Disclaimer: Your capital is at risk. This is not investment advice.
ByteFolio Update 54 | ByteTree's Crypto Leaders
ByteFolio brings together ATOMIC, ByteTrend and Token Takeaway to create ByteTree’s model portfolio, known as ByteFolio. This is a selection of crypto tokens, which are weighted according to their risk/reward characteristics. ByteFolio has a modest turnover and will not suit traders. It will appeal to investors who wish to diversify beyond bitcoin, with the aim to beat it.
After last week’s post-Shapella pop, the crypto market pulls back again as the heat comes out of risk assets generally. Crypto has had a good run this year. The old adage “sell in May and go away” seems prescient. There are multiple economic and political uncertainties for markets to grapple with. Why wouldn’t investors take some profits?
As long-term investors, we are comfortable with pullbacks. A market that goes up seamlessly is generally one that is in a bubble, and hopefully we are still many months from that happening again. Bubbles aren’t very helpful for the image of the asset class because they reinforce the negatives and distract from the underlying technological progress. A gentle uptrend would deliver far more credibility.
Secondly, market retracements dampen animal spirits. In cryptoland, they also clear out speculative leverage, a necessary tidying-up operation in an orderly market. Thirdly, they keep away investors who haven’t made a commitment to the space for fundamental reasons. In other words, the buyers coming in see crypto as part of a diversified portfolio for the longer term and are happy to support the market. We believe we are in an accumulation phase for crypto. Pullbacks are a great opportunity to top up.
In terms of ByteTrend scores, ETH and BNB are on solid three-star scores relative to BTC. The smaller holdings – MATIC, LINK and ATOM – have all moved back to one-star. In all three cases, the only thing keeping them off zero is a positively sloping 280-day moving average. It’s reminiscent of last year when, after a miserable second quarter, we saw a notable recovery from the start of June.
We make no changes to the portfolio this week.
Polygon (MATIC) 1-star ByteTrend in BTC
Chainlink (LINK) 1-star ByteTrend in BTC
Cosmos (ATOM) 1-star ByteTrend in BTC
Since ETH staking withdrawals became available, there have been significant developments. The total amount of staking withdrawals has exceededthe total amount of ETH staking deposits. It is worth noting that US-based crypto exchanges like Kraken and Coinbase are driving most of these withdrawals due to regulatory pressure.
Fundamentally, this is not a bearish sign if we assume that most of the actual owners of these funds did not intend to withdraw them; rather, the exchanges are carrying out the withdrawals to comply with regulations. Additionally, according to Nansen, there are still over 860,000 ETH waiting to be withdrawn, and the top three entities requesting withdrawals are Binance, Kraken, and Coinbase.
It is our view that a large chunk of these funds will eventually find their way back into staking. In fact, despite the ongoing withdrawals, the total staked ETH has started to increase. In the past 24 hours, the net change in total ETH deposits and withdrawals is 11,855. A lot of the activity is very short-term in nature. We think it’s only a matter of time before the total ETH staked breaches its highs. Although ETH/BTC has corrected after the post-Shapella bounce, it remains healthily above recent lows.
A quick observation from the ByteTree Terminal. Note a rather odd saw-tooth pattern emerging in on-chain transaction volumes. We’re not sure what’s causing it (ordinal bursts?), so please let us know if you have the answer. Anyway, what’s interesting is that these sudden spikes have recently served as a pretty useful leading indicator for the price. Apart from monetary flatulence and Elon Musk, you don’t get many of those in crypto.
As of April 23, 2023, daily transactions on the Polygon PoS Chain have reached their lowest point since May 6, 2021, with only 2.03 million transactions taking place on April 23. Additionally, the Daily Active Addresses on the Polygon PoS Chain decreased from 538,000 on March 31 to 302,000 on that day. Possibly as a result of this disappointing on-chain performance, MATIC has fallen to a 0-star ByteTrend score relative to USD and ETH, and 1-star against BTC.
While the entire market is currently experiencing a pullback, MATIC has been underperforming since the end of February 2023. Partly this is due to the base effects after its exceptional performance in January and the first two weeks of February. In more positive news, the network has seen decent NFT activity from major players such as Mastercard, Starbucks, and Reddit, indicating that there is still a lot happening on the Polygon Network. Although MATIC could continue to decline, given its poor on-chain metrics and the current market downturn, we remain positive about the project’s long-term prospects.
In a legal battle against Ryder Ripps and Jeremy Cahen, creators of the RR/BAYC NFT collection, the US District Court for the Northern District of California has ruled in favour of Yuga Labs, the company behind the Bored Ape Yacht Club (BAYC) NFT collection. The court found that Ripps and Cahen violated Yuga Labs’ copyrights by using BAYC trademarks in their collection to confuse consumers. The court also ruled that using the BAYC marks was not a case of fair use or artistic expression under the Rogers Test, as it was intended to mislead consumers. Additionally, the court determined that the domain names registered and utilised by the defendants have the potential to create confusion and that they were engaging in “cybersquatting”. The determination of damages will be made during a pending trial. Unfortunately for Ripps and Cahen, it appears there is no escaping the law in the Metaverse.
The eagle-eyed among you will see that the P&L column has been removed. This is because the complexity behind calculating a running book value when position sizes are being adjusted means that the figure couldn’t be trusted. The date of initial portfolio inclusion remains, as does the initial recommended price and the last price, so that can serve as a basic yardstick for how a holding has performed.