Fearless Start to the New Year
Fearless Start to the New Year
Bitcoin break 30,000 USD. The new year starts off with a daring start. The second best quarter in Bitcoin's history opens the door to new milestones.
At last! The year 2020 is behind us. Never before have we hoped to oust such a bad year, beset by events in a period that saw the sudden emergence of social, political and economic problems which, despite the dangers, were managed and absorbed in a way that often gave, or at least deluded, the hope of always finding a solution. In particular, the economic aspect exploded so suddenly that it forced institutions and financial bodies, both governmental and private, to deal with problems that had hitherto not been considered, or even ignored.
And this, as far as the former are concerned, is happening not so much as a result of a real awareness, which is objectively understandable because accepting it would mean, at least in part, an admission of weakness, but because of ever-increasing demand from people who are increasingly looking for safe havens where they can protect part of their wealth, or, to be more precise, their hard-earned savings. This search for protection is taking place at a speed that follows the so-called survival instinct. If the result was socially devastating, initially leading people to accept human helplessness and to find groups and cohesive solutions, such as vaccines or the acceptance of restrictive physical confinement, with the passage of time (months) the general confusion that circulates, especially among political and health authorities around the world, is changing the perception of people who are deciding to take an individual and no longer a group choice. It is often said that to understand the true nature of a man and his instincts, one has to observe his behaviour with money.
What we are witnessing is that more and more people are starting to question the monstrous moves that governments and central banks around the world have been making for the last nine months. Actions with more massive power than ever before in history. Just think of the trillion-dollar bailout and stimulus plans applied so far by the US Federal Reverse and the European Central Bank with a 'recovery fund' plan that until a few months ago seemed like science fiction. But this seems not to be enough. People fear that this avalanche of money will have an impact on the near future and reduce purchasing power. This is why we are living in a moment that is becoming almost impossible to predict. Not so much because of a lack of analysis, but because of assumptions that cannot be developed on the basis of reliable economic models. Because a context like the current one has never occurred in history. Making comparisons with previous pandemics of past centuries or debt crises of a few years ago serves no purpose except to try to give an approximate reading. But in practice, there is a need for action. For those who have been reading me for a long time and have a good memory, it may seem superfluous to remind you again, but several times over the last few years, particularly in the last two, I highlighted certain phases and moments where it seemed that there were signs of interest on the part of large financial players in the cryptocurrency sector, players that in the news seemed to show contempt and reluctance towards Bitcoin and Co., but in the trading volumes as well as in some rumours there were strange movements and investments in some startups directly involved in digital currencies.
You may have noticed how in recent weeks the most used word "Bitcoin" has almost cancelled out the buzzword "Blockchain" which over the last three years seemed to be the solution to all the ills and dysfunctions of society, not only economic. Let's get ready to live an exciting 2021 where it will be acknowledged that those who, like me, until yesterday felt they had arrived prepared and educated in the knowledge of the transition to the new Web3 internet era, were considered first a nerd, then a heretic. It will not be an easy path, on the contrary... now comes the most difficult moment because cryptocurrencies are no longer the virtual tokens used by gamers, drug dealers and tax evaders, but the system that will make money pass through the internet with an ease and speed that centralized systems have failed to achieve in decades of attempts and tests. The same systems that seem archaic today have become, or are becoming, aware that evolution (or revolution?!?) is already underway and those who do not are doomed to extinction. What has happened in recent decades for communications and information will happen tomorrow for economics and finance. And this is no longer a hypothesis, it is reality.
I wish you a good start to 2021
Decentralized Finance - DeFi
2020 was the year that saw the explosion of decentralized finance projects. At the beginning of last year, the total value locked (TVL) on the various protocols that existed at the time was less than $700 million. In mid-February, it rose above $1 billion for the first time, only to be knocked down during the mid-March crisis. The collapse in the prices of Ethereum, the main token used as collateral, which lost 70% of its value in a month - from February 13th to March 13th - also caused the TVL to fall below $550 million. After an initial moment of bewilderment, the change in the trend was so dramatic that it catalyzed the attention not only of cryptocurrency experts. In mid-May, the TVL returned above $1 billion, triggering an exponential climb that month after month has seen both new liquidity and the number of new projects grow. There has been no shortage of hacks that have exploited the weaknesses and inefficiencies of certain protocols, causing the validity of the development to be questioned on several occasions, but without affecting the growth of the sector, which in the last few days of the year recorded the peak of its total value locked. On December 30th, 2020, TVL was close to $15 billion.
At over $2.8bn, Maker is the leading project of the over 55 major DeFi projects currently in existence, holding 20% of the entire collateralized value. In addition to being the most widely used lending project, Maker is also the oldest, having been launched in 2015.
Second position is currently held by Aave with over $2 billion. A Peer-to-Peer lending project born in 2017 under the name ETHLend, with the support of Eidoo. In September 2018 ETHLend renamed itself to Aave (from the Finnish for "ghost").
It is followed in third position by Compound which today has a total of just under $2 billion. A project born in September 2018 then developed into version V2 in May 2019.
Total Value Locked in DeFi (TVL)
In mid-December, the DeFiPulse benchmark index, which collects data and tracks the most popular smart contracts used in decentralised finance, decided to exclude from the general count all protocols that tokenize Bitcoin using the ERC20 protocol, by creating a new index that only includes these projects.
The leading project is WBTC, the first project to offer Bitcoin holders the possibility to create an ERC20 token that can be used on multiple decentralized financial projects. There are currently ten projects that allow converting Bitcoin, generating 1:1 backed tokens, for over 141,000 BTC. More than 80% of tokenized Bitcoin are managed by WBTC. Prominent among the projects is pBTC which also allows tokenization on the EOS blockchain.
With more than $25.3 billion, December marked the second-highest trading volume on record. Only September 2020 saw a higher trading volume with $28.3 billion. In the last seven days, a statistically low trading period, the total volume on the decentralized platforms was over $7 billion.
Uniswap remains the leading decentralized exchange (DEX) project with $3.5 worth of trading recorded in the last week, accounting for 52% of all volume in the last seven days.
SushiSwap's "vampire" project follows with over $1 billion (dominance=52%), surpassing
Curve which occupies 14% of the market share among DEX projects.
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Technical Analysis
Bitcoin (BTC)
After a glorious end to the year 2020, Bitcoin begins the new year by setting new all-time highs. The price of Bitcoin is now poised to celebrate surpassing $30,000, just 17 days after breaking the previous all-time high of $20,000 (1), which has now become a static and dynamic support, where the trendline connecting the rising lows since mid-October passes. December was the best year ever for Bitcoin with a rise of over 9,200 points/dollars, equal to a monthly performance of +46%. In percentage terms, this is the fourth most bullish month in Bitcoin's history. It did better in May 2019 as well as in October and November 2017, up 47% and 53% respectively. In all three cases, the nominal gain by value did not go beyond $3,860 (November 2017). The result for Q4 2020 of +179% was also the best achieved in the last three years and the second-best since Q4 2014, behind only the +210% performance achieved in Q4 2017. December 2020 was also the month that traded the highest value in US dollar equivalent. On both days of December 17th and 27th, daily trades exceeded $10 billion for the first time.
With prices at USD 30,000, Bitcoin continues to move into uncharted territory. With a gain of 670% in less than 10 months (March 2019) equating to a multiplied value of over 7 times, the rise has gone far beyond best expectation. Bitcoin holders will be pleased to note that the hypothesis of the quarterly cycle closing that developed over the past few weeks (2) has now been discarded. By now, the expected close by mid-January is unlikely, if at all. Only a strong decline (a loss of more than 50% from the current highs) would make this analysis valid again. These may seem like unlikely numbers, but those who know the history of Bitcoin will know very well that it is better not to exclude the possibility of strong declines in a short time.
In these market phases and with prices at dizzying heights, the only valid tools to be used are Fibonacci levels. Taking as reference the periods between December 2017 and December 2018 and between the latter and March 2020, the target to be considered for the coming months is placed in the area of 36,000 USD (3). A distance of 20% from current levels.
BTC Chart
All the upside hedges indicated in the previous update have been blown, a sign that many options traders have also been caught off guard by the further rise of the last few days and that, in all likelihood, they have contributed to new purchases to cover uncovered positions by selling Call options. At the moment, there is no evidence of new hedging strategies, except for the prevalence of further sales above 30,000 USD, probably necessary to rebalance the losses accumulated in recent days. It will be necessary to wait a few days to understand the new moves.
BTC Options
Ethereum (ETH)
Although it has remained more modest, Ethereum's rise throughout 2020 should not be overlooked. The Year-To-Date (YTD) performance was +468% - Bitcoin's was 304% - and its rise from the low of mid-March 2020 was 750% (4). A rise that is less newsworthy because, although Ethereum's value has recovered half of the decline it suffered during the bearish phase of 2018, it is still around 90% away from the historic high of USD 1400 reached in January 2018.
Compared to Bitcoin, the trend constructed over the past 10 months appears more harmonious and solid. Unlike the king of cryptocurrencies, the queen of altcoins is consolidating the uptrend characterized by few bullish breakouts. Despite the phases of uncertainty between May and July and then from the beginning of September to mid-November, when Bitcoin was showing a tendency to go up, Ethereum has consolidated its medium-term supports, building reference levels to evaluate protection in case of reversals. The bullish phase that has been underpinning the uptrend since early November has seen Ethereum's prices double, which on the last day of December 2020 exceeded USD 755, the highest level since May 2018.
With the recent rise, Ethereum prices have recovered 50% of the Fibonacci retracement that takes as reference the highs of January 2018 and lows of March 2020. Therefore, this months' rise can be technically contextualized as a 'bounce'. In order to start talking about a recovery uptrend in a long-term trend, in the coming weeks it is necessary to exceed USD 800 and to exceed USD 900 (2) in the coming months. Only if the 1,100 USD (3) mark is exceeded will Ethereum enter a new long-term bullish phase.
ETH Chart
As written above, the rise in recent months has consolidated reference support levels in both the short and medium-term. This allows options traders to identify areas of reference both to the downside and upside. The protection strategies of recent days consider the area 590-560 USD as the levels to protect in case of a trend reversal. While on the upside, the areas between 755 and 800 USD present the reference strikes where the greatest overlaps prevail. The strength of Put options (6.1) and Call options (5.5) is similar, indicating that traders remain positive about the continuation of the uptrend but are cautious in the event of a reversal. In fact, the USD 560 area is more than 20% away from current levels.
ETH Options
Interview with Amrit Kumar, President and Chief Scientific Officer at Zilliqa
How did 2020 go? What's the achievements you are most proud of?
2020 was a year of great uncertainty, with many companies facing unpredictable challenges amid the pandemic and the resulting economic turbulence. In spite of this, we’ve worked to adapt to the ‘new normal’, embarking on several growth projects in the past year. Seeking to promote blockchain development in the region, we welcomed 8 new projects to the Zilliqa ecosystem as part of the ZILHive Accelerator Programme which seeks to support early and late-stage startups that are using or looking to use the Zilliqa protocol to build blockchain solutions. In addition, we also launched the ZILHive Open Finance Consortium to further our commitment to accelerating the adoption and awareness of blockchain within the FinTech space across ASEAN.
As we continue to expand, we also saw positive growth across the Zilliqa ecosystem. Monthly transactions reached 1,027,263 in November 2020, 15 times that of the monthly transaction in April 2019. As we continue to grow the Zilliqa ecosystem into one that is more comprehensive, we’ve also supported an increasing number of partners — a total of 56 compared to last year’s 38. Additionally, we’ve also embarked on several exciting partnerships, including that of Incognito, Switcheo, Travala, BUSD, and Onchain Custodian — all of which address the varying needs of users across the institutional, commercial, and retail landscape. With utilisation as a key goal, we also significantly expanded our global network of exchange and liquidity partners with the likes of Binance, OKex, Onchain Custodian, Crypto.com, and Changelly, among others. As we look ahead to 2021, we are confident that we are well-positioned to bring forth a more comprehensive, user-friendly, and valuable experience for our community.
What are the plans for your 2021?
At Zilliqa, we’ve always held the goal of enabling organisations and partners to benefit from blockchain in a seamless, integrated manner — eliminating the key pain points that have often served as deterrents when experimenting with new technologies. This is why we are making usability, commercialisation, and user experience our key focus areas for 2021.
In the past year, we wanted to boost both utilisation and community engagement, leveraging on social platforms to develop rewards programmes that could bring value to both users and organisations alike. Some examples include the community-centric SocialPay and the Zeeves loyalty programme. SocialPay, a blockchain-driven rewards-based tool for Twitter, was introduced to amplify engagement with the Zilliqa community by incentivising users with $ZIL for their engagement. In utilising SocialPay to give back to the wider community, we partnered with the Singapore Red Cross on their Covid-19 relief efforts for a donation matching campaign. Zeeves, the most advanced bot on Telegram, has seen more than $52,000 worth of ZIL purchased, recording over 30,000 new sign-ups and processing over 20,000 transactions. Just this month, we also launched the Zeeves loyalty programme as we continue on our push to commercialise blockchain technology across mainstream audiences.
Over the years, our smart contract technology has proven itself as a sufficiently robust and secure infrastructure, capable of handling complex, high-value transactions. As part of our commercialisation push,, we’ve also brought our Blockchain-as-a-Service microservices to market, ensuring that they can be easily leveraged by users. This is something we hope to continue in the coming year as the strength of our infrastructure continues to prove itself over time.
From a commercial technology perspective, we will continue to increase our presence in the enterprise blockchain space, focusing on productising our offerings in promising areas such as asset tokenisation, stablecoins, blockchain-verified certifications, decentralised identity, and custom build solutions among others. By tapping into the wealth of experience we’ve attained since day one coupled with our tireless commitment to ecosystem growth and collaboration, we hope to further enhance the value that customers can derive from our offerings.
Can you tell us more about your project with Mintable?
Mintable is a community-controlled, decentralised app (Dapp) which allows for the buying and selling of non-fungible tokens. As one of the projects to emerge from our first cohort of ZILHive projects in 2019, our partnership with Mintable has since grown to encompass a digital NFT marketplace built on the Zilliqa blockchain. This allows users to buy, sell, and trade Zilliqa-based assets on our network, along with .ZIL domains. The platform is powered by Zilliqa’s secure-by-design smart contracts which allow buyers to verify the authenticity of artworks and collectibles, which can also be seamlessly transacted via ZilPay — a crypto wallet for Dapps on the Zilliqa blockchain — as well. As we continue to explore asset tokenisation, Mintable has become a crucial player in our ecosystem enabling us to introduce NFTs to a more mainstream audience of artists and entrepreneurs in a user-friendly manner.
How is it going with the staking?
We introduced non-custodial staking services onto the mainnet this year, allowing users to stake directly on the platform through participating wallets, thereby eliminating any intermediaries such as exchanges. This further improved on the security and usability across our DeFi ecosystem for users. The Zilliqa community has rallied strongly around this, and there are now around 4 billion ZILs — approximately USD$ 400 million — locked in the contract to date.
As we increase our DeFi offerings to provide enhanced value for users, we also launched ZILSwap — a fully on-chain decentralised exchange (DEX). Developed in collaboration with Switcheo, ZILSwap offers an automated market maker and liquidity system, allowing users to trade digital assets on the Zilliqa blockchain.
What's your vision for the future of DeFi?
The soaring popularity of DeFi this past summer has shown that DeFi has emerged as a worthy contender to traditional finance, with promising use cases such as non-fungible tokens (NFTs) that can represent financial instruments such as insurance and options. These developments only bode well for the growth of the DeFi industry. From derivatives, bonds, insurance, savings, and peer-to-peer loans, I envision that DeFi will rise to the fore in the coming year, offering a viable alternative to legacy finance and bringing greater access to financial services for the underbanked across the globe.
As the DeFi industry continues to grow, we hope to play a key role in the space — whether through accelerator programmes like ZILHive or partnerships with other DeFi players — to build an inclusive, innovative, and open financial ecosystem where barriers to entry will be eradicated when it comes to providing financial services for those in most need.
What will be the new trends for 2021 in the crypto space?
DeFi will definitely be one area to look out for in the new year. As the DeFi space continues to mature, what we’re likely to see is a trend towards enhanced user experience, whether it’s through upgrades to existing network infrastructure or by designing a user-friendly interface for better ease of use.
With one of the key arguments for DeFi serving as a conduit for the underbanked, we are also likely to see more use cases around the democratisation of access to capital as DeFi projects continue to introduce more solutions that bypass intermediaries, enabling a more inclusive and open financial ecosystem.
With developments around central bank digital currencies (CBDCs), I also believe that 2021 will be the year for growing institutional participation and exploration on the use of digital assets for both retail and wholesale purposes alike. China’s digital yuan, for one, has led the push in CBDCs, with its currency pilot programme set to expand the use of the currency beyond physical stores, allowing consumers to seamlessly transfer the digital yuan via their smartphones. Singapore, too, has started exploring the use of wholesale CBDCs, as the Monetary Authority of Singapore looks to take digital currencies from experiment to production.
The growing popularity of digital assets this year will also prompt greater scrutiny from regulators and central banks as they look to bring some form of structure and protection. We are already starting to see regulations around the taxation of digital assets — for instance, the US Internal Revenue Service has now included a section on its individual tax return form that requires a declaration of any ownership of digital assets. With AML/KYC concerns around cryptocurrencies, the Financial Action Task Force (FATF)’s AML/KYC requirements for virtual asset service providers (VASPs) is another regulation that will likely have even greater emphasis in the coming year.
How is it going with ZILSwap?
In collaboration with Switcheo, we built a decentralised exchange (DEX) and launched ZILSwap earlier this year as part of ongoing efforts to decentralise the network and bring greater liquidity to the Zilliqa staking ecosystem. This has been well received by the community, with ZILSwap currently holding over 6 million ZILs in liquidity — approximately USD$490,000.