RESEARCH

IN NO HURRY

BEQUANT Crypto&Coffee

As noted recently, the $11,500 level is of particular importance to the market this month given the large gamma at play for the mid-month expiry (witnessed last week) and also end of the month expiry. This is such that if spot remained above this level market makers would have had to close hedges pushing the spot even higher. It is combination of the above, together with the fact that the level inadvertently became the key resistance level also resulted in the price gaining momentum on the break. 

Elsewhere, comments by the Federal Reserve (Fed) Chairman Jerome Powell on the topic of digital dollar were also positive for the broader ecosystem, but in no way it should be construed that the Fed will utilise Bitcoin for its digital currency ambitions. Specifically, the Fed is open to collaborating with the private sector on a possible digital U.S. dollar, but reiterated that the central bank has not committed to actually launching one. Powell emphasized that any possible digital dollar would serve as a “complement” to physical cash — not a replacement.

On the subject of digital dollar and central bank currencies, it is worth revisiting a report titled "Central Bank Digital Currencies", which was produced by the Cleveland Fed president. There, it is noted that "the experience with pandemic emergency payments has brought forward an idea that was already gaining increased attention at central banks around the world, that is, central bank digital currency (CBDC)." then goes on to reveal that "legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments." 

Other proposals would create a new payments instrument, digital cash, which would be just like the physical currency issued by central banks today, but in a digital form and, potentially, without the anonymity of physical currency. Depending on how these currencies are designed, central banks could support them without the need for commercial bank involvement via direct issuance into the end-users’ digital wallets combined with central-bank-facilitated transfer and redemption services.

In terms of other developments and specifically for those that thought that market’s interest in DeFi offerings has plateaued should look at the ongoing rotation play between yearn.finance (YFI) and harvest.finance (FARM). The total value locked on YFI continued to decline after peaking just under $1bln, while FARM’s total value locked is undergoing exponential growth rate and is about to over take that of YFI. However, the real “alpha leak” is slowly brewing in the background in the form of sky high Ethereum gas fees. 

The above example (YFI vs FARM) highlights that there is still a lot of hot money interest in DeFi and the double edge sword by-product of stretched Ethereum network are elevated gas fees. As such, it is worth keeping an eye on L2 scaling solutions such as Loopring (LRC) and OMG Networks (OMG). With volatility in Bitcoin no where to be seen, the trend in locking Bitcoin on the Ethereum network will remain intact and at the time of writing, just over 142k Btc were locked on the competing chain. As a reminder, it was only earlier this summer that Compound Finance governance proposal was approved which resulted in collateral factor on cWBTC changed to 40% (this was executed on July 14th). Up until that point, it was not possible to use WBTC as collateral on Compound, although it was possible for it be loaned and borrowed. This change allows users to loan WBTC while using 40% of its value as collateral.

Furthermore, Cointelegraph writes that ConsenSys developer Ben Edgington has published an update that predicts the ETH 2.0 beacon chain genesis will happen within the next six to eight weeks. In a post announcing the launch of ‘V1.0.0 release candidate 0’, Edgington revealed the protocol’s deposit contract address feature should be announced this week. The deposit contract allows ETH to be sent between Ethereum and ETH 2.0, and is one of the few remaining updates needed to facilitate the roll-out of ETH 2.0 phase 0.