecosystem is that while a number of platforms saw their total value locked decline, the number of Bitcoins locked on Ethereum continued to trend higher. This trend implies that there is a layer to the DeFi market that is very deeply entrenched and vested in improving the overall market liquidity. The deeper the overall liquidity, the less important one specific project becomes to the overall longevity of the much larger ecosystem. With this trend, also comes potential bargain hunting opportunities, especially since a number of assets that occupy the top-50 table by market capitalisation are down over 30% over the last 7 days.
