Delphi Office Hours Call (June 1st, 2022)

Below is the full recording and transcript of the Office Hours call our team did on Wednesday June 1st, 2022.

• Overview (00:35)
• Macro #1 (01:45)
• Macro #2 (03:42)
• NFTs (07:40)
• LIDO (12:08)
• ETH Roadmap (16:27)
• OPTIMISM (20:30)
• Q&A (24:27)
  • Value Accrual for L2 Tokens? (24:40)
  • Building on Celestia instead of modular ETH? (46:47)

Transcript

00:35 · Kevin
Let’s get started. First and foremost, I’m not Nick who usually hosts these, so I’ll do my best to put the host cap on in his absence. Unfortunately, I didn’t have any good music to queue you all up with, but hopefully we make up for that with some very exciting discussion and some great content. Really quickly, in terms of today’s rundown: we’re going to do our classic macro markets where myself and Jason will be talking through some of the things we’re looking at, Teng will talk about the latest in NFTs, we also have a good discussion around some of the debates of Lido and monopolies and what that all potentially means, the ETH roadmap which our in-house infrastructure expert Jon will be talking through some of the most salient points of that monster report that he put out that hopefully everyone’s had a chance to dig through already. 

01:26 · Kevin
We’ll talk about Optimism and our analyst James will talk through a couple of key takeaways from the latest report that we put out, and then we’ll jump into some Q & A. I’m sure we’ll have some great discussion. Just a quick reminder that if you have any questions, definitely submit them in the Zoom chat and we will try to get to as many as we can. So, I’ll kick us off really quickly. I want to keep this brief because the macro landscape hasn’t changed a whole lot week over week since we’ve been talking about this. What we did see today and one of the things I wanted to point to – an indicator that we’ve been tracking very closely is the ISM. If you remember from some of our recent markets and macro reports, the ISM is an important proxy for the business cycle here in the US. 

02:13 · Kevin
What we tend to see is, when you look at the changes in asset prices versus the change in the ISM, they actually have a very strong correlation to everything from commodity prices to equities to treasury yields and even to the US dollar, which we know is one of the most important macro factors we continue to watch going forward. Today’s latest reading on the ISM came in a bit above expectation, so there is some debate right now over whether demand is actually stronger than a lot of people expect or anticipate, if demand is actually able to firm up and that concept of pent-up demand is still there. This is something that we will certainly be tracking as we head into the back half of this year. This is a key pillar of our base case outlook that we do have this trend of slowing economic growth that’s going to lead to a restart of this monetary and fiat debasement narrative… 

03:11 · Kevin
…Around more fiscal policy probably going to be monetized via the Fed and other global central banks probably following suit. The timeline for that gets murky because, when you have some of this data that doesn’t necessarily continue that trend, at least in a straight line, sometimes it’s up for debate of whether again demand is actually stronger than a lot of people are anticipating. Just want to put that on people’s radar. It’s something we’ll be continuing to cover in our research and something we’re monitoring closely. With that, I want to kick it over to our markets analyst, Jason, to talk through some of the things that he’s seeing 

03:46 · Jason
Thanks. I’m not sure how many of you have had the chance to read the Market Insights post from last Thursday or Friday. If you haven’t, please go check that out, but just to recap where we are and where we’ve been over the last couple of weeks: we had our early May Bitcoin capitulation breakdown moment. In the two weeks since, we’ve had that range bound consolidation. This is something that I always like to talk about in the aftermath of sharp market drawdowns and liquidation cascades. You often see them for a couple of weeks – depending on how sharp the drawdown is of which the magnitude of the consolidation afterward is a function of – you often see some period of consolidation where the markets try to repopulate the order book, where buyers and sellers jockey for position and try to figure out where balance is before there’s a next impulse move in the market. 

04:48 · Jason
We had that 2-3 week consolidation phase from the beginning of May up until about last week. Then what looked like a breakdown turned into one of those fake outs. This was broken down a lot in our last week’s Market Insights posts. We talked about the dynamic between shorts and longs at the key inflection point of 28.5K which is the range low. We noticed there was quite a bit of selling pressure, quite a bit of shorts positioning themselves in an aggressive way. Assuming price doesn’t break down, that’s additional fuel for price to reverse back into the range and then go explore the other end of it, which is the auction market theory aspect that we talk about pretty frequently. Since then, the price has broken above the previous range. 

05:41 · Jason
There’s a couple of things that I’m looking for right now. I think there’s room up to the 34 to 36K region for Bitcoin in the next week or two. The reason I say that is because it corresponds with the five month price range we had before we broke down in May. If you take that white line right there, which is the 2022 VWAP, that’s just the volume weighted average price. It takes all of the transactions and weights it by the amount of volume that occurred at each price level and gives you a nice smooth line. This is a great way of visualizing where everybody who’s taken a position in 2022 – that’s the average price (weighted by volume) of it. As price reaches that level, you can expect people who are long and haven’t already sold to de-risk and count themselves a bit lucky that they got to get out at a significantly less position than they did just one week ago. 

06:46 · Jason
Things I’m looking for now: if we are going to get that move to 34 to 36K, I want to see the top end of the range we just broke out of hold on this pullback right here. This would then provide a lot of bulls that added confidence that there’s at least one leg higher. It would then take the wind out of the sails of people who are shorting up at the 32K level because they want to see this retrace back into the range and then go explore the lows, which is like the opposite of what we just had. If that doesn’t play out, they’re going to have to de-risk, which is additional fuel to push us back up towards that 34K area. That’s kind of what I’m looking at right now. I want to see 30-30.5K hold and then start pushing higher and putting a lot of these recent sellers back underwater. 

07:37 · Kevin
Awesome. Great stuff. Really appreciate the commentary there, Jason. Moving on, we’re going to kick it over to our NFT strate