A Visit from the Palace to the Marketplace

The Castle Chronicle: Volume 5

Author

Atomist
February 23, 2023 • Est. Reading Time: 18 minutes

To celebrate The Castle Chronicle passing 200 subscribers (sitting at 217) one month after genesis, I thought I would divulge a little more about Castle Capital, what we are all about, and highlight some of our key members. Check it out here.

Without further ado, let’s get stuck in 👇

👀 What’s to Come in Volume 5

  • 🔑 Key News: Regulatory News, China Season, Arbitrum Farm Fest, Exploits, Continued Adoption, DeFi Updates, New Projects & more from CJ

  • 🔥 Hot Narratives: Decentralised Stablecoins Heat Up, CZ Recognises BSC DeFi, Casinos Exhausted?, China Coins, Perp Domination, and zkEVM on the Horizon

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

  • 📉 HTF Price Action Scenarios: ETH Still Indecisive from Vlad

  • 💰 Trade Wins: SYN, ARCH, SKULL, PSOCKS, Honey Jar, Nitro Passports, SHARKY & DEXTF Feature

  • ⛓ On-Chain Sleuthing: Funds Accumulating GMX & Arbitrum Tokens, GNS Sell Pressure Incoming, and Several Smart Money Movements from Cl & AmirOrnu

  • 🔬 Research Compilation: Must Reads and Must Watches from Across The Space from Herres

🔑 Key News

A lot of regulatory news happened the past week but at least the SEC finally charged TerraformLabs and DoKwon. We have also seen the rise (and pump) of China-based tokens (e.g. Conflux) and storage tokens (Filecoin, Arweave, etc) amidst new forming narratives.

On Arbitrum, SolidLizard and Zyberswap (Solidly and Goose fork) have been gaining steam and have amassed massive TVL. We also saw the ridiculous public raise for NitroCartel on Camelot launchpad.

The FUD

Exploits

Adoption is not stopping!

Weekly DeFi Updates

Some interesting projects to look out for

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

🔥 Hot Narratives

Decentralised Stablecoins Heating Up

Kicking on from the regulatory FUD last week, decentralised stablecoins continue to draw attention with Volta Finance launching their liquidity and slowly increasing vault caps (audit ongoing). Arbitrum continues to be the focus as SolidLizard announces a strategic partnership with Liquity, receiving a veSLIZ allocation. Finally, the big one we are all waiting for, crvUSD creeps closer to launch with some bugs to fix.

BSC DeFi Recognised by CZ

Thena got off to a great start this week after CZ quote tweeted their astounding DEX volume. They continue to go from strength to strength with a constant flow of new partners. To top it off, a huge amount of the supply was cut after unclaimed airdrops were burned. On the perp side, Level Finance withstood a couple of waves of FUD, firstly from the removal of their staking cooldown period (dump was short-lived), and secondly due to traders manipulating BNB prices. The team quickly responded with measures to curtail such events and proposed to make LPs whole with an airdrop.

Casinos Running Out of Steam or Next Big Thing?

In the last week, we have seen the huge success of Arcadeum (ARC) as they deployed with GMX-like tokenomics. On the flip side, Rollbit (RLB) continues to come under various FUD storms in regard to their shady off-chain business, however, influencers continue to be onboarded. It’s true that the market is getting pretty saturated with many shitcoin launches providing a literal casino to throw money at on DEXs. I think we’ll see a bit of a cool-off here as degens realise the R:R isn’t there for new copycat projects. Revenue-generating platforms (RLB, BETS) and innovators (DICE) will likely have a good future ahead.

Hong Kong & China Coins

With the huge news from the East that Hong Kong will open its doors to crypto for Chinese businesses, we have seen a huge run from ‘Chinese’ coins along with CT tweeting in Mandarin for many days. Filecoin (FIL) has undergone huge moves for its market cap, with the upcoming release of its L1 chain. Another L1 chain with insane price action is Conflux (CFX), as they announced a partnership with China Telecom to develop blockchain-enabled SIM cards - may be a good idea to see what apps are active on-chain…

Perps Continue to Dominate DeFi

Along with the news surrounding Level Finance, we also saw GMX fees hit an ATH last week (>$6m), Gains Network (GNS) listed on Binance, and Vela Exchange doing huge volumes during their incentivised trading campaign (although most are shown to be 1min long wash trades). Demand for perps doesn’t seem to be slowing down and it looks as if there is plenty of room in the market for at least 2-3 big players to solidify their position. One thing to keep in mind is the huge incentives and emissions used to encourage traders on a number of these platforms - always be sure to check revenue > emissions and to monitor these campaigns closely on-chain.

Zero-Knowledge (zk) Hype

Finally making the cut this week, the zk narrative has been all over CT (hence my reluctance to write about it), however, with Polygon’s zkEVM launching in the next week it’s probably something to watch closely. There are a plethora of ‘zk’ tokens that will likely catch bids and also get dumped - bet safe, anon.

📈 Macro Outlook

Past Week Events

  • 2-15 13:30 UTC : Core Retail Sales (MoM forecast: 0.9%, previous -1.1%)

    • Actual : 2.3%. No clear market reaction.

  • 02-16 13:30 UTC : Jobless Claims (forecast : 200k, previous 195k)

    • Actual : 194k. SPX starts to decline towards end of week and OPEX

Upcoming Events

  • 02-22 19:00 UTC : FOMC Minutes

  • 02-23 13:30 UTC : GDP 2022Q4

  • 02-24 PCE : Forecast 0.4% Previous 0.3%

  • 03-22 FOMC : 0.25% vs 0.5% that is the question (probability : 79% vs 21%)

BTC and Macro

BTC and crypto displayed a marked decoupling with macro over the past week. SPX slowly marched downwards as bonds crept upwards while BTC, ETH and alt-coins continued its bullish march. China’s quantitative easing story coupled with Hong Kong now allowing its citizens to trade large crypto assets has been a strong narrative both for bitcoin as well as “Chinese” alts.

Options Markets

Bitcoin had a big week jumping 16% from 21.5k to 25k in a matter of days. Decoupled from macro, it seems a gamma squeeze may have caused the violent move upwards. Covered in my recent post, market makers were mostly short gamma between 21.5k to 25k which accelerated the price towards the 25k mark where market makers were mostly short gamma.

Reading Amberdata’s gamma charts : Positive pillars repel price, negative bars attract price. Currently, 24,500 acting as support 30,000 resistance and 25.25k to 28k acting may act like price attractors. The bottom chart shows the positions with expiries. A large negative gamma position for the 26000 strike expires this Friday, so there’s a time aspect as well to consider.

Gamma Charts

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

📉 HTF Price Action Scenarios

Greetings frens!

Let’s check what has happened since the last edition of the Chronicle, shall we?

Last Week’s ETH 10H Plan

The plan was to either:

  • See the range quickly re-claimed, indicating that this dip will be the “spring” of the re-accumulation, and continue looking for longs

  • See a pullback and another break lower to confirm a new LTF downtrend.

We got the green scenario which has led price to the upper boundary of this range. I marked up the highest point as that is where all buy stops reside.

ETH 10H Chart

Let’s zoom into the current push and see what’s going on.

ETH 2H Chart

As mentioned earlier, the upside liquidity has been swept and we got our 1st break to the downside. With our HTF analysis in mind, we still expect re-distributions in supply zones, therefore I remain very cautious.

Here is my plan for now:

Green scenario - A nice impulsive break to the upside would indicate that this current trend wants to continue. This would mean that the daily supply gets broken through and price can continue higher to seek liquidity above some farther swing points.

Red scenario - A 2nd structural break would indicate a reversal of this microstructure. This would mean we could either just visit some lower point inside of the range before continuing higher OR it could be the beginning of the last part of the HTF re-distribution (UTAD - upthrust after distribution) which would lead us to new lows. That is however a wild prediction for now and there are many things that need to happen before we can draw such a conclusion. I will keep y’all updated!

This sideways action has given alts nice room to grow. That being said, when I look at the charts of current narratives I can’t help but feel like we are a bit overextended. I’m not saying the current trend cannot continue, however the risk:reward for new long positions is simply not there for me. I am mostly sidelined and I’m waiting for a clearer picture.

It’s very easy to get too zoomed in during times like these especially when portfolio goes brrrrr, but keep in mind if this is really the beginning of a new bullrun, there will be tons of opportunities along the way.

That’s all from me! See ya next week

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

💰 Member Trade Wins

CJ Killin’ It

AmirOrmu Spots Smart Money in PSOCKS

JimmyBluebags Honey Jar Play

Atomist Flips Nitro Cartel Passports

Herres Makes Quick 5x on Sharky

cryptopleb4 Bets on DEXTF x Deutsche Bank

⛓ On-Chain Sleuthing

Amber Group Building 7-Figure GMX Position

Amber Group, one of the most important market makers in the crypto world, has been building a massive GMX position since the end of January. They now hold close to 70,194 GMX (all unstaked) which puts them as the 12 biggest holder. See wallet here.

Arca Hedge Fund on an Arbitrum Buying Spree

Arca has been pretty aggressive on Arbitrum recently. The group has been buying close to $400k of DPX and $300k of RDNT. They have also added $1.3m of GMX to their existing position. It feels like this hedge fund heard something about a coming airdrop... Check out the wallet here.

Monthly GNS Sell Pressure from Midgetwhale?

Bear market rally fear leads to large holder likely selling 3% GNS stack per month = 42,000 GNS (~$400k) monthly sell pressure.

Smart Money Movements

  • Mostly bought LVL and THE (most of them staked LVL but not THE)

  • Few rotations into SUDO and X2Y2 happened because of BLUR hype, but weren't successful

  • Increasing exposure to Arbitrum ecosystem because of the airdrop rumour - buying coins like PLS, MAGIC, GMX, GRAIL, etc.

Research and analysis from Cl & AmirOrnu

🔬Research Compilation

Once in a while, I will aggregate sources I have read or watched into the newsletter that, in my opinion, are a must-read for knowing where the future of this space is headed. So, without further ado here are some nice deep technological protocols, articles or threads I have enjoyed over the last period.

Must Reads

  1. Open Alchemy: From Disillusionment to Productivity - I have enjoyed this article due to the sheer amount of examples of imo under the radar projects that are building on infra or other sectors within the space. The article also mentions a lot of different verticals and their use-cases. A good primer on where we sort of stand currently within the space and its adoption.

  2. NewOrderDAO: 2023 Crypto Thesis - NewOrderDAO is just a very based DAO. In this article they explain in 3 different parts of how they think certain sectors will develop and what the reasoning behind that exactly is. The + in this article for me was the amount of graphs/visuals they made for explaining quite complex dynamics.

  3. EigenLayer Whitepaper - EigenLayer will probably become one of the most important primitives when it comes to decentralized outsourcing of security, data and other venues via Active Validator Services (AVS). Just read their whitepaper, and do not fade.

  4. Ye Zhang (Scroll): The mindset behind Scroll - A lot of people do not realise that being credibly neutral is a superpower to have as a protocol or dApp. For example, we have seen this with FlashBots, Defillama or even RocketPool (might be debatable, but you get my drift with how these actors operate in this space, we all love em). They accumulate value slowly until they instantly get adopted and granted love by community + honest actors in the space. After reading this blog of the Co-Founder of Scroll, I knew they are heading in the right direction, even if that will not be the first horse to shine in the zk-rollup space as it takes a bit longer, which is fine!

Must Watches

  1. Bell Curve: The Rollapp Stacks - Preston and Kalman are such chads. They fully understand the capabilities and limitations of the tech, but are each building in a different direction. This was a real eye-opener for me as they can explain complex topics with relative ease. Do note that you need some background in blockchain architecture for this to fully comprehend probably. Tip: Read up on Slush and Sovereign Labs!

  2. Lurk Lab: Nova: High-speed recursive zero-knowledge arguments - This is just a deep-dive into one of the ways how zero-knowledge arguments can be utilised and its trade-offs.

Hope you will enjoy these articles and vids as much as I have. I might do an opinion piece and explainooor on one of the reads I enjoyed next week, which will go over certain blockchain or rollup designs!

Courtesy of Herres - crypto-fund research analyst and blockchain architecture enthusiast

🧵 Castle Threads

What is Castle Capital?

Relied Dismissing GLP FUD Again

Shogun Dives into Railgun with Dune

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

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