Fear of Heights

Efficient Frontier's biweekly newsletter no. #26. In this edition: Crypto markets and news roundup. 'Fiat wars' update with some radical and surprising quotes

Just another two weeks in the 100 years peer-to-peer money trend:

Unless you receive this letter by fax, you probably know that after Tesla’s Bitcoin announcement, the price jumped to new highs and spent its first 5 days above $50,000 per-coin. Since last Sunday Bitcoin has dropped 23% from a record high of $58,321 to a low of $45,000 on Tuesday. Monday alone had an almost $10,000 drop. Now volatility has collapsed for a while, with the price flirting with the $50,000 level at the time of writing.

In the last two weeks Tesla announced it bought $1.5 billion worth of Bitcoins. Microstrategy bought 19,000 more Bitcoins and SquareCrypto purchased 3,300 Bitcoins. Twitter and Square CEO Jack Doresy and rapper Jay Z donate 500 Bitcoin to increase its adoption in India and Africa. Canada approved Bitcoin ETF and Tether settles with N.Y. Attorney General.

Leading up to the drop

Forced liquidations (forced selling of leveraged positions) across crypto derivatives hit a record $5.95 billion between Feubary 22-23.

The day before this crash, euphoria reached a fever pitch and funding rates (reflecting demand for leveraged long positions) reached an all-time record of 0.2%, normalizing after the correction.

A large inflow of 37,000 Bitcoin net deposits to spot exchanges on the 21st was perfectly correlated with this local price top and following crash and deleveraging.

New records in a hungover market

With Bitcoin at all-time high prices, derivatives exchanges hit record dollar volumes and open interest. Binance.com is still leading the exchange space in open interest in the derivatives exchanges with the CME second. The Chicago Mercantile Exchange saw dollar trading records for both Bitcoin and the newly listed Ethereum futures.

Bitcoin futures reached a record of $5 billion daily traded at the CME, while the Ethereum contract reached close to $160 million on Monday after being listed earlier this month. 

The Tether news, confirming the legal status of one of the central assets in the cryptocurrency trading space was seen by many as a huge positive event for the industry. But it did not seem to positively influence the price activity, hinting that the Bitcoin market, as well as other cryptocurrencies (as seen in the the DeFi and Shitcoin indexes below) are still hungover from the ‘Tesla party’.

On-chain magic

Bitcoin and Etherum fees are getting pretty expensive, with $20 the median fee to move your money across the internet. Hopefully sometime soon layer 2 solutions will be stable. 

As Efficient Frontier’s Andrew Tu explained on Coinscrum last week: Due to the emotional nature of the cryptocurrency markets, some on-chain metrics estimate the mood of the market, as a proxy for guessing where we are in the market cycle. See below:

1) CoinMetrics MVRV went above 3.0 when Bitcoin hit $58,000. With each Bitcoin bull run reaching less extreme levels, it’s reasonable to guess Bitcoin finished it’s 10X price run since March 2020. But many others still are watching for more extreme prices (see news section).

2) Bitcoin Days Destroyed metrics shows hodler selling has been lackluster through Sunday’s price peak

3) The price paid per-Bitcoin has reached a record average of $14,000.

4) The recent price drop has driven profitability of Bitcoin accounts to the levels Bitcoin was at on January 5th when Bitcoin first broke above $30,000.

Fiat wars

The Federal Reserve published yesterday their requirements for CBDC’s, while China’s own CBDC/DCEP (Digital Currency Electronic Payment) rollout plans are already rushing forward, with cross-border deployment planned for the 2022 Olympics in Beijing. James Aitken, a revered financial markets specialist, explained in December that western governments see China’s digital currency as a direct threat to Swift. “The point is that China’s DCEP, is the biggest pending change to the financial system we’ve seen since Bretton Woods ended. There is nothing benign about China's digital currency electronic payments project,” he said to the Grant Willaim’s podcast.

Meanwhile this week, US Treasury Secretary Yellen told CNBC, “To the extent it [Bitcoin] is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.” 

Barclays’ CIO called Bitcoin investors cultish and fueled by ’magical thinking’ on the potentially flightless bird which is Bitcoin. But other traditional markets investors have even worse words for cash. “It’s become evident to just about everyone, that cash in the bank is nothing more than Bitcoin that is not going up. It's virtual money; frankly it isn’t even an asset. It's a liability of the bank; therefore it’s a liability,” exclaimed Anthony Deden, the Swiss based Chairman of Edelweiss Holdings.

A post shared by Jon Noorlander (@jonnoorlander)

News & links

  • World famous auction house Christie’s auctioned for the first time ever a blockchain NFT

  • Bitcoin’s 4th biggest mining pool sold to 500.com, a Shenzhen based sports betting conglomerate . Blockchain.com raises $120 million. 

  • UpOnlyTV: Interview with the 23 year old Bitcoin trading savant Cryptopathic, talking Bitcoin trading, NFTs and macroeconomics


Team update

  • We’re glad to welcome our trading team's new trading operator Nofar Farag. Wishing you the best of success and hope you feel at home with our team. 

  • Andrew Tu, Efficient Frontier’s BD associate, was quoted last week in Coindesk’s market review on three occasions with some sharp calls!

February 18th:

February 19th:

February 20th:


Sending our love from Tel-Aviv and San Francisco,

Efficient Frontier