The Weekly #188
Crypto markets extend losses with macro uncertainty continuing to weigh on risk assets globally. Markets will likely continue to be reactive to both macroeconomics and geopolitical headlines.
A ‘Mixed Bag’ For Crypto
The crypto markets had a roller coaster ride over the past week 2 months. Global market cap topped $2.03T last week as BTC ripped past key resistance of $40k, printing as high as $44.8k.
Above all other narratives, a key driver for this ‘brief’ rally in the orange coin was the seizureship and censorship resistant qualities. Ruble-denominated volume and OTC premiums from both within Ukraine as well as Russia were just some data points pointing to this.
A week later and crypto is no longer diverging to risk on assets like equities - BTC has retreated 16% from its early March peak. $ND and $SPX were down 0.6% and 0.8% on Friday respectively.
The swift realization that crypto is a non-complete solution for individuals and states to avoid sanctions could have been the pin that burst the balloon.
We also saw a sharp increase in whale addresses as the Ukraine-Russia crisis escalated further and while some linked this to whale activity, a major reshuffling of wallets by Wrapped Bitcoin was the actual cause.
Meanwhile, the European crisis is certainly driving the SoV narrative elsewhere and commodities more broadly. With no sign of a de-escalation of war yet, Gold hit $2k/oz with other commodities including oil, palladium and wheat also surged.
A clear tailwind for the oil rally was the Bloomberg report disclosing the Biden administration considering banning oil imports from Russia. Brent oil has now topped $127 a barrel.
The highly ‘reactive’ market will be paying attention to Russian and Ukrainian foreign ministers holding talks in Turkey.
The Kremlin has stated that Russian military action will ‘stop in a moment’ if Ukraine meets conditions.
Last week, the Fed announced is would favour a ‘modest’ 25bps rate hike in March - lower than the 50bps hike the market started to anticipate. After all, the Fed is loathed to bring on an economic recession.
A relative low hike has done little to soften crypto’s retreat and the Fed’s aggressiveness can easily return down the line. Friday’s nonfarm payrolls report beat expectations of new jobs created in February by 70%. The European war is already creating havock for American consumers when inflation is already at a 40-year high of 7.5%.
Investors are bracing for next week’s update on price gains with all eyes on the central bank’s March 15-16 policy meeting. Looking ahead, Bitcoin could hit hit next key support at $36k with next support at $34k.
The likelihood of large liquidations exacerbating market volatility remains low. The ratio of futures open interest and MCAP is relatively low at 2%. The trend is upwards and is worth paying attention to over the coming weeks.
Correlations Spike To One
There has been little dispersion in cryptoasset performance over the past week and the week opening. Worst hit sectors tend to be the most speculative (e.g. NFTs and Metaverse).
Top performers include LUNA and NEAR which are up 11% and 17% respectively on the week. LUNA’s key driver continues to be growth related to its native stablecoin, UST while NEAR has caught a bid from news of ecosystem VC funds specialising in the NEAR protocol.
This should highlight again that sometimes the most liquid assets can be the best performing if narratives and/or fundamentals line up. This market continues to reward the nimble and fundamental-driven investors.
Weekly NFT volumes have fallen 50% since January but we are still seeing NFT collection price floors be maintained and rise. This could be an early sign of the market navigating the next move around the financialization of NFTs particularly in the metaverse. One example is NFT Worlds which which had an average sell price of 18 ETH in February.
Osmosis trading volume vs. Uniswap has climbed to new ATHs (10%) with the former seeing >$100-200m in daily volume. Osmosis’ FDV has now overtaken Uniswap’s.
Recent price action has been attributable to recently announced features like Osmosis Superfluid Staking.
As we often highlight, select alt assets can serve as proxy plays on future utility growth. We can see this for Cosmos through ATOM’s performance but we now see this for OSMO too.
Why? Because Osmosis will be critical piece in connecting liquidity across the Cosmos ecosystem and helps drove the overall utility of the ecosystem itself.
UST is the fastest growing stablecoin in crypto, let alone within the algorithmic bucket. UST monetary supply has grown 36% YTD and now stands at 13.8B.
Trust in the the LUNA/UST mechanism has been buoyed since the $1B Bitcoin reserve announcement.
UST has and Terra more broadly has been unfazed from recent global crises. UST’s growth has clearly diverged from centralized stablecoin issuers like USDC which has seen its monetary supply shrink since headlines around Russian sanctions became commonplace.
Top performing assets out of the gate this week can be found down the risk curve. Lido Finance leads the pack at 16.8%.
Global (7d %):
DeFi (7d %):
Mirror Protocol (+36%)
Lido DAO (+21.1%)
Andre Cronje and Antol Nell announced that they are stopping contributing to DeFi space. There are around ~25 apps and services that will be terminated on April 3 (see a list here). These are UI/websites only, actual protocols like Yearn and Solidly will continue operating, no action required for LPs.
Convex announced that the vote-locking contract has been re-deployed due to a vulnerability, and LPs will need to re-lock their CVX tokens (now unlocked). More details here, no loss of funds occurred, and user deposits were not at risk.
Silo, a new lending protocol on Ethereum, announced plans to launch SILO-FRAX pool on Curve to boost token's liquidity. DAO purchased 250,000 CVX in order to participate in Curve gauge voting and allocate CRV rewards to the pool.
The Ukraine conflict is proving to be the great accelerator for government intervention, censorship, and enforcement of cryptocurrencies, forcing global coordination and a unified front against Russia by preventing access to crypto as a preferred method for avoiding sanctions.
Parity and great flooring event is coalescing in real time:
How the Ukraine conflict became a turning point for cryptocurrency (NBC)
Bitcoin sanctions could be next, but most Russians won’t care (CNBC)
OFAC to carry out a 2021 executive order barring transactions with Russian entities, including crypto (The Block)
Japan to Assess How Russia Can Avoid Sanctions Using Crypto (Decrypt)
US and UK banking regulators are quickly ramping up scrutiny of all things crypto, in particular DeFi and NFTs , signalling no tolerance or amnesty for securities violations as major exchanges keep pace with updating banned country lists in the wake of proliferating sanctions against Russia.
US lawmakers and Fed chair push for crypto regulation in wake of Russia sanctions (CoinTelegraph)
SEC Scrutinizes NFT Market Over Illegal Crypto Token Offerings (Bloomberg)
Global market cap: $1.9T; Global market cap has fallen by 6% over the past week, failing to breach past the $2T mark.
DeFi: $110B; DeFi market cap has fallen 5%, slightly less than global MCAP. DeFi dominance has therefore been relatively flat over the week (~6%).
Market shares; Bitcoin dominance is a little over 47% with YTD trend being upwards.
BTC/USD and ETH/USD
Price action; BTC/USD extends its pullback towards the $37-$40k support zone with resistance at $46.7k intact. Volumes hover ~$7.1b and with RSI in neutral territory, we could see an extended consolidation phase underway. ETH/BTC failing to break above descending channel with key support at 0.644.
Volatility (BTC & ETH); BTC and ETH 30D vol have picked up in recent days. Implied 1W VOL has overtaken 1m and 6m VOL slightly and could signal a slight trend reversal.
Combined order books; Order books look fairly even on both sides. Heavier resistance all the way up to $50k (Source: Bitcoinity).
Crypto vs. SPX; Correlations between crypto and equities still have picked up (0.83) as both come under pressure from growing global macro uncertainty. Gold has seen higher volatility on further safe-haven demand. BTC/USD 30D correlation to Gold is falling sharply (-0.48) with the market giving no room for the cryptoasset’s SoV narrative right now.
GBTC premium; GBTC discount falling to near ATHs (-28.75%). 30D volumes have kept flat over the past week (~7m). Evidence of institutional investors buying GBTC at spot to capitalize on the significant discount in anticipation of the Grayscale trust transforming into an ETF later this year.
ETHE premium; ETHE discount to NAV has increased over the week to 22.2%, short of the ATH at -27.92%. Secondary market volumes for ETHE has kept flat at 5.13M. Together signals limited demand for ETHE at this time.
Bitcoin Mempool activity (Size in MB); The mempool size for the Bitcoin network has kept low indicating relatively low congestion on the network.
On-chain real (BTC) & off-chain volume; BTC on-chain volume has fallen ~2% over the past week. BTC and ETH spot volumes have both fallen 10% and 23% respectively over the past week as market thin.
Hashrate & Difficulty; Bitcoin hashrate has increased 3% over the past week. Bitcoin mining difficulty has fallen for the first time in 2022 making it marginally easier for miners to mine blocks.
Active addresses (BTC); Active entities (30d MA) has stayed flat over the past week - 268k.
Trader positioning; Futures OI for Bitcoin climbing to 351k BTC, up 6% from 2022 lows in early March. Funding rates negative for Bitcoin and mildly positive for ETH signalling divergence in trader sentiment today. This comes when put/call ratio for BTC continues to fall (0.5) since early February 2022.
Omenics Sentscore (BTC); Sentiment score around BTC picked up significantly in recent days. Gauging sentiment can be useful in identifying peak capitulation and periods of concerning euphoria. This is not perfect and overlaying other factors like macro is important.
Exchange inflow/outflow (BTC, ETH); Divergence between BTC and ETH with regards to net exchange flows continues. Exchanges are seeing ETH net inflows of $700m/day while for BTC this is only <$200m. ETH net flows are trending lower and are 50% lower in late February 2022.
📚 Coinbase On Global Sanctions Compliance [CoinTelegraph]
📚 FloorDAO and NFTX [@CryptoTaxGuy]
📚 Tokenomics 102: Digging Deeper On Supply [@Almanack]
📚 Terra Stats [@Alpha_pls]
📚 Blockchain Developer Resource [@officer_cia]
🎙️ Celestia: The World’s First Modular Blockchain Network [Delphi]
🎙️ Global Financial Unrest is Long Term Bullish For Crypto [Between2Chains]
🎙️ Enforcing Sanctions In Crypto Isn’t The Problem [The Breakdown]
🎙️ Yat Siu Founder of Animoca Brands [The FTX Podcast]
🎙️ Putin’s Choice In Ukraine [Intelligence Matters]
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.