Monthly Commentary (Oct 2021)


Performance Update


October 2021 Performance (Normalized)


Summary

Smart Beta Liquidity Index (SBLI) had a strong performing month +31.4%, tracking along with the overall markets. It was an interesting month, to say the least. Firstly, BTC (+40% in October) initiated the market rally, with its market dominance also picking up this month (from Sep 30th: 47.3% to Oct 31st: 48%). Secondly, while BTC market dominance surged, Ethereum itself caught up to BTC's gains (+42.8% in October). The rest of the smaller coins with higher volatility also caught up. But this takes us to a period we may have to be mindful of, with the "Fear & Greed" Index, which tracks the crypto markets sentiment, surging to 72 (Greed) from 28 (Fear) a month ago.


This index rebalance was conducted on October 10th. Given the strong BTC dominance observed earlier in the month, our smart beta factors suggested rebalancing our SBLI model portfolio composition to 100% BTC (0% cash). On a one-month basis, SBLI slightly underperformed BTC and Top10 as we were holding other Alts prior to Oct 10th, while the Alts rallied towards the end of October. SBLI still compares favorably vs Top10 and BTC over the longer time frame (please refer to the table above). The longer the time frame, the more notable SBLI outperformance becomes.


We continue to believe in our SBLI rebalancing methodology. We are looking forward to seeing how the last 2 months will play out for this remarkable year of crypto. Thank you for being with us.


Insights


Total Marketcap trend

The total market capitalization has been grinding higher with a new ATH week after week in October as we now sit at around 2.65T. From a weekly chart we can see we broke through the horizontal resistance (now turned support) of ~2.4T, and it is crucial that the market continues to trade above this level for further continuation. It would be worth punting some longs should the market dips back to that level, but as mentioned, any high time frame close below this level would spell trouble for the markets. It is also worth noting that we have formed a bearish divergence against RSI on the weekly and monthly timeframe. As said many times before, usually divergences on high time frames take time to play out, however, please remain cautious as the higher it continues to go, the bigger the potential pullback. Nonetheless, the monthly candle looks very bullish and is calling for continuation.




Weekly and Monthly charts showing bearish divergences



BTC Dominance BTC Dominance hit a resistance (supply area) at around 46-48% and has been rejected back to the mid-range (44%) area. Looks like it wants to range here before deciding on the next move. This should be good for altcoin markets for the next few weeks. We will reassess should we break outside of the range 40-48% range.


BTC & ETH exchange net flows On the exchange balance side, we're seeing consistent outflows in ETH over the past month, and with some significant outflow on BTC over the past week. Are institutions trying to hoard up the coins before the holidays?


Spot vs Derivatives Last month we wrote about how derivatives Cumulative Volume Delta (CVD) led the uptrend over spot and what ensued was a huge rally in October. Currently we are seeing derivatives CVD heading lower whilst spot CVD remain flat. We're also seeing open interest on coin-margined contracts (using BTC/altcoins as colalteral rather than stablecoin) creeping higher, suggesting users are piling more leveraged shorts as Funding has spiked up just recently (red circle on yellow bar graph). Liquidations also have been relatively low - feels like a storm is brewing for some two way liquidation play.



Fear and Greed

Fear and Greed Levels have been quite elevated during the month of October, similar to the performance in August. Not surprised if we see the market cooling off to end the month long streak.


Option Skew

Options market seems to be following the same playbook, with short dated expiries skew to the downside, neutral towards year end and very bullish in 2022. Option volume continues to be centered towards year end (31 December 2021) as there are over 60k BTC (3.66 billion USD) in expiries on that day. Max pain price, however, is sitting at $44,000. Worth keeping this number in mind should there be any big dumps in the near future.



Defi

Defi is moving at a breakneck pace as 1 month can make a huge difference in protocol adoption. Leaving last month's screenshot here for comparison to show the growth in certain chain's TVL: Arbitrum went from 895mm to 2.61bn (2.9x), Fantom went from 1.4bn to 5.6bn (4x) and Avalanche went from 3.6bn to 8.53bn (2.3x). While alot of the TVL are considered "hot money", there is a long road ahead for each chain to provide reliable products and service.




Looking at the marketcap to TVL ratios, it appears Avalanche, Fantom and even TRON are relatively undervalued compared to its peers.



Bitcoin - Technicals

As we just closed the week and the month we're continuing to see strong closes for $BTC on M1 (left) and W1 (right). the Horizontal orange at around 60k continues to be the crucial support for BTC to head higher and it seems to be holding up well. The only concern is the RSI divergence is now popping up on the monthly chart as well. Said this many times already usually this takes time to play out but just be mindful that if we do head higher these will eventually play out sometime. In my opinion any close back below 60k on weekly or monthly timeframe would spell trouble. Hoping for a nice continuation for both BTC and the altcoin markets.