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Bradley Keoun

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The cryptocurrency money manager Panxora seeks to raise up to $50 million for a new hedge fund to buy digital tokens associated with the fast-growing decentralized finance (DeFi) sector.

DeFi is a segment of the blockchain industry consisting of automated lending and trading platforms that aim eventually to displace banks and Wall Street firms. But in a sign of just how fast-moving and fickle digital-asset markets can be, the new fundraising effort is getting underway just as prices are tumbling for some of the leading DeFi projects, including Yearn.Finance and Aave.

“This has got the potential to really change the way finance is carried out,” Panxora CEO Gavin Smith said in an interview.

DeFi projects, often referred to as protocols and mostly built atop the Ethereum blockchain, have soared in popularity this year. It has been fueled by the “yield farming” craze that encourages crypto traders to sock digital assets into the trading and lending systems in pursuit of high interest rates, token rewards and fast gains. Dollar-linked tokens known as stablecoins can fetch annualized rates up to 20% through Yearn.Finance, versus 0.01% for a savings account with JPMorgan Chase, the largest U.S. bank.

Collateral locked into DeFi projects surged to $13 billion earlier this month, according to DeFi Pulse, a 20-fold increase since the start of the year. Big cryptocurrency exchanges like Binance and Coinbase have rushed to cash in on the trend, listing DeFi tokens while acknowledging that a growing share of market volumes might eventually migrate to decentralized trading platforms.

But just in the past week, the trend has reversed; total collateral in the systems has declined to about $9.5 billion. And as prices tumbled for bitcoin (BTC), the largest cryptocurrency, and ether (ETH), the native token of the Ethereum blockchain, DeFi-affiliated tokens fell even harder.

Aave, a decentralized lender, saw its LEND tokens fall by 12% during the seven days through Tuesday, according to Messari, a cryptocurrency data firm. OMG’s OMG tokens have plummeted 54%, while Yearn.Finance’s YFI tokens are down 29%.

It’s been “an absolute bloodbath,” Messari analysts wrote Tuesday in their daily newsletter. “DeFi’s casino summer could be coming to an end.”

Cryptocurrency analysts say DeFi systems are likely to grow over the long term, though short-term risks are high in the nascent market, and many of the digital tokens are so new that they can be difficult or even impossible to value using anything resembling traditional financial analysis.

Chainlink, a so-called blockchain “oracle” that supplies price feeds to decentralized protocols, is the top-performing digital asset this year among those with a market value of at least $1 billion, climbing more than fourfold in 2020. And that’s after a 45% decline just this month.

“We expect the market to be volatile in the early years,” Smith said. “While there is great potential there will inevitably be setbacks along the way.”

Panxora’s new hedge fund, based in the Cayman Islands and scheduled to start trading on Nov. 2, will primarily buy tokens listed on big centralized cryptocurrency exchanges rather than from the roster of decentralized, automated exchanges like assembled by DeFi developers.

Smith, a former metals-pricing analyst for the Singaporean commodities-trading firm Trafigura, says that’s primarily because few if any decentralized exchanges can guarantee sufficient compliance with anti-money-laundering rules, and also because a token listing from an exchange theoretically implies some level of vetting.

“We have to offer it as a conventional hedge fund that invests in these protocols,” Smith said.

Author: Bradley Keoun

Source: Coindesk: Crypto Hedge Fund Looks for $50M to Buy DeFi Tokens Amid Market Pullback

“It’s exactly why bitcoin (BTC) was created,” Michael Novogratz, CEO of the cryptocurrency-focused investment firm Galaxy Digital, told CNBC last week.

It’s a common refrain heard these days from bitcoin bulls: The U.S. dollar and other currencies will eventually be debased by the injections of trillions of dollars of coronavirus-related aid and monetary stimulus by governments and central banks. That should, theoretically, strengthen the case for bitcoin, the oldest and largest cryptocurrency, as a hedge against inflation.

Such predictions might eventually come true, but for now bitcoin investors are stuck in a holding pattern: The cryptocurrency pushed above $7,000 on Monday, but for the past couple weeks it has struggled to hold that level, which it hasn’t reliably traded above since early March.

“A nice recovery from the lows leaves investors hopeful,” cryptocurrency analysis firm Arcane Research wrote Friday in a report. “However, this is not yet reflected in the market sentiment.”

Any inflation stemming from fiscal and monetary stimulus could take a while to appear – partly because of higher unemployment and a drop-off in economic demand could relieve upward pressure on consumer prices in the near term. In the U.S. alone, roughly 10 million new unemployment claims were filed during the last two full weeks of March, and JPMorgan economists predict that a report this week will reveal another seven million claims were filed last week. Bank of America says the lack of an effective policy response to control the spread of the virus will push 2020 global growth to a contraction of 2.7 percent, instead of an expansion of 0.3 percent.

Source: JPMorgan Economic Research

Nic Carter, a partner at Castle Island Ventures and co-founder of the blockchain analytics startup CoinMetrics, wrote last week for CoinDesk that the devaluation of money “does not happen immediately, but over time.”

The 2008 financial crisis prompted the Federal Reserve to double total assets in a matter of weeks, and then doubled the size of the balance sheet again to more than $4 trillion over the next few years. But it took the money supply, as measured by M2, more than 12 years to double, at least partly because of low demand for loans in the years after the crisis.

The bitcoin market’s tepid reaction thus far to the Federal Reserve’s announcement of essentially unbounded quantitative easing might disappoint some bitcoiners who are looking for a faster pump.

Sylvain Saurel, author of the blog In Bitcoin We Trust, wrote last week that a separate move by U.S. regulators to reduce bank reserve requirements could lead to new money creation “ad infinitum.”

“This unprecedented currency devaluation in such a short period of time has been decided by the Federal Reserve in a totally arbitrary manner,” Saurel wrote. His conclusion, essentially, was that people should buy bitcoin.

Jay Hao, CEO of the Malta-based cryptocurrency exchange OKEx, wrote last week in a blog post that “more proactive measures” would be needed beyond “QE infinity.” Those could include a new “super-sovereign currency” to address trade and economic imbalances created by the U.S. dollar’s dominant role in global finance.

“At present, bitcoin possesses the characteristics of a super-sovereign currency,” Hao wrote.

The investment narrative that bitcoin is a “harder” currency than U.S. dollars and is getting additional traction from next month’s “halving” on the bitcoin blockchain – the once-every-four-years occurrence by which the pace of issuance of new units of the cryptocurrency gets cut in half.

Traders are expected to get a chance this week to observe how prices of two bitcoin-offshoot cryptocurrencies, Bitcoin SV (BSV) and Bitcoin Cash (BCH), perform as they go through their own quadrennial halvings.

Some analysts said last month that bitcoin was trading in sync with U.S. stocks. That was seen as a sign that some investors were selling the cryptocurrency as part of an indiscriminate flight to safety – into dollars.

Olga Feldmeier, CEO of the digital-asset exchange Smart Valor and a self-described “outright bitcoin maximalist,” says bitcoin’s price plunge earlier this year undercuts hopes that the cryptocurrency would serve as a safe-haven asset in times of market turmoil. She instead recommended “tokenized gold” – digital tokens like the Pax Gold (PAXG) – that offer a crypto-friendly way of investing in the yellow metal, long seen as a reliable inflation hedge.

Kraken, a San Francisco-based cryptocurrency exchange, noted in an April 4 blog post that the volume of PAXG trading on its platform surged to $13 million in March, a six-fold increase from February levels.

“Kraken clients appear to see PAXG as a safe haven of late since it is backed by gold, which typically acts as a safe haven amidst economic uncertainty,” according to the post.

Source: Kraken Research

But there are some indications that bitcoin might be trading more like gold in recent weeks. VanEck, a money-management firm that offers a bitcoin trust to qualified institutional buyers, says bitcoin’s price correlation with gold jumped to 0.47 during the last couple weeks of March, from an average 0.03 over the past eight years. (A correlation of 1 implies perfect synchronicity.)

The next couple months could prove pivotal for bitcoin as the U.S. suffers the worst stretch of the pandemic’s health crisis and moves into the economic-recovery phase. Nancy Pelosi, speaker of the U.S. House of Representatives, told CNBC last week the recently passed $2 trillion aid package would not be enough. Treasury Secretary Steven Mnuchin said he would ask Congress for more money if a $350 billion pool for small businesses runs out.

“More bazookas needed,” executives for the Wall Street dealer Jefferies wrote Friday in an open letter to clients and colleagues.

Is bitcoin the real digital gold? With more financial “bazookas” getting hoisted into position, cryptocurrency markets will serve as the proving ground.

“Many Bitcoin advocates think it will prove to be a better long-term store of value than gold,” according to the Kraken blog post. “Only time will tell.”

Tweet of the day

Editor’s caveat: No idea if this $20 “Bitcoin Logo V2 Neck Gaiter Face Mask” is real. If so the free publicity here does NOT represent an endorsement. It seems like a high price for a mostly polyester bandana. But it certainly is a sign of the times.

BITCOIN WATCH

Via Trading View

Bitcoin is again looking to establish a strong foothold above $7,000, having tested dip demand with a pullback to $6,600 over the weekend. The cryptocurrency printed a high above $7,100 early Monday and is currently changing hands around $7,090.

The bulls have repeatedly failed to keep gains above the $7,000 mark over the last three weeks, forcing investors to question the sustainability of recovery rally from the March 19 low of $3,867.

Even so, the bias remains bullish, as a pennant breakout confirmed April 2 is still intact. As a result, the cryptocurrency remains on the hunt for a test of the descending 50-day average, currently at $7,522.

If the upside break of $7,000 resistance again proves to be short-lived, the immediate bullish outlook would be neutralized. The bias would turn bearish if prices fall below support at the weekend low of $6,610.

That would open the doors to the higher low of $5,856 created March 30.

Author: Bradley Keoun

Source: Coin Desk: First Mover: Trillions in Coronavirus Stimulus Bring Out the Bitcoin Bulls

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