Bits + Bips Sept 29

Crypto markets are showing bullish sentiment for Q4 2023, despite recent volatility, with increased interest in leveraged perpetuals and ongoing discussions about traditional finance's cautious entry into crypto.

• Crypto markets are poised for a bullish Q4, with improving sentiment and macro factors supporting growth.

• Traditional finance's engagement with crypto, like Swift's Ethereum test, is viewed as cautious and potentially slow-moving, with decentralized solutions expected to continue evolving independently.

• The 'perpification' of trading, driven by high-leverage and convenient platforms, suggests a future where perpetuals could overshadow spot markets for many users.

Bullish sentiment for crypto markets is returning in Q4, supported by improving funding rates and open interest across major tokens like Bitcoin and Ethereum. While a government shutdown is seen as a 'nothing burger' for markets, the industry is grappling with traditional finance's (TradFi) cautious adoption of crypto, particularly regarding Swift's test on Ethereum, which is viewed with skepticism about its long-term impact on decentralized finance. The rise of highly leveraged perpetuals (perps) on platforms like Hyperliquid and Binance's Aster indicates a shift in user preference from spot markets to derivatives for speculation.

Market Outlook & Macro Factors

• 00:05:02 Crypto markets show renewed bullish hopes for October and Q4, with Bill Barhart from Abra noting depleting treasury general accounts and suggesting a local bottom is in. Rom from Lumida highlights improving funding rates and open interest, stressing that Bitcoin and Ethereum are holding strong despite perceived pullbacks. Historical seasonality also points to Q4 as the best quarter for risk assets, and robust GDP reports further support a constructive market outlook.

• 00:06:59 Volatility in crypto has decreased, making steep 20-25% Bitcoin drops less common, which, while disappointing for some traders, signals greater price stability. However, quarterly options expiration can still cause short-term market weakness. The long-term trend remains constructive, with tactical buy points identified for Bitcoin around $107k-$112k, and Ethereum is well-positioned, partly due to news of Swift exploring an Ethereum-based Layer 2 solution.

• 00:10:49 A potential government shutdown is largely dismissed as a 'nothing burger' for markets unless it becomes protracted for months. Historical data suggests the negative pricing impact of shutdowns is primarily felt on the day of the event, with markets quickly pricing it in. This situation is viewed as political theatrics, though it raises important conversations about government spending and the national debt's brand reputation.

• 00:14:35 The 'war' between CBDCs and stablecoins is largely considered over, with stablecoins prevailing, especially in the absence of a significant US CBDC. Swift's engagement with crypto, particularly its test on Ethereum, is seen by some as an inevitable move for the messaging giant, which couldn't afford to remain sidelined. However, there's skepticism about Swift's long-term prospects, as it acts as a message router, not a money mover, and emerging real-time settlement systems could bypass it entirely.

• 00:30:59 A recent $401 million fundraising headline for a DAT (Zero Stack DAT) focused on an AI blockchain (Zero Gravity Blockchain) was misleading. SEC filings revealed only $13.7 million in new money, with the majority being in-kind donations from founders and a $22 million loan from a Solana treasury company. This highlights the importance of due diligence, reading fine print, and recognizing the facade in some digital asset treasuries, which are often structured as ETF wrappers using public company shells, raising concerns about market sanity and retail investor risk.

• 00:37:25 Highly leveraged perpetual (perp) markets are gaining significant traction, exemplified by the success of Hyperliquid and the emergence of competitors like Binance's Aster, which offers even greater leverage and aggressive marketing tactics. These platforms thrive on providing convenience, speed, access to leverage, and low/no gas fees, often bypassing KYC requirements. This trend suggests a potential shift where perp markets become fundamentally more efficient and preferred by users over traditional spot markets plus borrowed funds, leading to the 'perpification' of crypto trading.