From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
“Gambling? Who said anything about gambling? It's not gambling when you know you're gonna win.”
— The Hangover
Crypto’s Weekend Casino
My first job at an investment bank pre-dated trading algorithms by a few years.
If I wanted to buy 100,000 shares of something, it generally meant entering orders of a 1,000 shares 100 times. It was A LOT of keyboard and mouse clicks.
On busy days, with millions of shares to trade, someone would bring me lunch and I’d put it on top of my computer where it would sit until I could stop bashing the keyboard — which was generally when the market closed at 4 pm.
I envied my Tokyo and Hong Kong colleagues who traded stock markets that closed for an hour at lunchtime. They’re very civilized over there.
Everything changed in the early aughts when algorithms were introduced.
From the moment machines started making the decisions, trading volume has been inexorably moving to the first and last 10 minutes of the trading day.
That’s because trading algorithms seek out volume, so the more people use algos, the more volume gets sent to where the volume already is: the first and last ten minutes. And the more volume that’s there, the more algos seek it out.
The upshot of that self-fulfilling trend is that NASDAQ and NYSE could change their opening hours to two short daily sessions — a morning session from 9:30 to 10:30, say, and an afternoon session from 3 to 4 — and we’d all be better off: Investors could get in and out of stocks in two hours of highly concentrated liquidity; and traders could spend the five hours in between drawing trend lines on charts. Or running errands. Or volunteering at the local dog shelter.
Nearly all trading is done by algorithm these days, but the Tokyo and Hong Kong exchanges still close for an hour at midday. So why not make it five?
There are of course lots of people who trade equities just for the sake of trading equities, and they would be disappointed; they want to trade more, not less.
Some of those people — the degenerate gamblers that trade S&P futures when they open at 6 pm on Sunday nights — have recently discovered crypto.
They’re not here for the tech or the decentralization or the use cases. They just want to trade something — anything — on weekends!
That has been a mixed blessing.
Crypto natives have long been waiting for TradFi money to enter crypto on the assumption that it would send prices higher. (Remember how excited everyone was when the first bitcoin ETF was listed?)
But it seems to have sent crypto lower, instead.
That, at least, is the impression I get from the crypto apologists who blame nearly every crypto sell-off on “macro.”
Those excuse-makers were out in full force this weekend, assigning ETH’s continued weakness — off another 10% from TradFi’s Friday close — to Powell’s hawkish comments at Jackson Hole.
That explanation started to look a little dog-ate-my-homework when S&P futures opened down less than 1% last night.
If ETH is going to be down 10% every time the S&P is down 1%, it could be trading at $0 in about ten days.
OK, fine — I admit that is not how percentages work.
But the point stands: Crypto is getting bullied on weekends. When there are no equities to kick, traders kick crypto instead.
We may have ourselves to blame for that treatment, for going all-in on the hard-money narrative.
Bitcoin, our hard-money champion, was not as bad as ETH this weekend but is, of course, in the same boat: Every explanation of why it’s 70% off its highs starts and ends with “macro.”
But its underperformance in the recent bounce suggests the price action is about more than just the current interest-rate cycle.
Bitcoin is a bet that, as we get closer to the cap of 21 million coins, higher prices will offset lower fees: Miners have to be incentivized to secure the network and as fewer coins are issued, each coin needs to be worth more.
If bitcoin continues to be as sensitive to interest rates as it recently has been, that may be difficult to achieve: Per Powell on Friday, Fed funds may be higher for longer.
Our other flagship crypto, ether, seems to be better placed to resist the interest-rate cycle as it’s a bet on fees (not price). But ETH has been just as correlated to equities as bitcoin as of late — more so even.
And that despite the Merge.
Rather than hand waive this away (we’ll be fine as soon as Powell leaves us alone!), we should maybe consider what else the market is trying to tell us — perhaps that Ethereum is not going to generate enough fees to attract traditional investors in any great size.
Or that the hard-money narrative may not be enough to secure Bitcoin’s future.
The market may just be wrong — it often is — in which case everything is fine.
But crypto needs to demonstrate utility to attract longer-term, higher-conviction money — enough so that the underlying price trend is upwards, irrespective of what the weekend gamblers are doing.
ETH and BTC’s ongoing correlation to equities is an indication it’s not yet achieved that.
To break that correlation, we should spend less time thinking about why Fed funds is going to 4% and more time thinking about why the ETH gas rate keeps going to 4 gwei.
If not, we risk crypto being not much more than a 24/7 proxy for Nasdaq, which is not what the world needs.
The Investor’s Guide to Crypto Taxes [Sponsored] — Blockworks
Meta To Expand NFT Feature to Select Facebook, Instagram Users This Week — Blockworks
Ava Labs CEO Rejects Report Alleging Conspiracy with Law Firm — Blockworks
Tether Pushes Back Timeline on Audit: Report — Blockworks
Trading Volumes for Crypto Investment Products Hit 2-year Low — Blockworks
Funding Wrap: Venture Capitalists Continue to Prioritize Web3 — Blockworks
State Street Sees ‘Significant Opportunity’ in Tokenization — Blockworks
Gearbox Shifts Into V2 With $4M Funding Boost — Blockworks
Crypto Conference in India Highlights Building for Next Bull Market — Blockworks
Singapore Says Crypto Ban For Retail ‘Not Likely to Work’ — Blockworks
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