The MegaBrainX Crypto Investment Newsletter

Issue #10 - 12 December 2023

MegaBrainX
December 12, 2023

Macro Overview
Crypto Overview
NFT Overview
Building an Investment Thesis

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

Key Metrics

Digital asset investment products experienced their 11th straight week of inflows at $43m, with a notable increase in short position inflows due to recent price appreciation and perceived downside risks.

Eleven projects secured a combined $240.78 million in funding during the past week, with Swan Bitcoin leading the way with $165 million in investments.

Three ICO launches this week, with 21 projects launching in December.

There are 7 projects with token unlocks scheduled for this week, with the most notable ones being $195.26M (8.9% of circulating supply) for APT coin of Aptos project, $25.74M (4.23% of circulating supply) for APE coin of APE project, and $7.91M (8.51% of circulating supply) for CYBER token of Cyberconnect project.

Developer activity has seen a slight increase in November, with Internet computer (ICP) in the lead in number of hours and commits in Github by a wide margin, followed by Solana & Then Pancakeswap. The total number of developers have been in a downward trend with a 31% decrease year on year in October 2023.
Ethereum remains as the top revenue-generating blockchain protocol with $12.5M avg weekly fees, a 28% Wow increase, followed by Bitcoin at $7.8M. DeFi leaders Aave, Uniswap & Kyberswap round out the top 5

World Events Highlights

This Week’s Major US Economic reports

December 12: CPI & Core CPI
Monthly U.S. federal budget

December 13: PPI & Core PPI
FOMC interest-rate decision
Fed Chairman Jerome Powell press conference

December 14: Initial jobless claims
U.S. retail sales

December 15: Industrial production

US job growth topped forecasts at 199,000 in November as unemployment fell to 3.7%, though the upbeat data lowered hopes for a March rate cut from the Federal Reserve. Learn more

Deflation has begun for US durable goods like appliances and vehicles as supply improves and demand falls, helping overall inflation decline, though services inflation remains elevated. Learn more

US job openings fell to lowest since March 2021 at 8.7 million in October, indicating hiring is cooling amid higher rates, though openings remain historically high. Learn more

Major US companies across tech, finance, retail and other sectors announced significant job cuts in 2022 and early 2023 amid economic uncertainty, with Meta, Amazon, Goldman Sachs and others eliminating thousands of positions to rein in costs. Learn more

Beaten-down areas of the stock market like small caps and value shares are outperforming the major indexes in December, rebounding as investors bet the Fed is nearly done with rate hikes and look for bargains beyond Big Tech names that dominated for much of 2023. Learn more
The US is expanding an international naval force to counter Iran-enabled Houthi attacks in the Red Sea that directly threaten global shipping and have jeopardized merchant sailors. Learn more

India's stock market valuation hits $4 trillion for the first time, fast gaining on Hong Kong as world's 4th largest market amid optimism over India's economic growth prospects under PM Modi. Learn more

Saudi energy minister says OPEC+ oil output cuts agreed last week can absolutely continue past March if needed to offset rising inventories, adds Russia will be held accountable for its share of cuts through tanker tracking. Learn more

The EU is set to authorize member states to halt Russian and Belarusian gas imports to protect security interests, extending bloc's energy sanctions over the Ukraine invasion. Learn more

Ukraine's President Zelenskiy travels to Washington Tuesday to press Biden and Congress to unlock stalled military aid, as lawmakers negotiate border policy changes some Republicans demand before approving assistance for Kyiv. Learn more

China and EU leaders agreed on need for more balanced trade but showed little progress on market access, re-exports to Russia, while EU urged constructive engagement on Ukraine amid warnings against confrontation. Learn more

Poor accounting and oversight hid problems at China's Evergrande and accelerated its downfall alongside housing policies, with $2 billion seized by banks and its founder now arrested amid a broader property market crash. Learn more

Moody's cuts outlook on China's credit rating to negative from stable, citing rising risks from lower growth and strains in the property sector, though it retains A1 rating for now. Learn more
Venezuelan President Maduro ordered state oil and mining firms to immediately start exploring and exploiting resources in disputed Essequibo region claimed from Guyana, despite UN court ruling not to change status quo amid sovereignty dispute. Learn more
Israeli PM Netanyahu told Hamas to surrender and stop dying for leader Sinwar, saying recent captures marked the "beginning of the end" for the group, while telling Putin that Russian cooperation with Iran is dangerous amid calls for a Gaza ceasefire. Learn more

Investors need-to-know | Macro

Investors need to track ongoing volatility amid global tensions, with Israel battling Hamas militants in Gaza while rebuffing ceasefire calls and warning Russia over Iran ties, Venezuela stoking a dispute with Guyana over oil rights, and China facing risks from property woes and slower growth that sunk its credit outlook.

The US is also scrambling naval forces against Red Sea threats to shipping from Yemen's Iran-backed Houthi rebels. Meanwhile the EU and China pledged better trade balance but progress seems elusive on various disputes during their first summit in years, as markets reacted negatively.

On the economic front, US hiring and wage growth maintain strength while goods price deflation emerges, keeping the Fed on guard against premature rate cuts. And India’s booming stock market nears $4 trillion, approaching Hong Kong in size. So geopolitical wildcards stay top of mind for investors against a backdrop of policy uncertainty.

Some analysts suggest Investors should take protective measures accumulating cash reserves(dry powder) and allocate them in money market funds to benefit from any potential panic selling or black swan events, while gradually dollar-cost-averaging into alternative assets such as Bitcoin over a long time horizon based on their risk tolerances and investment objectives.

Overview

Bitcoin Hits 2023 High, Pullback Brewing

Bitcoin closed last week around $43,790 - its highest weekly close yet in 2023. But the price has started pulling back today.

Most indicators are flashing overbought readings, while derivatives trading volume is hitting record highs on many exchanges. Some consolidation would be healthy to reset these gauges before attempting further upside.

This week brings key inflation data that could spark big market swings:

On Tuesday, November CPI prints. A hotter read could tank markets if it keeps rates higher for longer. But a cool figure may rally markets on rate cut hopes.
On Wednesday, the Fed meeting will interpret the latest inflation data. Updated rate hike forecasts could also move markets if revised in either direction.

After hitting multi-month highs, Bitcoin appears due for some choppiness if pivotal macro forces like inflation remain stubborn.

You can also check crypto project-specific upcoming events Here

Key Charts

Bitcoin Dominance

Bitcoin dominance tracks BTC’s market cap as a percentage of the total crypto market cap. In Bitcoin’s early days as one of just a few cryptos, its dominance neared 100%. This declined over time as new altcoins emerged.

Dominance shows how Bitcoin is evolving relative to the wider crypto universe.

Interpreting Moves

Excluding stablecoins, BTC dominance has put in higher lows since May 2021 as Bitcoin often outperforms altcoins in bears. This suggests dominance will keep rising - Bitcoin occupying a greater share of crypto's market cap.

BTC dominance is projected to continue trending up in the months ahead, fueled partly by anticipated spot Bitcoin ETF approvals in early January.

The latest reading sits at 57.37%. Bitcoin remains on track to gain greater dominance.

Bitcoin Price vs DXY

The DXY Index tracks the US dollar against a basket of major currencies - euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc.

If the DXY climbs, the dollar is gaining value against those currencies.

Correlation with Bitcoin

The DXY vs Bitcoin chart shows a clear negative correlation:

When DXY rises, Bitcoin tends to enter bear markets
When DXY declines, Bitcoin bull markets happen

When DXY trends up, investor risk appetite fades as a stronger dollar reduces the urge to buy risky assets. The opposite effect takes hold when DXY drops.

Since early October, the dollar has weakened. This dollar decline has provided tailwinds for Bitcoin's recent pump.

Investors need-to-know | Crypto

What's Bitcoin Up To?

Bitcoin looks to be correcting some, potentially heading mildly lower. Most indicators are quite overbought, with derivatives volumes at record highs. Some pullback would be healthy to reset gauges before the next leg up.

How's Ethereum Doing Against Bitcoin?

Ethereum remains in a macro downtrend against BTC and could continue slowly bleeding out versus Bitcoin the next few months.

What About Altcoins Overall?

Altcoins broadly are losing ground to Bitcoin, though a few outliers are outpacing BTC. But most altcoins face more pain ahead fighting the dominant crypto asset.

What's the Best Move? (NFA)

Dollar cost averaging into Bitcoin during dips makes sense. Meanwhile, evaluating altcoins for potential renewed upside merits monitoring. Maintaining cash reserves provides flexibility amid likely choppy conditions in near-term.

Market Moves

The past week saw continued momentum and record sales across several bluechip NFT projects. Igloo by Pudgy Penguins capitalized on the hype around Art Basel by announcing a new blockchain experience aimed at onboarding new users. In the aftermath, Pudgy Penguins NFT floors crushed past 12 ETH.

Meanwhile Lil Pudgy and Rogs saw massive gains as well, with floors reaching 1.2 ETH and 0.8 ETH respectively.

Beyond bluechips, Pixelmon and Sugartown Oras also saw spikes. A 99 NFT, nearly $500k sweep sent Pixelmon floors above 2 ETH. Sugartown got a boost from a Beanie shill which helped push its floor above 0.7 ETH to nearly 500 ETH in volume.

The overall NFT market saw a healthy daily close in 5 days, with $29.7 million in total transaction volume as Ethereum held steady above $2,200. The past week has shown the continued strength and momentum across both bluechip staples as well as newer entrants in the NFT space.

Source: NFT GO

New Highlights

Pudgy Penguins unveil a new blockchain experience called Pudgy World Alpha, during its Art Basel event and is set for release in Q1 of 2024, aiming to create a fully on-chain story telling experience with the goal of onboarding millions into Web3. Know more

FIFA announces a new NFT drop featuring a chance to win 2026 World Cup Tickets - also moving from Algorand to Polygon. Know more

Reebok and Futureverse partner up for a new metaverse and AI digital shoe campaign called Reebok Impact, slated for 2024. Know more
Animoca Brands secured an additional $11.88 million in funding for its Mocaverse NFT project. Know more

This week’s spotlight

Warren's Crypto Crackdown

Senator Elizabeth Warren made waves this week by introducing new legislation targeting the crypto industry. The Digital Asset Anti-Money Laundering Act, proposed with bipartisan support, aims to extend existing anti-money laundering (AML) regulations to cryptocurrencies.

Specifically, the bill would require all individuals and entities involved in maintaining blockchain networks to register as Financial Institutions (FIs). As FIs, they would be obligated to monitor transactions, report suspicious user activity without warrants, and refrain from doing business with privacy-focused cryptocurrencies.

The implications are potentially massive. The bill threatens the anonymity and self-custody principles that are central to crypto, pushing the industry toward a more centralized and regulated model. There are also concerns it could stifle innovation and force crypto activity out of the U.S.

As the bill moves through Congress, it has the crypto world on high alert. This could be the most aggressive strike yet in the Biden administration's escalating push to rein in digital assets. We'll be tracking where this legislation goes from here and keeping readers updated on any progress.

Investors need-to-know | NFT

Market observations

Gaming-related NFTs and projects with tokens continued to pump. Sugartown Oras jumped 138% on the week to a 0.62 ETH floor. Mocaverse reached a 4 ETH floor on speculation that a Moca token is in the works. And Pixelmon jumped 31% on the week, now at 1.95 ETH, after its CEO confirmed a token is coming.

The rally in large cap profile picture NFTs has started to lose momentum, which is unsurprising as those NFTs saw almost nonstop gains over the past two months, so a pause or pullback would be reasonable.

NFT trading volume nears $1 billion in November, showing a bullish trend with a 114% increase in average transaction value

Recommended Strategy

Many NFT collections have seen major moves already. Investors should try and chase the pumps, at this stage the risk is starting to outweigh the potential reward.

Take advantage by securing whitelists for the upcoming NFT Gaming projects.

Speculative short-term trading could be profitable in the coming days. However it comes with high risk. Ideally, hold on to your conviction and keep an eye out for newcomers especially in the gaming sphere.

A while back we began by outlining a framework to analyze narratives that will shape the next crypto cycle. Rather than chasing hype, we want to map secular trends.

So far we’ve explored major sectors like:

Smart contracts - Scaling and interoperability improvements underway
NFT gaming - Long-term potential if sustainability issues are addressed
DeFi - Innovating quickly but facing regulatory uncertainty
Real world assets - Tokenization set to unlock trillions in value
Decentralized identity - Empowering but early stage overall

Since we may be past the depths of this bear market, it’s a good time to dive into the research.

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

Check out our website if you haven’t already

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