Wizards, Coins, and Capital Moves

The world is ending. Buy cat memes.

For, I think, several years we've believed that not only could ETH possibly pass Bitcoin as the top coin in the market, but we've kind of looked at ETH and Bitcoin as the 1 and 2, however you want to put them in that order. I'm not sure ETH is going to be the number 2 ten years from now.

That was a quote from my appearance on Seeking Alpha’s Investing Experts podcast last week. If you haven’t listened to it, you can check it out here. I do want to make one brief clarification; not being sure ETH is the number 2 asset ten years from now is not the same as having conviction that it won’t be. Wishy washy, I know. But any of us who actually know for sure what will happen in ten years have either cracked the code on time machines or are somehow pulling all the strings on humanity. In either case, you’re probably not reading my brain puke.

At least today, I think the most realistic immediate scenario where ETH would be passed as the number 2 coin in crypto would be if a stablecoin somehow overtakes it. Cop out? Perhaps. You could certainly try to talk me into Solana, and I’d actually welcome that discussion, but I’m not sure I can get there right now and there are some reasons why.

In this crypto ‘blue chip’ post, we’re going to look at a few fundamental metrics for Bitcoin, Ethereum, Solana and how they compare to handful of other coins. Hate them or love them, these public chain-native assets command three of the four highest non-stablecoin market capitalizations from the degen investing community. They have network effects and very different supporters. We’ll look at some new metrics to get a sense for how those supporters are engaging with the chain.

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BUT FIRST…

StableDiffusion prompt: “a painting of Federal Reserve Chairman Jerome Powell wearing a wizard hat and holding a magic wand” Style: Game GTA

Jackson Hole is tomorrow. Credit Master Wizard Jerome will whisper sweet nothings to the financial universe. We will find out if the 800k overshoot on job creation over the last year will play into how he approaches his funds rate decision a month from now; or perhaps if he even believes government statistics any longer at all.

Source: CME FedWatch, September as of 8/22/24

The market thinks 25 bps is baked into the cake for September and there’s even a 24.5% chance of a 50 bps cut. The degens investing community over at

Polymarket

think 50 bps is much less likely:

I have no idea what to expect, personally. One one hand, you could argue Jerome Powell has made it his mission to not be Arthur Burns over these last two years and may feel obligated to utilize any data point he needs to as justification to keep rates exactly where they are. There’s an election a couple months away after all and I doubt he wants the optics of being political. How would the market react to no cut? Anyone’s guess at this point. Rate hikes were bullish. Future rate cuts were bullish. You could certainly talk me into no move at all also being bullish since it offers the prospect of rallying on ‘hopes of a future rate cut’ again. It’s all a passive Ponzi market at this point anyway.

On the other hand, there are obviously signs the economy has problems - which is likely why so many want the cut in the first place. I’m not going to get into the ongoing debate on Notes/X about whether we’re in, approaching, or never going to have a recession again. It’s all confirmation bias at this point. I personally think we’re already there but I’ve felt that way for some time and I’ve been wrong. I can wear it. All I can do is make my wagers and hold the positions that I feel make the most sense.

Fortunately for me, many of you have chosen to get a look inside this ridiculous mind of mine and for those of you, I’ll tell you what I’ve done this week before we get into the shitcoins…

I believe stonks need to meet the 200 day MA before they can make a meaningful new high. This rally reminds me a lot of last August

These are the moves I’ve made this week in my long term investment accounts:

• Sold some SPDR 500 SPY 0.00%↑ at $559, broad equity exposure is now very low

• Bought some Invesco DB Commodity Index DBC 0.00%↑ at $22

• Exited iShares 20+ Treasury Bond TLT 0.00%↑ at $97 and doubled down on iShares 1-3 Year Treasury Bond SHY 0.00%↑ at $82.72

I’ve been long commodities in the past via Sprott’s SII 0.00%↑ Gold PHYS 0.00%↑, Silver PSLV 0.00%↑, and Uranium $SRUFF funds. I’m still long those and have made no moves there. I’ve obviously taken some of my equity exposure down and positioned it into the commodity index. On bonds, I simply took off all duration exposure beyond 3 years and moved it into SHY.

Long term investment capital is positioned as defensively as it has been in some time. Speculative trading capital has moved a bit as well this week:

• Went long Cosmos ($ATOM-USD) at $4.77 (just a trade, don’t get too excited)

• Took off Solana ($SOL-USD) entirely at $143 (more on this in a moment)

• Net seller of Bitcoin ($BTC-USD) through various ETF buys and sells this week

• I’ve made no moves to Aave ($AAVE-USD) or Uniswap ($UNI-USD) trades at this point. Those are both still fairly large long positions that I plan to hold through the bull cycle at this point

Finally, I sold out of Roku ROKU 0.00%↑ at a little over $60 and doubled up B2Gold Corp BTG 0.00%↑ at $2.85 in HSEP. Speaking of which: we’re still ahead of the index though I highly doubt I’m going to double this account this year - which was probably a silly goal.

HSEP is up 41% year to date and is currently 65% cash

That said, I doubt I’m done there FWIW. I’m sort of hoping for one final washout in metal miners if that gives you an indication of what I want my next big trade to be. Regardless, let’s get to the cryptocorns.

Crypto ‘Blue Chips’

First, the 30 Day Pearson for our beloved Bitcorn:

Source: The Block, as of 8/22/24

Bitcoin is moving more with the index and the Qs and now has a negative correlation with Gold again - the top of which was August 2nd. This would suggest BTC is behaving more like a speculative instrument and less like a “safe haven” asset would, in my view. I’m not trying to pick nits here, I’m just pointing out that BTC moved more with stocks rather than with Gold when the financial markets started blowing up as they did at the beginning of the month. Signal? I think so.

Source: Coinshares, as of 8/17/24

Like just about everything, these assets are highly reliant on capital inflows for returns. Interestingly, the net investment into Solana year to date was just cut in half in a single week. As far as I can tell, there isn’t a clear reason for this. But it’s eye opening in my opinion. At $31 million in year to date capital flow, Solana is now behind Litecoin in YTD net investment from traditional products. I mean, seriously, that’s hilarious. And it’s either an indication that it’s time to buy LTC or time to take the W in SOL. I already have enough LTC for my liking so I’m choosing to read it as the latter.

If I can take a stab at why Solana could theoretically be losing favor with investors; I would argue the organic bid from real utility simply hasn’t been growing as meaningfully as many likely believe. That’s true for BTC and ETH to be sure, but doubly true for SOL. Consider the chart below:

Source: Artemis, as of 8/22/24, 7 day moving averages

This is admittedly hard to read and has four different scales. What this is showing is the 7 day moving average in Daily Transactions divided by Daily Active Addresses (TX/DAA ratio) for Solana, Ethereum, Tron ($TRX-USD), and Bitcoin. They generally share a common pattern where there is an enormous spike in the Tx/DAA ratio when a chain is launched followed by a long grind lower.

I don’t know what the right number is for this. I actually think it could be argued this is what we might want to see because it’s theoretically suggestive of less wash trading. Again, the scales are tough here, but this is what those 7 day moving average Tx/DAA ratios look like so far in August:

• Solana - 730

• Tron - 92

• Ethereum - 84

• Bitcoin - 32

No human is doing any of this but Solana is an egregious offender here. There are 1,440 minutes in a day. If we assume 8 hours for sleeping, at 730 transactions per user, the average Solana user would have to be making a transaction nearly every single waking minute of the day. This is obviously not possible and is thus an indication that Solana’s activity is likely entirely reliant on bot trading. Tough to be too interested in that if we want exposure to a useful public blockchain rather than a memecoin casino.

CoinMetrics doesn’t support chain data for Solana, but we can still get a really interesting read on the broader active address trend in the crypto ecosystem when we stack them up. First off, don’t take this as “uniques.” There are surely people who use multiple chains just as there are people who use both Facebook and Instagram.

That said, there are some interesting nuggets from this chart. This is the year to date change in 90 day average DAUs by chain:

• Bitcoin (-26.8%)

• Ethereum (+12.9%)

• Tron (+42.2%)

• Doge (-47.7%)

• Litecoin (-6.3%)

• Avalanche (-12.3%)

• Bitcoin Cash (+10.9%)

• Zcash (+38.5%)

While interesting to see ZEC and BCH being positive in daily active usage year to date, these figures are from very low starting points. The more interesting nugget from this to me is just how much Tron is driving adoption of public blockchain rails from a daily usage standpoint. I have never covered Tron either here or for Seeking Alpha. I suspect that is going to have to change soon. Not today though.

Active users is just one part of all this.

What it really boils down to is which chain is moving the most transferred volume. Here we still see just a two horse race per data from CoinMetrics - this is adjusted to weed out wash trading. Though it has more daily users and a strong stablecoin footprint, Tron doesn’t sniff the adjusted transfer volume that we see from Bitcoin or Ethereum. We can see this data for Solana and Ethereum from Artemis as well, but it isn’t adjusted and I don’t know that it’s all that helpful to be totally honest.

Main Takeaway?

I don’t have one. The point of all this has just been to show you how I’m currently reading the baseball. Regarding Bitcoin, it’s probably still the cleanest shirt in the laundry for cryptocurrency investment simply because the perception from retail is that it’s on a magical ‘digital gold’ narrative ride to the sky. Never mind that most traditional investors don’t actually like real Gold… digital Gold is wonderful.

I’m also sharing this MVRV chart for one reason. We hit a market value to realized value ratio of 261% in Bitcoin in March. That has proven to be the peak to this point of this cycle both in the ratio and in the coin price. The question is; was this last print of that ratio high more akin to the first box from June 2019 (pullback before new ATH) or is it more akin to the second box from November 2021 (cycle high). Personally, I think it’s more like the first box.

But both boxes preceded BTC price drawdowns of at least 50%… if history repeats, this would seem to imply sub-$40k BTC before the real run begins. Food for thought. Do with it what you wish.