The MegaBrainX Crypto Investment Newsletter

Issue #02 - 17 October 2023

MegaBrainX
October 17, 2023

The newsletter is designed to be an Investor’s best-friend, each week we’ll cover:

Macro Overview
Crypto Overview
NFT Overview
Building an Investment Thesis

Together, we grow as Investors. Let’s dive into it

Key Metrics

Crypto funds saw modest inflows as bitcoin attracted investment, but altcoins remain out of favor amid protocol concerns, underscoring the bifurcation between blue-chip cryptos and more speculative assets.

10 projects got funded last week with a total of $65.4M

Two ICO launches this week, with 25 projects launching later in October

There are 5 projects with token unlocks scheduled for this week, with the most notable ones being $65.8 million (11.5% of circulating supply) for AXS coin of Axie Infinity project, $16.83 million (4.23% of circulating supply) for APE coin, $3.48 million (6.46% of circulating supply) for space ID project

Developer activity is on a slight decline in the past month, with Solana in the lead in number of hours and commits in Github, followed by Internet computer (ICP) & Then Mina protocol. The total number of developers have been in a downward trend with a 38% decrease year on year in August 2023

Ethereum remains the top revenue-generating blockchain protocol with $1.7M avg daily fees, followed by Uniswap and then Bitcoin. DeFi leaders Aave and BNB Chain round out the top 5

World Events Highlights

This Week’s Major US Economic reports

October 17:
- US retail sales
- Industrial production
- Business Inventories

October 18:
- Building permits

October 19:
- Initial Jobless claims
- US leading economic indicators
- Jerome Powell speaks
Western leaders are urging Israel to show restraint and proportionality in its military campaign in Gaza, warning of risks the conflict spirals out of control and destabilizes the region, even as they affirm Israel's right to defend itself against Hamas attacks. Read more

Oil prices rising fast as escalating conflict between Israel and Hamas raises concerns over potential disruption to Middle East oil exports, especially if Iran gets drawn into the crisis. Read more

The Israel-Hamas conflict risks spurring rash crypto sanctions or bans in the Middle East, prematurely reversing the region's growing embrace of cryptocurrencies before the facts on crypto's limited financing role are established. Read more

Billionaire investor Paul Tudor Jones said the escalating Israel-Hamas conflict and deteriorating U.S. fiscal position make it extremely challenging to invest in risk assets now, predicting a significant risk-off environment. Read more

US September CPI held steady at 3.7% as core inflation eased to 4.1%, a 2-year low, signaling slowing but still elevated price pressures into year-end that keep Fed rate hike bets alive. Read more

In the September FOMC meeting minutes, participants judged the stance of monetary policy to be restrictive and restraining growth and inflation as intended, though more progress on inflation was needed. Most saw one more rate hike as likely appropriate, but policy decisions would depend on incoming data. Balance sheet reduction would continue even after rate cuts start. Read more

Treasury bond buyers increasingly shifting from steady foreign and central bank hands to more yield-chasing hedge funds and asset managers is stoking fears of further volatility and losses in the world's largest bond market as US debt issuance surges. Read more
China's Country Garden warned again of potential default as property sales plunged 81% in September, underscoring the deepening crisis in China's real estate sector as leading developer Evergrande faces possible uncontrolled collapse. Read more

Investors need-to-know | Macro

The escalating Israel-Hamas conflict presents growing risks, including potential reversal of Middle East crypto adoption if regulations tighten, further energy price spikes if Iran gets drawn in, and wider destabilization if violence spreads across the region, possibly tipping the global economy into recession.

Meanwhile, the surge in bond yields is driven more by inflation expectations, surging deficits and rising risk premiums than a revival of "bond vigilantes," though persistently high inflation could awaken them.

Economic signals remain conflicting amid general uncertainty. This reinforces the need for data-dependent, prudent responses from policymakers and investors alike as the situation evolves. It still makes sense to park your cash in money market funds for now until more clarity arises, while also dollar cost averaging into your preferred assets.

Overall, a cautious stance is warranted until clarity emerges on the conflict's regional impact and inflation trajectory.

Overview

Last week witnessed a gradual decline in Bitcoin's value, culminating at a weekly close of $27,154. Amidst a blend of unpredictable macroeconomic and crypto-specific factors, the coming week holds potential for heightened market volatility.

Israel Conflict Impact

Disruptions in oil and gas supply chains.
Potential rise in inflation.
Possible anti-crypto sanctions or restrictions in the Middle East.

Anticipated SEC Decision

Upcoming verdict on spot Bitcoin ETFs approval.
Market braces for a likely delay.

Prevailing Uncertainties

Mixed sentiments across macroeconomics and crypto realms.
Additional market volatility anticipated this week.

You can also check crypto project-specific upcoming events Here

Key Charts

Bitcoin Price versus DXY

The U.S. Dollar Index (DXY) serves as a metric to gauge the dollar's value against a collection of six foreign currencies, unveiling a noticeable inverse relationship with Bitcoin's market trends. The dynamics between DXY and Bitcoin portray a broader picture of investor sentiment amidst fluctuating dollar values.

DXY Composition

Euro (57.6%), Japanese Yen (13.6%), British Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%), Swiss Franc (3.6%).
DXY's ascent signifies a stronger U.S. dollar against these currencies.

Correlation with Bitcoin

Clear negative correlation observed: BTC bear markets align with DXY upticks, and BTC bull markets coincide with DXY downtrends.

Investor Behavior

Rising DXY (dollar gaining value) often curtails investor risk appetite.
Conversely, a dwindling DXY (dollar losing value) prompts increased investment in riskier assets like Bitcoin.

Recent Trend & Speculation

Noticed slowdown in dollar's value might, if continued downward, trigger a potential Bitcoin rally.

Bitcoin Dominance (Excluding Stablecoins)

Bitcoin dominance elucidates Bitcoin's market stature in relation to the entire cryptocurrency market. Originating at near 100% when Bitcoin monopolized the nascent crypto scene, this metric has evolved with the advent of new cryptocurrencies, offering a lens to scrutinize the unfolding narrative of the crypto ecosystem.

Historical Context

Dominance hovered close to 100% during Bitcoin's initial phase as a lone entity, later descending with the emergence of other cryptocurrencies, most notably Ethereum.

Usage & Trends

Since May 2021, Bitcoin's dominance, excluding stablecoins, has marked higher lows, indicating its stronger performance relative to altcoins in bear markets.
Anticipated to continue its ascent in the forthcoming months, capturing a larger market cap share.

Latest Update

Current dominance stands at 57.16%, a new all-time high (ATH) in this bear market, portending further downturns for altcoins.

Investors need-to-know | Crypto

The cryptocurrency market is exhibiting varying dynamics across different assets. Here's a summarized outlook and suggested course of action based on the current market conditions:

BTC Outlook:

Historical trends show pre-halving year marked by price volatility, challenging both bullish and bearish investors.
Given prevailing macro and crypto-specific factors, a lower BTC price than current is anticipated in Q4 2023.

ETH Outlook:

ETH continues to show weakness against BTC, making purchases unjustifiable at present.

Altcoins Outlook:

The altcoin market is declining against BTC, and that trend is gaining momentum.
Given the high risk and lack of potential rewards, purchasing altcoins is deemed unfavorable.

Recommended Course (Not Financial Advice):

Consider Dollar-Cost Averaging (DCA) into BTC or saving USD for future liquidity deployment amidst these market conditions.

Market Moves

The NFT market saw mostly choppy trading or slight declines over the past week, with a few notable exceptions.

Winds of Yawanawa was the clear outlier, soaring 70% on Sunday to an incredible 13.57 ETH floor and currently holding at 11.44 ETH. The Refik Anadol project is now trading on par with top tier Art Blocks and sandbox projects, showing the power of a successful reveal and community momentum. Rarity and aesthetics seem to be carrying a premium for Winds.

Beyond the Winds frenzy, it was a mixed bag across blue chip PFPs. CryptoPunks, Ringers, and BAYC saw minor 1-3% declines on the week. Meanwhile, Pudgy Penguins shook off recent fud to gain 7% to 5.39 ETH.

The art-focused projects besides Winds generally declined 3-4%, including Chromie Squiggles, Grifters, Gazers, and MAYC.

Rounding out the market, y00ts opened their bridge to ETH but prices remain stagnant around 0.77 ETH. Milady continues to cool off, now down 7% on the week to 1.73 ETH.

New protocol Flooring Protocol launched, aiming to incentivize liquidity provision across top collections. Early reactions are mixed, so the market impact remains to be seen.

Overall, it was a mixed week for the NFT market, with most blue chips seeing minor declines outside of Winds' parabolic move. Key stories to watch include Gutter Cat Gang's revival, Flooring Protocol's launch, and whether Winds of Yawanawa can sustain momentum as metadata gets added.

New Highlights

y00ts initiated its bridge to Ethereum, offering to cover gas fees on its first day and distributing 10 y00ts to random bridging wallets within 24 hours. Know More

Arca, an investment and research firm, pitched a two-tiered solution to add utility to $BLUR: a 1% base trading fee and a tiered fee structure for Blur's marketplace. Know More

Animoca Brands is increasing its $APE delegation to Mocaverse NFT holders, upping it from 1.5M to 3.5M $APE, following Moca DAO's impactful launch. Know More
NFTfi rolled out a significant protocol upgrade, introducing the ability to support loans for up to five years and more, with the inaugural 2-year loan secured on a Chromie Squiggle. Know More

This week’s spotlight

Crypto Gaming Still Attracts Investment Despite Bear Market

The crypto gaming sector continues to attract significant venture capital investment, despite the ongoing bear market. According to a report by DappRadar, blockchain gaming projects raised $600 million in Q3 2023. This brings the total raised so far this year to $2.3 billion - around 30% of 2021's record haul.

While the Q3 figure marks a 38% decline from Q2 2023, it highlights continued faith in the long-term potential of blockchain gaming. The majority of funds are going towards investment firms and infrastructure, rather than individual games.

Axie Infinity remains the top blockchain game by NFT volume, tallying $90 million in Q3 transactions. But most anticipated blockchain game launches are still in development, leaving room for growth.

The wider gaming industry faces challenges, with over 6,100 jobs cut across major studios in 2023 so far. But blockchain gaming investments show the sector remains resilient in the face of crypto winter. Though 2022's monumental growth is unlikely to be repeated soon, VC backing suggests blockchain gaming is here to stay.

Investors need-to-know | NFT

The non-fungible token (NFT) market is currently facing a downturn in trading volumes, largely attributed to the volatile fungible token market, with daily trades ranging between 3,000-5,000 ETH.

Market Observations

The macro and crypto factor continue to have a negative effect on the NFT market, with no clear catalyst for a reversal coming soon.

The closure of blur (airdrop incentive) season 2 on November 20 is still the major event to watch.
Projects like Flooring Protocol that are building towards the financialization of the NFT market have a good shot at taking off if they’re able to steal Blur’s (past) thunder.
Tomorrow’s Pokemon Packs mint on Magic Eden is another display of the potential of Tokenized Real-World Assets in bringing added (real) utility to the NFT space.

Recommended Strategy

It's prudent to de-risk NFT positions, retain long-term conviction plays, and observe market developments in this period. All while keeping an eye on the potential disruptors of the status quo.

Last week we kicked off our Web3 investment thesis research series, explaining the framework we’ll use to analyze key sectors and projects.

This week we’re diving into smart contracts. These self-executing programs are the foundation for many Web3 applications.

Understanding where smart contract platforms are heading can give insight into future opportunities.

In our latest article, we trace the evolution of smart contracts from Ethereum's launch to the landscape today:

How sharding, rollups and other innovations aim to solve scalability
The rise of competing smart contract platforms like Solana and Cardano
Remaining challenges around fees, security vulnerabilities and mainstream adoption
The outlook for integration, regulation and interoperability

There’s still progress to be made, but smart contracts' potential to transform agreements is profound. Read the full analysis here.

We’ll continue sharing our research on key narratives like this in the coming weeks. The goal is to accelerate your learning alongside our own, not provide directives.

The journey to the next bull run begins with knowledge. Let’s walk the road ahead together.

Subscribe to this Newsletter, this is where we’ll be tracking the research process and following the narratives from the thesis.

Last week we published the first piece explaining our thesis framework. Check it out if you haven’t already.

Coming up this week:

Web3 Gaming Overview
Crypto Payments Integrations for Traditional Businesses - an Overview

The early work you put in now will pay dividends during the next mania phase.
Don't wait - the time to start preparing is now.

Check out our website if you haven’t already

MegaBrainX provides web3 insights enabling strategic growth for businesses and investors.