A Treasure Chest of Insight

Welcome back for another edition of The Castle Chronicle.

First of all, I want to say a massive thanks to all those who read and shared our genesis publication last week! We hope you subscribe and continue to find our insights valuable, returning and new readers alike.

We hit 450 page views in our first week, amassing 96 subscribers - honestly humbled. This gives us even more drive to keep on delivering for you!

👀 What’s to Come in Volume 2

• 🔑 Key News & Projects: Big Players get Shaken Down, Adoption Continues, Project Updates, Crucial Content, New Projects and more from CJ

• 🔥 Hot Narratives: Online Casino Accelerates, BSC DeFi Warming Up, whilst LSD moves to the rearview

• 💹 Macro Outlook: Simplified Round-up and Implications from Hansolar

• 📈 Price Action Scenarios: ETH Predictions on Various Time Frames from Vlad

• 🏰 Castle Positioning & Risk: Insight into Member Positioning and Risk Tolerance

• 💰️ Trade Wins: ROUL, ETH Options Strategy and JONES Feature

• ⛓️ On-Chain Sleuthing: Insight into Arbitrum Casinos, a CT GOVI Whale, & a Quick Trap on TND from Cl & AmirOrmu

• 🔬 How Quantum-RNG Elevates Crypto: Random Number Generators and their Applications from Herres

🔑 Key News & Projects

• Big player news this week includes Genesis officially filing bankruptcy, Avi charged by SEC and sued by Mango.

• Adoption still ongoing, Australia bank launching stablecoin on Eth and Algorand, UAE bolstering crypto adoption by including crypto in their global trade, Swiss bank Cite Gestion tokenizes their shares, EU announcing digital bill and metaverse in May, Saudi bank announcing their CBDC experiment and finally the first nuclear powered BTC mining farm to open sometime this year.

• Key updates: TraderJoe revamping tokenomics, Gains introducing commodities for trading, Plutus and GammaSwap both are interested in treasury swaps with GMX, Uniswap to launch on BSC, MakerDAO deploying $100M into Yearn, Conflux integrated with China’s “Instagram”, DYDX announcing unlock postponement to December and Sushiswap launching perp dex on SUI.

• Variant built a position on Canto while their CSR module went live.

• Tim Beiko drops some FAQ regarding ETH unstaking

• DefiMochi releases PnL trackers on Dune for you degens!

• If you’re using Binance, onramping less than $100k might be affected by the recent Signature Bank news as part of their move to reduce crypto exposure.

• Circle updates CCTP to bring native USDC to more blockchains.

We’re starting to see more and more countries having plans/experimenting with CBDCs, steadily integrating and adopting crypto into their financial systems. Most of CTs eyes were on gambling (Rollbit etc) and Canto with a few notable looks at the Metis ecosystem. Vela also went live not too long ago (migrated from DXP). JonesDAO jUSDC jGLP vaults are also launching this coming Friday which may be worth paying attention to. Personally will be looking into NFT-Fi plays (derivatives/options/fractionalization) soon.

Notable Projects Found:

Elixir Protocol - team includes 0xCole. Decentralising market making for everyone. Lets projects gather liquidity from users (50% native, 50% stables) who issue LP tokens to the protocol and get back tokens+premium (basically POL). Protocol also market-makes for users who deposit into a pool on CLOBs (Central Limit Order Books) and concentrated liquidity positions (Uni V3). $ELIXR required for market makers to run validators/nodes & governance.

Obol Network - recently raised $12.5M, Obol Labs is a research and software development team focused on proof-of-stake infrastructure for public blockchain networks. Specific topics of focus are Internet Bonds, Distributed Validator Technology and Multi-Operator Validation. Obol Network is a protocol to foster trust minimized staking through multi-operator validation. This will enable low-trust access to Ethereum staking yield, which can be used as a core building block in a variety of Web3 products.

Other notable mentions: zkwasm, Ulvetanna, MoHash, Kompute Network

Courtesy of CJ - check out his telegram channel for daily news, projects updates and new releases

🔥 Hot Narratives

As we continue to see bullish moves across the board with little to no pullbacks, the Echo Bubble thesis is starting to manifest itself. As always we make the most of these bullish phases by riding narratives. Let’s take a look at some of them - past, present and future.

Make sure to check out last week’s edition for intros on these narratives.

Online Casino

Now very much at the forefront of attention, Online Casinos and Gambling have been performing extremely well. With larger protocols such as Rollbit ($RLB) continuing to send along with the small-cap Risky.lol ($DICE) and forks of it on Arbitrum. $DICE capitalised on $MAGIC unlock this week, releasing a bespoke $MAGIC betting site. Another new entrant performing well and starting to receive a CT shilling is Blockchain Bets ($BCB).

BSC DeFi

Still somewhat in the distance, BSC DeFi is only just starting to warm up. We highlighted ThenaFi ($THE) and Level ($LVL) last week, and will be searching for more innovative protocols and ponzis moving forward. BSC degens are not to be faded and have the capability to send bags to huge valuations. Plus there is always the off chance of some attention from Binance themselves.

Liquid Staking Derivatives (LSD)

Beginning to fade into the rearview, we aren’t really paying too much attention to LSDs at the moment with most of them having experienced big moves. Best to stay up to date with Shanghai but look for swings elsewhere for now. The main interesting protocol to watch here is EigenLayer, and could well be a play in the future.

💹 Macro Outlook

Past Events

• 01-25 TSLA & MSFT Earnings: TSLA and MSFT both beat consensus

• 01-26 GDP QoQ: Actual 2.9% beating expected 2.6%, leading to bullish continuation on SPX and risk on assets

• 01-26 Intel Earnings: -7% on an earnings miss

Upcoming Events

• 01-27: Core PCE (Dec) : 0.2% → 0.3% → Higher is bad for BTC, lower is good for BTC → Fed’s preferred inflation metric

• 02-02: ISM Manfacturing PMI

• 02-02: FOMC Interest Rate Decision → 0.25% at 99.7%. No uncertainty, so already priced in.

• 02-03: Non-Farm Payroll

BTC and Macro

BTC has been following the equities market quite tightly and has yet to see decoupling from traditional markets. Until the supply of stablecoins on-chain increases dramatically, it is unlikely we see any decoupling occurring.

Options Markets

Implied Volatility (IV) term structures have merged together, in contrast to the large discrepancy seen before the strong up trend last week - indicating a higher level of uncertainty in price in the short term. It is likely that we see the IV gap between maturities widen as time goes on. Until then, near-term short volatility strategies can prove to be quite profitable.

If any of this confused you, read more about options here and check out the TG chat below.

Courtesy of Hansolar - check out his telegram chat for all things options, crypto and DeFi

📈 Price Action Scenarios

Henlo frens! Let’s go over some scenarios regarding ETH and ETH only because I’m a TA maxi and you know, everything is priced in 😛

Let’s start with the High Time Frame (HTF). We have clear orderflow to the downside. In my view, we’re in the 2nd wave down. That last impulse down was quite big and left a lot of room for potential relief rallies. So overall, I’m bearish and I expect price to do one of two things until proven otherwise:

1. Reject right here, right now and continue the downtrend

2. Have a bullish rally with a simple objective - grabbing more liquidity before continuing down

So let’s have a look at a slightly lower timeframe and see what’s goin’ on there!

The daily chart offers a nice look deeper into the current range. On the higher timeframe, we’re kinda ranging and that is for the purpose of accumulation or redistribution. Watch out, this is where stops are hunted and positions liquidated!

Right now we’re interacting with an inside structure supply. My expectation here is that either the supply will hold and we reverse or that the swing high will be liquidated before reversing.

So now we gotta ask ourselves the question - how did we manage to get here?

For that, I want to use the 10H chart as IMO it best represents what’s happening and shows where the price was inefficient.

What’s holding price up as it is right now? - the 10H demand

This is the last place I see where price moved inefficiently and it makes sense for it to continue up. Short-term therefore, it’s okay to look for long setups as we can still go higher into the supply zone or even liquidate the swing high.

Once that demand zone breaks, however, I will become very cautious. The 1st break doesn’t mean too much yet as it can just be a liquidity grab in a re-accumulation, however, once we have a 2nd break down I will start looking for shorts.

So with that being said, what’s the immediate plan? Easy - we are bullish until proven wrong.

The invalidation is the 10H demand zone followed by a valid pullback and another breakdown showing us clear intent and orderflow to the downside. Once that happens we can start looking for shorts.

I wouldn’t be surprised to see price continue higher here. If it does, we are free to look for long opportunities BUT we need to be aware that we are in a HTF bearish range, therefore whenever we see weakness in the uptrend and clear signs of distribution we shouldn’t hesitate to jump on the short side.

That’s it for this week! See ya next week.

Courtesy of 0x_Vlad - a trend-based trader and MentFX student

🏰 Castle Capital Positioning and Risk

This week I asked the gang some questions about their positioning, risk and outlook on the market…

As you can see, each member has their own strategy and risk tolerance based on many factors (net worth, stage in life, dependents, time available, skillset). It is vital that you find an approach to risk management that you are comfortable with - allowing you to sleep at night and hold with conviction.

Your specific edge in the market (on-chain sleuth, researchooor, TA, etc.) will also play a massive part in your approach to the market. You will likely round-trip your bags if you do not have this at least partly figured out (don’t worry, we can all improve!).

Stable % in Portfolio

Opinion of 2023 Market Direction

Swing Trade / Long-term Bag Split

💰️ Member Trade Wins

Defipleb Calls $ROUL Early

Vlad nails entries on VELA & ROUL

Hansolar Racks Up 150% APR on ETH Options Strategy

Herres Takes Profit on Long-term $JONES DCA Bag

⛓️ On-Chain Sleuthing

$DICE Sparks Arbi Casino Season

We have seen lots of new gambling dapps appear on Arbitrum following the Risky.lol hype. The one with the most traction seems to be ArbiRoul ($ROUL), but other players like ArbiCasino ($CASINO), Numero Arbi, and Arb Predict are following the gambling trend on the rollup.

On-chain, we are seeing a serious increase in the number of $DICE holders as well as the rotation from many early buyers of $DICE to $ROUL.

CT $GOVI Whale

A well-known CT influencer has been more vocal recently in their support of the Crypto Volatility Index ($CVI) & its governance token $GOVI. They now own around 2% of the circulating supply. The hot news around the protocol is their tokenomics revamp which will move towards a GMX-style system (esGOVI).

$TND Trap

Although sleuthing can be incredibly valuable, if the wallet knows they are being watched they can be the ones playing you.

A wallet that was scalping $TND very well started consecutive $2k buys with a $100k loaded wallet. They amassed $20k worth of $TND before the community caught on, assuming they would use the entire $100k. After the community pump (+20%) over 20 minutes they then exited the entire position ($24k for a $4k profit).

Research and analysis from Cl & AmirOrmu

🔬 How Quantum-RNG Elevates Crypto

A true Random Number Generator (RNG) is quite hard to achieve and believe it or not, we need randomness for a lot of stuff. We need it for gaming, statistics, cryptography, security and maybe most importantly for gambling (bc we degen like that). Most importantly, we want to make sure that the randomness cannot be gamed by anyone, else it wouldn’t be truly random, right? This makes it hard to find true randomness, as programs can only follow instructions and these instructions are deterministic in nature. But fear no more, Quantum-RNG has paved the way for a new type of randomness and is already implemented in a project we highlighted in the first Castle Chronicle.

I will first explain a bit more about how this new type of random generator can achieve true randomness and could help us improve UX across different sectors within crypto, especially gambling.

Quantum Random Number Generators (QRNGs) have been around for over 10 years. They can simulate or use a quantum computer to measure the fluctuations of the electromagnetic field (noise) in a vacuum, which in turn will display random amplitudes and phases. The current bottleneck for live-QRNG is the disparity between fast randomness generation and slow randomness extraction, but improvements have been made. At the moment, random bits of information can be generated at speeds of 5.7 Gbit/s, which is faster than the bandwidth available to broadcast the data.

Some other advantages of QRNG are:

• Live monitoring of the entropy source (randomness source) is possible and highly effective

• All attacks on the entropy source are detectable

• All entropy sources are derived from fundamental models, all the properties and behaviours are understandable and provably secure

• High speed with very low cost

Chainlink VRF (Verifiable Random Function), is only available on 10 chains, leaving the protocols outside these chains with non-optimised and inefficient RNG solutions. In addition, Chainlink VRF is based on cryptographic proof, meaning if the encryption behind the cryptography is cracked, the randomness can be gamed. API3 integrated an API to use for web3 with the Quantum Optics Group of ANU (Australian National University), which uses a QRNG to generate true randomness. You can read more here.

A highlight of last week’s edition, Risky.lol ($DICE) is building on top of the infrastructure. You can see how insane the improvement is from moving to a QRNG in terms of betting speeds on the monostaking contract for $MAGIC bets. The best part? It’s all on-chain via an oracle. The contract is currently using a QRNG provided over an API3 Airnode by Quintessence. Many more projects integrate QRNG practices within the gaming and NFT sector to create fair minting and gaming environments. Definitely,

something to keep an eye on!

Research from Herres

🧵 Castle Threads

Relied Dives into the Huge Andrew Kwang Position Open on GMX

SniperMonke takes a Long and Hard Look at GMX 🎣

That’s it for this week. Thanks for reading, please give us a follow at Castle Capital and subscribe to The Castle Chronicle for an update each week!

Virtually yours,

Atomist & The Castle