Delphi Office Hours Call (May 4th, 2022)

Below is the full recording and transcript of the Office Hours call our team did on Wednesday, May 4th, 2022.

• Macro (05:19)
• Aurora (08:58)
• STEPN (13:50)
• ETH Amsterdam Recap (17:38)
• Modular Summit (20:41)
• Flash Debate: Malfunctions (25:42)
• Flash Debate: L2s (29:35)
• Q&A (35:06)

Transcript

00:36 • Nick
Thank you for joining. Today is May 4th, 2022, and today’s Office Hours has quite an agenda lined up for you. We’re first going to begin with macro and markets. We’ll transition to Aurora and our latest Pro report there. We’ll talk about STEPN, an exciting primitive in the move-to-earn space. We’ll share our thoughts on ETH Amsterdam and our participation in the modular summit there. Without further ado, we’re going to turn things over to Jason with the macro side of things. Please send any questions in the chat. As always, we’ll try to get to those in the Q&A section towards the end. With that, I’m going to turn things over to Jason here to talk about the latest in markets.

01:28 • Jason
Thanks. GM, everyone. It makes sense to backtrack a bit and look to see where we find ourselves today after the first quarter and April have concluded. We have some good price data in the books, and we can now look back and see how the market has positioned itself over the last four months since 2022 started. The best way that I personally like to visualize this is something that you guys will have noticed several times in a few of my reports and a few of these calls is: volume profile. What you see on here is a quarterly volume profile on the left. It includes every transaction weighted by volume that has occurred in the market for Bitcoin over the first quarter. Obviously, we’re now entering the second quarter. That’s what that second smaller volume profile in the middle of that chart that starts in April is. On the right is a composite of both of those. 

02:23 • Jason
If you just squish them together into one profile, that’s what that one is on the right, so you can see a holistic view over the course of 2022. I think the big takeaway from here, besides getting too granular for a call like this, is to note that a significant portion of volume transactions has occurred above the current price level, which indicates that there is likely more downward pressure than there is upward pressure on price, just based on prior activity and behaviors of people who have been involved and been active in the market so far. Secondly, today’s FOMC Day, so there’s likely going to be some fireworks, even though we already have a telegraphed 50 basis point rate hike. Like I said, Bitcoin finds itself back in the 2022 price range that we’ve been discussing for the last several months. 

03:15 • Jason
However, the landscape from several months ago is mighty different to what it is today. It means we have to re-look at the same picture and see if things are the same or if things have changed. For those who monitor market structure, supply and demand theory, things like that, Bitcoin is retesting the main 2022 demand zone, which is that green box at the bottom. It’s where most bids have occurred, and it’s where most bids that have been taken or most longs that have been taken in 2022 have been taken, and they’re in profit. However, they’re not as much in profit now as they were a couple of weeks ago, and as price moves against them, this is obviously adding to that further downward pressure that we talked about before. In addition to that, we’re testing this area for like the fifth or sixth time this year. For those who trade supply and demand zones, you might recognize a phenomenon that: as you test supply zones or resistance zones or demand zones and support zones, more often, they become weaker. 

04:15 • Jason
The bounces off of them are less pronounced. This is the way I like to visualize these areas. Think about them as pools of water, liquidity,  however you want to think about it, and every time price comes back into it, you take a bunch of that liquidity out of that pool, and then it fuels the price to move back on that bounce, right? As it keeps coming into this level, there’s less and less liquidity for it to bounce off. Eventually that liquidity will be too thin to support price, which then leads to further price legs down (or up if we’re fighting against resistance). We just happen to be fighting against support at the moment, so that’s the most likely scenario; as you keep testing and bouncing without putting much distance between where we are now and where price goes. That’s what I’m looking for. If we do lose this 2022 demand zone, it goes back to the weekly market structures around 30K. That’s what I’m looking for. 

05:16 • Nick
Awesome. Great color there. I’m going to move along to the macro side of things. Kevin, what are you seeing with the risk assets? 

05:27 • Kevin
Thanks, Nick. Building off a lot of what Jason was just talking about – it’s interesting when you look at how risk assets have behaved. To be honest, they’re behaving exactly as they should in this type of environment where you have not only the economic growth outlook starting to deteriorate, especially over a 12-to-24-month time horizon, but also with liquidity deterioration as well as tightening financial conditions. This chart here shows the U.S. ISM PMI index, showing the year over year change in that versus the S&P, just as a way to show how correlated the two are. The ISM is a decent proxy for the U.S. economy, the longer-term business cycles, the ebbs and flows of that. Looking at the year-over-year change in the S&P as a representation of assets shows that again, this is how you would expect equities to react as well as other risk assets like BTC and crypto. 

06:29 • Kevin
I think what’s interesting is that, as you go into today’s FOMC meeting, a fifty basis point hike is baked in. This would be the first fifty basis point hike since May of 2000, which was lo and behold, a little over a month after the S&P back in 2000. We all know what happened in the dot com boom and bust cycle. Again, that short-term outlook is pretty bearish or conservatively neutral at best. One of the things I think is interesting is, when you think about just taking a quick step back, the goal of