Week 13, 2023 - Weekly Market Outlook

Introduction

Last week was filled with many lawsuits. We would like this week to be different. It wasn't. The Commodities Futures Trading Commission is suing Binance, CEO/cofounder Changpeng Zhao (AKA CZ,) and ex-chief compliance officer Samuel Lim for allegedly breaking U.S. laws and offering unregistered futures & options trading. On a brighter note, our laser-eyed friends, Michael Saylor and Microstrategy, decided to buy more Bitcoin. Microstrategy acquired an additional 6455 BTC for around $150 million.

Binance vs The CFTC

On Monday, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against cryptocurrency exchange Binance and its founder, Changpeng Zhao, alleging that the company knowingly offered unregistered crypto derivatives products to U.S. customers in violation of federal law. The suit was filed in the U.S. District Court for the Northern District of Illinois.

According to the lawsuit, Binance operated a derivatives trading operation within the United States, providing trading opportunities for various cryptocurrencies, including bitcoin (BTC), ether (ETH), Litecoin (LTC), tether (USDT), and Binance USD (BUSD).

These assets were referred to as commodities in the suit.

The complaint alleges that Binance, under Zhao'sZhao's leadership, instructed its employees to conceal their locations using virtual private networks (VPNs) to bypass geo-restrictions.

The CFTC accuses Binance of multiple violations, including:

1. Secretly allowed U.S. customers to use VPNs to access its platform
2. Engaged in counter-trading against customers through " house accounts"
3. Faked a compliance audit
4. Alerted VIP members about law enforcement inquiries
5. Knowingly allowed criminal activities on its platform
6. Maintained an opaque corporate structure
7. C.Z. centrally controlled it

These accusations, if proven true, may result in consequences for Binance and its founder, Changpeng Zhao, because they operated with U.S. bank accounts.

Microstrategy buys more

MicroStrategy has recently acquired an additional 6,455 bitcoins for approximately $150 million. In addition to the new bitcoin purchase, Saylor revealed that MicroStrategy had repaid its $205 million bitcoin-collateralized loan to Silvergate Bank. Interestingly, the loan was repaid at a 22% discount, which suggests that MicroStrategy took advantage of favorable market conditions or negotiated terms to minimize its debt burden.

By repaying its loan to Silvergate and increasing its bitcoin holdings, MicroStrategy is sending a strong message to the market about its commitment to Bitcoin.

According to Saylor's tweet, MicroStrategy recent bitcoin purchase was at an average price of $23,238 per coin. MicroStrategy currently holds 138,955 BTC, worth a whopping $4.14 billion. The average cost of each BTC on its total holdings is around $29,817. This latest acquisition further cements MicroStrategy's position as the largest institutional bitcoin holder.

Market data

After having one of the most extensive weekly breakouts, the crypto market has been very choppy this week. There has been a lot of uncertainty regarding the new Binance case this last week, but that was quickly absorbed when Bitcoin rallied back up to $28,500.

These are my levels for Bitcoin and the levels to watch for the coming weeks. As long as $28,500 is not broken, we should still play in a defensive stance. That said, if you are long spot Bitcoin, it is okay to hold this. On a lower time frame, we range between $26,800 - $28,700.

This recent rally was fueled by shorts being liquidated on the way up. If we want to move higher for another leg, buyers must step up and lift the orders in the book. As long as we keep trading within this range, weak altcoins and leverage traders will be slaughtered by the market's choppiness. Till then, holding spot Bitcoin is the play for the coming week.

While bitcoin is stalling, we look on-chain. The DeFi ecosystem is not popping as everyone expected, and the Arbitrum ecosystem could have been much better. Trader Joe's and Arbitrum Exchange were the only projects with significant moves.

The Shapella Update

In a tweet shared on Tuesday, Tim Beiko unveiled the much-anticipated launch date for the next phase of Ethereum's Shanghai hard fork, commonly known as "Shapella." The forthcoming upgrade is set to occur on the Ethereum mainnet at epoch 194048, precisely at 22:27:35 UTC on April 12, 2023.

This major update to the Ethereum blockchain will introduce a series of improvements, with the most crucial element being the Ethereum Improvement Proposal (EIP) 4895. EIP-4895 has been specifically designed to allow validators to withdraw their staked tokens from the main network, addressing a long-standing issue faced by Ethereum's validator community. The upgrade, which is a clever combination of Shanghai (execution layer) and Capella (consensus layer), is one of the most crucial upgrades that Ethereum has received since The Merge.

This upgrade will release over 16 million Ether into the market. This could lead investors to have some cause for concern in the short term, but most whales have probably already hedged their gains through derivatives or have used liquid staking derivatives (LSD). LSDs provide an easier way to stake and retain the liquidity of the tokens despite being staked.

LSDs allow users to lock their ETH tokens in a smart contract, which generates a liquid token that can be traded on exchanges. The smart contract then stakes the locked-up ETH and earns staking rewards. The flexibility offered by LSDs is desirable to investors looking for a way to earn staking rewards while still having the ability to trade their tokens on the market.

The LSD narrative has cooled off slightly, but I think in anticipation of the update, it might make sense to buy a small bag of specific LSD projects. Be wary though this narrative has already had its time in the sun.

The top gainers are all over the place. Kaspa, the top gainer, is a proof-of-work layer-one, which implements the GHOSTDAG protocol. Another interesting token is the Flex Token. This is a new crypto exchange launched by the infamous 3 Arrows Capital. CoinFLEX has recently undergone restructuring and is set to have its assets acquired by OPNX.

The most interesting loser seems to be Optimism. Since the Arbitrum airdrop, TVL has flowed toward Arbitrum. Few people also want to hold Optimism as Arbitrum is the shiny new toy.

The week ahead

This week was expected to be choppy, and that's exactly what we got. We have been ranging between $26,800 and $28,600 for the last two weeks, while weak alts have been losing market structure. As long as we don't have some strong daily closes above our current range, we must continue to respect the range. It's going to be chop season till then. If you hold spot BTC, you are fine. But a pullback could come. Altcoins seem weak, so a significant BTC pullback will slaughter the altcoins.

The only potential play I see coming is a short-term LSD Narrative, and this could also fail as LSD first caught traction at the start of the year. The best play is to hold spot Bitcoin; until then, there is no second best.