The Weekly #189
Investors brace for a week of Russian sovereign debt defaults risk raised rate announcements at the FOMC. Dollar strength may weigh on Bitcoin without any breakout catalysts.
It’s been a relatively stable week for crypto with global market capitalization oscillating around $1.8T.
Bitcoin trades below key resistance of $40k, hovering at the $39k mark. ETH has traded in line with the orange coin with select alt L1s leading the market including Waves (+47%), Zcash (+40.6%), and Stacks (+16.0%).
Traders around the world are bracing for a big week with key headlines anticipated from both the US and Russia.
Russia has $117m in sovereign debt due on Wednesday. The risk of default is real. The IMF has stated that a default is no longer an “improbable event” given economic sanctions have prohibited the country from tapping into its war chest of foreign reserves.
Russia has lost access to 50% of its reserves. Moody’s and Fitch Ratings have described the default as “imminent”, downgrading Russia’s Rating to “junk” as a result.
There would likely be contagion risk in the event of Russia’s default. Broad spillover effects would be seen with other emerging markets including sovereign debt. China would probably not be immune to the effects either.
Over in the US, the Fed is looking to raise rates for the first time since 2018. As we highlighted in previous Weeklies, the Fed finds itself in a tough balancing act - juggling between recession avoidance and worsening highest inflation in 40 years.
Rising bond yields (10Y back above 2%), anticipation of raise rates, and continued geopolitical tensions have supported the dollar in recent weeks. A gauge of dollar has climbed to new highs since May 2020.
The extra uncertainty here and the need to outperform a strong dollar is forcing investors to look emerging-market bonds denominated in USD.
History has shown that emerging-market dollar debt often rallies once Fed hikes gets underway. This is because investors are able to own higher-yielding assets without local-currency risk.
Bringing full circle back to crypto and we can the potential headwinds from increased dollar strength.
BTC has often struggled to over periods of DXY rallies. However, over a long enough timeframe this relationship weakens as can be seen during the period of July-November 2021. BTC rallied from $30-67k while DXY rallied from 92 to 98.
The same can be said of crypto globally (purple) which has largely moved in line with the orange coin (orange) with its strong market beta asset profile.
But not all cryptoassets will move in line with the wider market. If dollar strength has hampered crypto performance, it hasn’t hampered select cryptoassets like LUNA OR KNC which have been largely driven positive sentiment and network upgrades.
For long plays, diversification for portfolio construction and fundamental research for asset selection remains key for investors.
Bitcoin open interest has spiked to 360k BTC ($14B) - 8% WoW gorwth. Aggregate funding rates for Bitcoin markets are slightly negative. The level of OIusd is outpacing MCAP with the OI/MCAP ratio fast approaching the 0.02 zone.
A ratio above 0.02 has often coincided with periods of larger leverage flush-outs and will be a key metric to watch over the coming days.
One of the things we are looking at is Bitcoin network activity in lights of recent sanctions against Russia.
The number of BTC moved on the day of the stated intention to remove Russian banks from SWIFT spiked. This could indicate individuals in Russia trying to preserve their value in the asset.
However, we can see that network activity has fallen back to approximately pre-announcement levels with no initial evidence that such an announcement as kickstarted any longer-term meaningful activity that can be detected on-chain.
However, when we look at the BTC supply held by entities with a balance between 0.001-0.01 BTC we can see the trend accelerate 2x after the headline. In other words, more supply is being held within this bracket.
Trading volumes for ‘flagship’ decentralized exchanges for alternative ecosystem have oscillated around the $100-200m mark. Astroport volumes diverged briefly in early March, reaching $400m
What’s compelling about Astroport is its ability to be a proxy play in the future utility growth of UST - the fastest growing stablecoin the market by MCAP (50% YTD).
For example, the DEX has recently enabled direct swaps between bLUNA and other tokens including UST, forming a clear mutualistic relationship with other Terra DeFi apps like Anchor.
Total value deposited to Lido validators surges to new ATHs ($14.1B). Lido now commands a 20% market share of total ETH2 deposits by number of ETH committed to the deposit contract.
LDO/ETH is approaching key resistance (0.001) as LDO’s APT ratio continues to hit new ATHs. This comes after steTH pool reserve on Aave tops $280m.
Leveraged staking for PoS networks may further entice new activity to liquid staking derivative infrastructure.
Top performing assets for the past week are largely mid-cap names with privacy coins (ZEC, XMR) taking positions in the top 5. This highlights potential renewed interest from war in privacy coins.
Global (7d %):
Anchor Protocol launched a proposal to add sAVAX (Benqi’s liquid staking token) as collateral. If it passes, users will be able to borrow UST agains sAVAX.
Rocket Pool launched new rETH / wstETH pool on Curve, APY is 4-8%, rewards TBD.
Silo's SILO/FRAX pool is launched with $1m TVL, Curve gauge rewards are expected in near future.
Hop Protocol announced GNO rewards for USDT stakers on Gnosis chain, 1.67 GNO per day is allocated.
We finally have the Biden executive order that landed unexpectedly well with a pro-innovation ‘whole of government’ approach and broad bi-partisan support. Is it an unexpected gift horse or just window dressing for increasing the regulatory mandate?
Biden's Executive Order on Crypto Receives Bipartisan Praise (CoinDesk)
FACT SHEET: President Biden to Sign Executive Order on Ensuring Responsible Development of Digital Assets (White House)
Pro-crypto governments and regulations are coming online, marking an acceleration of the Great Regulatory Flooring Event that is 2022.
Conservative Candidate Yoon Suk-Yeol Wins South Korea’s Presidential Election (CoinDesk)
Dubai Is the Latest Government To Roll Out Crypto Law, Set Up Regulator (Blockworks)
Crypto is the means of last resort for Russians looking for a backdoor to the RUB, as regulators continue to accelerate enforcement options.
Russians liquidating crypto in the UAE as they seek safe havens (Reuters)
Lawmakers fear cryptocurrencies could be back door for sanctioned rubles (Roll Call)
Global market cap: $1.85T; Global market cap has increased by 4% over the past week keeping below $2T.
DeFi: $115B; DeFi market cap has increased 6%, slightly more than global MCAP. DeFi dominance has climbed to 6.26%, edging closer to new ATHs (6.9%).
Market shares; Bitcoin dominance is a little over 47%. Assets ranked 2-10 increased their dominance by 1%, largely driven by LUNA.
BTC/USD and ETH/USD
Price action; BTC/USD oscillating around $40k for several days. Clean break above $40k with significant volume key signal. ETH/USD also showing consolidating pattern, keeping above $2.5k but losing relative value to BTC. Next support for ETH/BTC at 0.064. RSI in neutral territory.
Volatility (BTC & ETH); BTC and ETH 30D vol has been fairly flat. Implied ATM 1M vol for BTC hiked to 75% (vs. 67% at Feb EOM).
Combined order books; Order books are heavier on the bid side. Heavier resistance to $40k (Source: Bitcoinity).
Crypto vs. SPX; Correlations between crypto and equities still have picked up (0.72). Investors continue to be concerned about sanctions against Russia choking off commodity supplies and causing recessions.
Gold has seen higher volatility on further safe-haven demand but dollar strength weighs in on its rallying performance, taking the SoV back down below $2k/OZ.
GBTC premium; GBTC discount still just above ATH levels (-28.32%). 30D volumes have kept flat YTD (~6m). Morgan Stanley held 13m shares of GBTC across 17 portfolio at 2021 YE.
ETHE premium; ETHE discount to NAV at -21%. Secondary market volumes for ETHE has fallen to 4.1m and is now 66% below ATH levels in May 2021 indicating limited demand.
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 ~34% over the past week. BTC and ETH spot volumes have both fallen 11% and 21% respectively over the past week.
Hashrate & Difficulty; Bitcoin hashrate has increased 3% over the past week. This comes after Bitcoin mining difficulty fell 1.5%.
Active addresses (BTC); Active entities (30d MA) has stayed flat over the past week - 268k.
Trader positioning; OI for Bitcoin and Ethereum spiked to 360k BTC and 2.75m respectively. OI/MCAP spiking closer to 0.02 zone which has often coincided with leverage flush-outs. Funding rates for BTC are slightly negative (0.003%) while for ETH they are moderately negative (0.007%). Puts being added to ETH while traders adding calls to BTC.
Omenics Sentscore (BTC); Sentiment score around BTC keeping fairly neutral but swaying towards the negative. Sentiment around BTC kept muted in 2022 relative to its 2021 spikes.
Exchange inflow/outflow (BTC, ETH); Divergence between BTC and ETH continues with regards to net exchange flows continues. Exchanges are seeing net inflows of $650m while BTC is seeing the reverse - $650m net outflows.
📚 On AMM Design [@mgnr_io]
📚 The Crypto Conflict In Ukraine [The Hill]
📚 L2 Hypergrowth [@RyanBerckmans]
📚 DeFi In The Past 6 Months [@mrjasonchoi]
📚 On Privacy [@0xfoobar]
🎙️ This Week In Crypto [Coinstack]
🎙️ How NFTs Are Changing The World [Real Vision]
🎙️ DeFi For The Metaverse [The Metaverse Podcast]
🎙️ Why DAOs Are Neither Decentralized Nor Autonomous [The Scoop]
🎙️ The True Implications Of Seizing Russia’s Foreign Reserves [The Breakdown]
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.