Synthetix’s founder: crypto and DeFi still in the earliest inning of its next growth cycle
As Bitcoin and especially Ethereum’s DeFi ecosystem has drawn down from its recent highs, analysts have been left wondering what phase of the market cycle are cryptocurrencies in. Is this the early innings of a bull market or the start of another bear trend?
According to Kain Warwick, the founder of Synthetix and a long-time crypto market participant (since 2012), ongoing price action and fundamental trends suggest we’re still in 2016.
That’s to say, cryptocurrencies have a lot further to grow in the coming years.
We’re in 2016, not 2017: Synthetix founder and long-time crypto bull
Warwick explained that having lived through two previous crypto cycles, he thinks that the industry’s current situation is analogous to 2016, which was the “calm before the 2017 storm,” so to say:
“I’ve been trying to work out if we were in 2016 or 2017 for the last 6 months. This last week firmly put me in the 2016 camp. It’s actually shocking how similar human reactions are to the same stimuli. After the dump in July 2016 I could not convince anyone to buy BTC @ $500…”
I’ve been trying to work out if we were in 2016 or 2017 for the last 6 months. This last week firmly put me in the 2016 camp. It’s actually shocking how similar human reactions are to the same stimuli. After the dump in July 2016 I could not convince anyone to buy BTC @ $500…
— kain.eth (@kaiynne) September 22, 2020
The main reason why he thinks so is that after the recent strong decline in Bitcoin, then in top altcoins including his own SNX, there are few looking to buy the dip.
He expanded on his thoughts on the current situation in the crypto market in a post published to the Synthetix site.
Warwick commented that right now, DeFi is a “total clusterf**k” in a good-bad kind of way:
“So many things are happening simultaneously that it is impossible to track the potential consequences of all of them let alone the combined consequences of stitching them all together.
Thus you get the challenges for the DAI peg, and weird volume spikes across the DEX landscape due to shifting protocol incentives, and high yields on specific DeFi tokens on lending protocols.”
He also mentioned how builders in the crypto ecosystem now must acknowledge that the decisions they make affect the rest of the DeFi ecosystem, meaning there needs to be a concerted effort amongst all teams to work together to better products.
Start of a parabolic crypto growth cycle
While crypto’s recent price action has been slow to say the very least, going off of Warwick’s comments and those of other top commentators, a parabolic growth trend is to follow.
Chris Burniske, a partner at Placeholder Capital, recently commented that he thinks that Ethereum will reach a market capitalization of $1 trillion this market cycle:
“Meanwhile, to the mainstream $ETH will be the new kid on the block — expect a frenzy to go with that realization. Given $ETH’s outperformance of $BTC over its lifetime (chart below again), not to mention smaller network value and strong on-chain economies, I see every reason for $ETHBTC to surpass ATHs.”
Other commentators have made similar comments about Bitcoin, remarking that the likelihood the coin undergoes another exponential growth trend in this market cycle is likely.
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Bears reign as 86% of September’s $284M CME Bitcoin options are worthless
As of now, the $622 million total open interest for BTC futures expiry on Friday seems quite relevant.
This Friday, a total of $100 million in CME Bitcoin (BTC) options are set to expire. 58% of these are call (buy) options, meaning buyers can acquire BTC futures at a fixed price.
As the expiry draws near, call options 10% or higher above the current BTC price are deemed worthless. Therefore, there’s not much to gain in rolling over this position for October.
September CME call options open interest (contracts). Source: CME
Each CME contract represents 5 BTC, and the chart above shows which are the most significant levels for September call options.
Note that a striking 86% of those are set at $11,300 and above. Hence those options are currently priced at $10 or less.
This means there will be less pressure coming from the CME options expiry, with $8 million call options open interest ranging from $10K to $11K.
On the other hand, put options between the same range amount to $12 million in open interest. As both call and put options are relatively balanced, the overall impact should be little to none. Therefore, one must check the remaining exchanges to analyze the options expiry impact.
As the options markets leader, Deribit, holds a 75% share, equating to $554 million worth of open interest in BTC options set to expire this Friday. This figure is evenly distributed between call (buy) and put (sell) options.
Deribit September BTC options open interest. Source: Deribit
Unlike CME, Deribit traders have been more modest as only 70% of the call options open interest for September sits at $11,250 and above. As for the ones ranging from $10K to $11K, there’s $74 million in call options stacked against $110 million in put options.
Although the Deribit number is far more significant than the CME’s, the $26 million imbalance does not seem relevant considering the underlying $2 billion in BTC daily volume.
Futures expire, but there can’t be an imbalance
Futures contracts are a completely different instrument from options, as buyers and sellers must be evenly matched at all times.
Although every contract is similar, perpetual futures (inverse swaps) do not expire. They are simply rebalanced every 8 hours, which means there is no impact on expiry dates.
On the other hand, some derivatives exchanges offer regular futures contracts with monthly expiry. Unlike options markets, these traders can keep their positions open by rolling over ahead of expiry.
CME has $284 million worth of BTC futures set to mature on Friday, although this figure should be reduced as traders move positions to October and November contracts.
OKEx leads the remaining exchanges with $147 million, while Deribit has $73 million, Huobi $63 million, and BitMEX holds $46 million.
As of now, the $622 million total open interest for BTC futures expiry on Friday seems quite relevant, considering spot (regular) exchanges maintain $2 billion in daily volume.
Friday’s CME expiry no longer poses a threat
During most of 2018 and 2019, there has been a pretty consistent Bitcoin price drop ahead of each monthly CME expiry. A more recent Cointelegraph study has shown that since October 2019, these such movements ceased to exist.
To further disprove the CME negative price impact theory, let’s look at the last three expiries.
BTC price in USD. Source: TradingView
June was the only month where a 2% negative performance preceded the contract expiry. Meanwhile, both July and August presented positive returns, therefore invalidating any negative expectations.
The above data shows traders should be less worried about CME expiry, as it does not seem to have produced a significant impact in the previous months. Most likely the high correlation with the S&P 500 has been the primary reason behind the CME’s decaying influence.
As for the 86% of worthless CME call options, those buyers will most likely have less appetite for the upcoming exposure. Therefore, overall sentiment from Friday is likely to have a negative impact going forward.
Both OKEx and Deribit weekly contracts mature September 25 at 8:00 AM (UTC). Later on that day, CME futures are set to expire at 3:00 PM (UTC).
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Revealing crypto exchange’s physical location was not harmful, court rules
A federal judge has ruled that an employee who revealed the location of a major crypto exchange did not violate its trade secrets.
According to court records filed Sept. 22, U.S. District Judge Maxine M. Chesney has dismissed a lawsuit filed by Payward Inc. — the owner of Kraken — against former employee Nathan Peter Runyon for misappropriating “trade secrets” by publicly disclosing the exchange’s physical address in San Francisco and accessing one of the company’s protected computers.
The Judge ruled that Payward was not alleging Runyon used the address to gain an economic advantage, nor did the complaint include facts that accessing the computer caused “damage or loss, in any amount, to Payward.”
Runyon published the address in a November 2019 lawsuit he filed against the exchange in connection with alleged breach of contract and sanctions violations. He accused Kraken of unethical and illegal business tactics, defrauding employees over their stock options, sanctions violations, discrimination against him as a disabled military veteran and faking company officer addresses.
Payward filed the suit against Runyon in March, stating that keeping its address secret protects it from physical threats including workers being kidnapped. The exchange also claimed that by publishing its address, Runyon had breached the terms of his original contract fr when he was employed as a financial analyst from March 2018 to August 2019.
Judge Chesney stated that Payward will have the right to file an amended complaint against Runyon before Oct. 9.
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