The Weekly #190
Cryptoassets buoyed risk appetite unfazed by fundamental macro headwinds. Ethereum begins to take centre stage with L2 scaling and merge momentum.
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Unfazed Risk Appetite
Crypto markets have seen a positive week overall with global market capitalisation up 11%.
Cryptoassets have mirrored the bullish price action in wider equites over the 7 days with SPX and NAD 6.16% and 5.5% up respectively. SPX in particular has seen four consecutive >1% rallies in the week - something that has only occurred four times before in the index’s history.
Despite central banks starting to formalize their more hawkish stance, we see risk appetite continues to hold up. With the largely unresolved conflict in Ukraine, blind trust may prove costly for investors.
Navigating the world of risk asset returns becomes even more challenging when central banks take differing paths of aggression. The Bank of England have already raised rate to 0.75% in what appears to be a preference to combat inflation over risk of economics weakness.
For Powell, in broad strokes, a recession would reverse all the work to reduce employment and post-Covid recovery. Not all are happy with this approach. While directionally raised rates will act as fundamental headwinds, consistent 25 BPS appears to be stomached well so far by the markets including crypto.
However, it is not clear how much investors particularly in crypto are pricing in a much more aggressive acceleration from the Fed in 2022.
BTC rallied 9% in the week but has yet to demonstrate significant breakout momentum coupled with high volume. Resistance held strong at 42.4k over the weekend for the orange coin.
Elsewhere, investors have moved their spotlight to Ethereum which rallied close to $3k (upper bollinger band). ETH has since pulled back to $2.9k as US equity futures open the week flat.
Catalysing The ETH Narrative in 2022
Ethereum’s performance can be arguably tied to growing narrative around:
The ETH2 merge
ETH2 scaling adoption
Last week, the Ethereum Foundation announced the ETH2 merge was successfully completed on Kiln with the next phase including deployments on its public testnets. Ethereum.org still states a Q2 2022 shipping timeline but ability to hit that target is an open question.
Web traffic for terms like “ETH2” remain relatively minuscule compared to “Bitcoin” and “Ethereum” searches. This would indicate ETH2 narrative momentum may be contained within crypto twitter walls - for some investors a slight information arbitrage for a momentum play.
On-chain data paints a different story. Liquid staking derivatives like Lido have seen accelerated adoption at a time when 10m ETH is now locked in the Ethereum 2.o staking contract.
Lido’s TVL is fast approaching $20B and house 2.5m ETH across Lido’s validator set. Lido now has a 25% market share for all ETH2 deposits.
What we are likely seeing is Lido’s adoption and ETH2 narratives feeding off each other. Growing confidence in ETH2 drives confidence in ETH2-related infrastructure, where this growth in turn boosts the ETH2 momentum via KPIs and news headlines.
Rocket Pool’s recent growth rate adds weight here where the node operator network now has seen a 50% growth in ETH commitments in March alone (~140k).
As highlighted in previous weeklies, these protocols were priced at discounts to certain KPIs. These types of networks may therefore act as a suitable high beta ETH play over the coming months if the ETH2 narrative gains further momentum.
For L2 scaling, there is evidence the momentum on-chain has is already taking shape. L2/L1 TVL is an ATH of 6% and is on track to reach 8-10% over the next 2 months at current pace.
More interestingly, we can see L2 TVL dominance increasing since September 2021 against alternative EVM (self-sovereign) chains. Growth in this ratio will certainly add further fuel back to the rollup-centric Ethereum ecosystem narrative.
As always, alternative EVM chains will need to establish their niche against this outcome if applications are inevitably drawn back to the security layer L1 Ethereum.
Taking the above together, we see limited off-chain coverage for Ethereum particularly around ETH2 for now. Digging into the on-chain data shows the momentum already shifting this way and investors are already starting to position their books accordingly.
ANC/USD has come off 57% from its March highs ($6.07) while total value deposited to the protocol has increased 22% over the same period. Total value deposited has reached $14.2B.
Anchor now supports other non-Terra blockchains like Avalanche via xAnchor. Other chains that can be supported in the future via Wormhole include Ethereum, Fantom, Polygon, and Solana.
There are indicators that Ribbon Finance is starting to achieve product market fit in the structured products arena (specifically with options vaults).
Total value across their covered call and put-selling vaults has surged past $250m with total capital deployed just below ATH levels ($250m). Ribbon have quietly launched $RBN staking rewards 23 days ago and the RBN token is undergoing potentially revised economics.
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.
Top (7d %):
Lido DAO (40%)
DeFi (7d %):
Lido DAO (40%)
Maker now allows LPs to use Curve stETH-ETH LP tokens to borrow DAI, eligible for LDO rewards.
Rocket Pool, ETH liquid staking protocol, launched rETH-stETH pool on Curve. Gauge rewards TBD.
Aave launched V3 on multiple chains, new version includes increased efficiency, isolation mode, cross-chain transactions and gas optimizations.
Proposal to add a gauge for Curve SILO-FRAX pool has passed, CRV rewards TBA.
Sushiswap launched Trident on Polygon, it's a new version of AMM with extended swap and LP functionality, learn more here.
Crypto is gaining steam as a force for good in the wake of the Russia / Ukraine conflict, as Ukraine adopts a bill legalizing crypto. Western officials and regulators come to understand the ability to track wallets and leverage transparency on chain to enforce sanctions.
Ukraine's Zelenskyy Signs Virtual Assets Bill Into Law, Legalizing Crypto (CoinDesk)
How blockchain intelligence can prevent Russia from evading sanctions (Cointelegraph)
Warren’s Crypto Sanctions Bill Aims to Crack Down on Russia, Track Wallets With Foreign Ties (Decrypt)
The US crypto lobby is expanding, with brand name politicos tapping into Web 3.0 to mobilize resources and set sights on NY’s non-functioning Bitlicense!
DC Lobbying Group Expands to New York State Capital (CoinDesk)
Andrew Yang Wants Web 3 to Prove the Haters Wrong (CoinDesk)
Legislators are attempting to move enforcement quickly to the middle as we enter the second quarter as a looming pro-crypto Ripple settlement may drive rapid clarity.
8 Congress Members Ask SEC for Details on Crypto Company Investigations (CoinDesk)
New Hampshire hopes its express approval of crypto-friendly law will attract new business (Cointelegraph)
Global market cap: $1.95T; Global market cap has increased by 5% and has yet to pass the $2T mark again.
DeFi: $124B; DeFi market cap has increased 8%, slightly more than global MCAP. DeFi dominance has stayed relatively flat at 6.23%.
Market shares; Bitcoin dominance has fallen 0.5% over the past week to 46.5%. ETH
BTC/USD and ETH/USD
Price action; BTC kept in $37k-$45k channel with relatively low volume. BTC/USD bollinger bands tightening while RSI is neutral at 52. ETH/BTC broke above descending channel with good volume. Next target 0.071 with RSI levels indicating room until we are in overbought territory.
Volatility (BTC & ETH); BTC and ETH 30D vol have fallen slightyl over the past week. Implied ATM 1M vol for BTC hiked from 65.6% to 68.5% with traders setting up options positions for incoming price swings.
Combined order books; Order books are heavier on the ask side. Heavier resistance all the way up to $45k (Source: Bitcoinity).
Crypto vs. SPX; Correlations between crypto and equities still have picked up (0.63). U.S. stock futures slide lower after the S&P 500 had is best week since 2020. Gold has pulled back sharply from 19-month high, entering a technical correction driven by prospect of monetary tightening.
GBTC premium; GBTC discount still just above ATH levels (-26%) with discount floor shaping as -30%. 30D volumes have fallen 5% over the past week (~5.7m). As CoinShares highlight: “Bitcoin (Trusts) saw outflows totalling US$70m last week off the back of low volumes. Investment products traded US$1bn last week compared the average US$1.24bn, representing just 5% of total bitcoin trading volumes.”
ETHE premium; ETHE discount to NAV at -18.39%. Secondary market volumes for ETHE has fallen to ATL since January 2021 (~3.9m) indicating low demand on secondary market.
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 kept flat over the past week. BTC spot volumes (7d MA) has fallen 7% while ETH spot volumes has increased 6% over the past week.
Hashrate & Difficulty; Bitcoin hashrate has increased 3% over the past week. This comes after Bitcoin mining difficulty fell 0.35% on March 17th.
Active addresses (BTC); Active entities (30d MA) has increased marginally (0.67%) over the past week - 273k.
Trader positioning; Put/call ratio for Bitcoin has kept relatively flat with traders not showing any added bearish sentiment. This is divergent to Ethereum where its put/call ratio has been climbing steadily YTD. Ethereum’s aggregate funding rates have spiked to 0.01% from neutral while Bitcoin rates are kept moderately positive at 0.007%.
Omenics Sentscore (BTC); Sentiment around Bitcoin remains elevated as the orange coin holds steady above $40k.
Exchange inflow/outflow (BTC, ETH); Now seeing strong net outflows from exchanges for both BTC (~$2B daily) and ETH (~$1.2B daily).
📚 DAO and Decentralized Legal Structures - 101[Decentral Park Caputal]
📚 Web3 Science Lectures [Our Network]
📚 Weekend Epilogue [@TheoDelarosa]
📚 March 2022 Rundown [@Lyn Alden]
📚 The Battle of Optimistic vs. ZK Rollups [@Swagtimus]
🎙️ Crypto Integration And Innovation In African Markets [Money Reimagined]
🎙️ On Crypto Market Structure [On The Brink]
🎙️ The Transformation of Money [The Breakdown]
🎙️ CL (eGirl Capital) [The Scoop]
🎙️ Impact of Sanctions and Macroeconomic Outlook [All-In]
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.