How Different Market Personas Are Trading Crypto W/ FalconX
FalconX is a digital asset trading platform for institutional investors that delivers trading, credit and clearing solutions in a one-stop format. One of the things they do is to help enterprises put bitcoin on their balance sheets. Their backers include Fidelity, Coinbase and American Express,…
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FalconX is a digital asset trading platform for institutional investors that delivers trading, credit and clearing solutions in a one-stop format. One of the things they do is to help enterprises put bitcoin on their balance sheets. Their backers include Fidelity, Coinbase and American Express, to name a few.
Last week was an all-time high for miners in terms of revenue, where they made more than they did during the 2017 peak. Miners made $350 million in revenue last week. Overall, January and February have been phenomenal months for crypto miners. In the last week, there has been a 65-70% increase in the bitcoin price, which translates to a 15% increase in the hashrate.
(2:26) “Increasing prices, low hashrate, which means miners are just making a killing. Our miner clients, they’ve been reinvesting their profits back into the business…It’s a great time to be in the mining business right now in the bull market,” said Prabhakar.
DeFi Exploits
The DeFi market has suffered about $50 million worth of exploits in the past week alone. Overall the market has seen $150 million worth of DeFi hacks to date. The interesting thing is that the markets bounced back very rapidly from these DeFi exploits in recent days.
(3:59) “So if you take a step back, you have to understand most of crypto, like 99% of it except for bitcoin, is still in its early experimental stages….And DeFi even more so, right? We are at the invention stage. All of DeFi ist just starting off. And any revolution where there are billions of dollars flowing through it will suffer exploits,” said Prabhakar.
For example, if you look at the exchanges in the early days and then look at them now, you’ll see there’s been a tremendous amount of improvements in terms of the number of hacks going on. Another thing to keep in mind is the DeFi market cap currently hovers at around $65 billion, with a total value locked of about $40 billion compared to $150 million that has been exploited or hacked so far.
(4:52) “These exploits, however, will continue to happen in the near future. The only thing we can do is basically have founders who are starting DeFi projects slightly change their mentality from a moving fast and breaking things mantra to being a little bit more diligent and more thoughtful,” said Prabhakar.
For example, they need to start using decentralized insurance policies and considering certified smart contract audits before launching as precautions.
DeFi Bounceback
As part of the DeFi bounceback in the past week, oracles have shined, such as ChainLink. There has been a huge resurgence in both the price action and the activity in the last seven days, Prabhakar said, pointing to Yearn Finance (YFI) as an example.
(6:20) “If you look at the price action, I think after the news came out of the YFI exploit, I think the price dropped only 10% and then quickly bounced back when the team addressed the issue. So it’s just phenomenal how much the community trusts in YFI to overcome these kinds of issues,” said Prabhakar.
Trends From the Trading Desk
As part of the DeFi bounceback in the past week, oracles have shined, such as ChainLink. There has been a huge resurgence in both the price action and the activity in the last seven days, Prabhakar said, pointing to Yearn Finance (YFI) as an example.
(6:20) “If you look at the price action, I think after the news came out of the YFI exploit, I think the price dropped only 10% and then quickly bounced back when the team addressed the issue. So it’s just phenomenal how much the community trusts in YFI to overcome these kinds of issues,” said Prabhakar.
In terms of geography, the U.S. and Asia have very different personas. In the U.S, FalconX has seen a lot of BTC and LTC buy-side activity. In Asia, there has been more sell-side activity in BTC and LTC and a lot more buy-side activity going on in ETH and BCH.
(8:23) “So there are slight nuances when the US goes to sleep and Asia wakes up,” said Prabhakar.
Meanwhile, FalconX has seen a lot more buy-side activity going on in altcoins during US hours. Also on the U.S. side and especially for hedge funds, you are starting to see more sell-side activity in stablecoins such as USDT and TUSD vs. the Asia side.
Some altcoins are receiving more attention than others.
(9:29) “In the last week or so, I would say things like Flow by Dapper Labs; We’ve seen Handshake, we’ve seen Polkadot, we’ve seen Avalanche, ATOM. There’s a lot of interesting activity going on and also for good reason. They’ve been making waves, especially in the news circle in terms of their product launches. So we’ve seen a lot of activity in these four or five altcoins in the last week,” said Prabhakar.
Institutional Participants
There has been a paradigm shift in the institutional investor landscape for crypto. Between March 2020 to December, FalconX saw crypto native institutional volumes reduced from 90% to 70%. That delta, Prabhakar said, came from new non-crypto institutions that have flooded into this ecosystem in the last few months. These investors come in all different flavors, some of which have been surprising.
FalconX has seen large traditional hedge funds allocating bitcoin to their profile as a macroeconomic hedge. In addition, 401(k) funds have entered as well as traditional enterprises that use crypto as a B2B cross-border payment mechanism primarily to lower the cost of trading the assets as well as the time it takes to transfer the assets. In addition, publicly traded companies, as well as hospital chains and large organizations with massive balance sheets, are coming in. The question they are asking is, ‘Should we allocate 1% or 5% of our balance sheets to bitcoin?’
Market Infrastructure
MicroStrategy and Tesla’s move to take on bitcoin balance sheet positions has clearly supported the BTC price and overall market sentiment. But it might not have been so obvious in the market that these purchases were taking place when they were.
Two or three years ago, it was very difficult to conduct such large transactions. The market infrastructure was not in place to absorb such large orders. But the market has come a long way in the last nine to 12 months, as has FalconX.
(13:31) “We have implemented several $20 million to $100 million-plus buy and sell-side orders within a few hours. So the infrastructure has significantly improved. The depth of liquidity has also significantly improved. And overall the market infrastructure has gone to a different place,” said Prabhakar.
Today, a crypto broker like FalconX can facilitate a $500 million BTC buy order or sell order within a span of two, maybe three days without affecting the market much while actually preserving the privacy and compliance needed for large institutions.
So it all depends on the depth of the markets on any given day. At 2-5% of the order book, or overall volumes, we should be fine without moving the markets too much, Prabhakar said. Beyond that, however, you’ll start seeing significant market activity.
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