Analysts' Insights
Smart Traders Shift from Treasury Tokens to Bitcoin
1) The crypto markets are fundamentally shifting. No longer are random retail flows dominating token prices, nor are market-neutral arbitrage funds profiting from abundant liquidity and zero-cross exchange risk.
2) Instead, we see crypto traders taking more tactical bets and shifting into safe haven tokens when crypto markets are correcting lower, only to reallocate into Bitcoin when prices appear to go up.
3) This risk-on vs. risk-off is well known from TradeFi and with the growth in treasury-backed tokens has become a new way to generate alpha for some managers.
4) Some call those treasury-tokens “RWA”, short for real-world assets and they have now become the 9th most crucial token category based on TVL with $1.2bn. This is an increase from just $100m at the beginning of the year and RWA is the fastest growing TVL category. This is a 10x category in 2023.
5) The largest one is the Tron stUSDT, which offered double the 5% treasury yield to attract funds during the first month of existence (until August 10), which helped to attract $707m in TVL. But there are several other, maybe even more credible options - as some would argue that stUSDT might embed some credit risk.
6) But what is more interesting is that some treasury-backed tokens have lost quite a bit of TVL during the last few days. When Bitcoin prices appeared to bottom out, traders seemed to have liquidated their “safe-haven tokens” to take advantage of lower prices.
7) This indicates that smart traders increasingly use those RWA as the equivalent of safe-haven assets as holders collect the yield while waiting for the crypto downside volatility to subside.
8) This combination of taking advantage of low option prices due to the declining volatility and the sudden existence of 5% yield-bearing tokens makes tactical trading an essential crypto trading strategy in the future.
9) Everybody can now construct their own optimal risk-reward trading strategies with these three simple building blocks of 1) Bitcoin, 2) cheap option prices and 3) [risk-free] treasury-yield bearing tokens. During the last few weeks, we have shared a couple of implementation suggestions according to the crypto market opportunity set.
10) The ever-changing crypto trading landscape is adjusting to a post-FTX environment where cross-exchange arbitrage limits the profit potential of market-neutral strategies that became popular after the pre-Three Arrows Capital high beta era ended.
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