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The Weekly #193
Aggressive inflation, market dispersions, and leverage.
Cryptoassets extend their retreat into Q2 with global market capitalization falling 9% for the week ($2.06T).
Market capitalization continued to face resistance at the 200d MA for the past week but appears that $2T is acting as fairly strong support for now.
Spot volumes climbed above $30B in the end-of-March rally but the retreat in prices has been coupled with a retreat in volume too. Spot volumes are now down 21% for the week with trader interest appearing to wane for now.
A break below $20B daily volume, which has been the YTD floor for spot markets, will indicate a more severe softening of the market.
The slight weakening of the cyptoasset markets can arguably be attributable to the macro piece.
As we often highlight in The Weekly, cryptoassets continue to be traded in line with other risk-on assets in aggregate (0.86+ 30d correlation). The implications being moves in either direction for equities can weight on crypto significantly.
The S&P 500 is down 0.86% MTD (vs. 6.51% for cryptoassets).
The Fed have made it clear that inflation concerns will be a top priority after labor market data has shown healthy recovery.
Rate acceleration to combat inflation maybe part of the Fed’s stagflation avoidance playbook but the real implication is capped upside on equities - at the very least slower economic growth. It appears the market might be waking up to this harsh reality.
Cutting Bitcoin’s Umbilical Cord To Risk Assets
Analysts are already becoming more vocal about the connections between BTC and wider risk assets like equities.
We can point to reasons for BTC bullishness despite strong ties to equities currently. One of the purchasing of BTC by foundations to support growth within their own ecosystems. Terra’s Luna Foundation Guard (LFG) has now bought a 39,897 BTC ($1.68B) or 16.8% of the $10B target amount.
The implication here being a growing narrative around BTC being a key crypto-native reserve asset in the ecosystem. While not necessarily a new narrative, other Web3 teams adopting this approach could drive significant demand for the asset which has been largely absent.
If we track LFG purchases since end of March, LFG’s purchases have done little to support price.
Looking on-chain provides some colour. Metrics like STH-MVRV indicate short-term holders are selling at a loss in aggregate given they are price-sensitive.
STH-MVRV has failed to sustain itself above 1 and any demand for BTC over the past 2 weeks has faced growing sell pressure from this cohort of traders.
Causing further concern is the increased leverage entering the market. Bitcoin futures OI has climbed 16% MTD (402k BTC) as the CME launches micro futures.
Higher leverage in an increasingly softening market paves the way for increased volatility.
Dispersions In The Broader Market
Aside from BTC can clearly see that macro pressures are having a reduced impact on other assets. NEAR has led the L1 charge over the past week printing a 19.9% gain over the last 2 weeks.
NEAR’s correlations against both the S&P 500 and BITX (market beta) have fallen substantially as the market prices in the reality of NEAR’s future growth.
We can find other examples of divergence within certain sectors like Decentralized Finance. One is Maple Finance (+23% 7D) which has become a performance outlier and defied wider trends.
The key lesson: It is fundamental, consistent professional research that is providing investors a better chance of achieving alpha in a market that faces fundamental macro headwinds.
Looking ahead, we can point to other examples. Some which are more ‘obvious’ and some which are perhaps less ‘obvious’.
An obvious one is the multi-dimensional narrative for Ethereum in 2022 which we have written extensively about. Still, with ETH/BTC still 15% below its December 2021 high, investors may still be underweight ETH and need the actual merge event as the ultimate wake up call.
Other non-obvious future examples include infrastructure that could be adopted because of the macro environment itself like CPI-related applications. The signals are there for those looking: over the last few weeks, we have seen the launch of censorship-resistant inflation indices and CPI-pegged assets (see FPI and VOLT).
As the cryptoasset market matures and becomes institutionalized further, we will see a growing number of investable themes emerge. In the meantime, in the case of macro-led broad sell-off, few assets may be spared in the short-term. After all, it’s how assets perform on the recovery that is key.
Borrow volume on Aave has recovered from its $6B lows in early March to ~$10B today (+66%). This trajectory bucks the trend of both its competitors like Compound which continues to see a decline in daily borrow volume (-36% YTD).
The number of Aave markets with $1M+ borrow volume now stands at 21 vs. the 10 in Compound.
Daily trading volume on CowSwap surpassed $60m once again last week but still below its $90m ATH in late January 2022.
Positively, CowSwap volume share to other aggregators is also increasing with CowSwap volume representing 20% that of 1inch.
COW’s token since the airdrop has re-traced 70% and now stands at a $460m full-diluted valuation.
Higher performance seen in select cases within DeFi. Low liquidity have contributed their strong outperformance in some cases (e.g. ICHI and DXDao).
Top 100 (7d %):
Mina Protocol (-0.6%)
LEO Token (-2.5%)
DeFi (7d %):
Kyber Network Crystal (+26.0%)
Nest Protocol (+26.3%)
Gearbox is doubling pool max parameter, pools' capacity will be increased to 1200 WETH, 100 WBTC, 6M USDC. The team is also adding new tokens, including CRV, LDO, LUNA.
Votium closed it's biggest round so far with a total of $22M in incentives distributed to CVX lockers (80 cents per token locked)
CBDCs are now a top priority for central bankers but are years behind stablecoins and demands for regulation. Smart legislative options are emerging as issuers sit down regulators.
Crypto-Like Digital Dollar at Least Several Years Away, Yellen Says (WSJ)
Digital Euro May Get Easier AML Rules Than Bitcoin, EU Commissioner Says (CoinDesk)
Stablecoin Issuer Circle Leads U.K. Charm Offensive Ahead of New Rules (Bloomberg)
De-dollarization is accelerating due to global conflict, alignment of Russia and China, and emerging economies moving away from the dollar peg.
US House Bill Seeks To Study El Salvador’s ‘Careless Gamble’ on Bitcoin (Blockworks)
Are we witnessing the beginning of de-dollarization? (The Hill)
Global regulatory parity is on pace as predicted as government embrace innovation and focus on regulation.
UK Government To Release Its Own NFT in Bid To Embrace Crypto Technology (Daily Hodl)
Yellen to Lay Out Broad Principles for Regulation of Digital Assets (Bloomberg)
Gensler Wants SEC and CFTC to Regulate Crypto Exchanges Together (Decrypt)
Global market cap: $2.03T; Global market cap has fallen by 9% as the market continues its retreat to the $2T support zone.
DeFi: $146B; DeFi market cap has fallen 12%, more than global MCAP over the past week. DeFi dominance has fallen 4% over the same period.
Market shares; Bitcoin dominance has climbed back to 47% with BTC finding relative stability to high cap names.
BTC/USD and ETH/USD
Price action; Weaker BTC/USD price action with pair facing strong resistance at ~$47.3k. Falling BTC volumes (-18%). Daily RSI fairly neutral. Flat ETH/BTC last week with ETH softening relative to BTC. Next support ~0.073.
Volatility (BTC & ETH); BTC and ETH 30D vol fallen to annual lows. BTC and ETH ATM 1M implied vol at annual lows (56.2% and 62.4% respectively).
Combined order books; Order books much heavier on the bid side. Slightly heavier resistance between $42.25k (Source: Bitcoinity).
Crypto vs. SPX; Cryptoassets maintaining a strong positive relationship to equities. Crypto markets have underperformed SPX by ~9% YTD. Raised rates, quantitative tightening, and continued geopolitical tensions have translated to weaker price action further down the risk continuum.
GBTC premium; GBTC discount narrowing over the past week (-24%) and divergent to spot price action. 30D secondary market volumes have fallen 10% MTD.
ETHE premium; ETHE discount widened significantly over the past week (-24.18%) and is approaching the ATH of 28%. 30D volumes have fallen 4% in line with dynamics seen with GBTC.
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 3% MTD. BTC spot volumes (7d MA) has fallen 18% while ETH spot volumes has fallen 17% over the past week.
Hashrate & Difficulty; Bitcoin hashrate has increased another 4% over the past week. Bitcoin mining difficulty has increased 4.3% to a new ATH.
Active addresses (BTC); Active entities (30d MA) has increased by 8.9% over the past week to 290k.
Trader positioning; Put/call ratio for ETH trends higher while BTC remains flat. Bitcoin futures OI climbed 16% MTD (402k BTC) while Ethereum has kept flat at 2.64m. Slightly positive funding rate for BTC indicates traders are predominantly taking a bullish stance although this weakened over the past week.
This comes after CME launched micro futures which should increased volume and OI in the futures arena. Higher leverage may mean we see higher volatility over the coming week.
Exchange inflow/outflow (BTC, ETH); Very strong net outflows for BTC and ETH from exchanges ($3.69B and $4.8B respectively). While still strongly negative, net exchange flows have flattened over the past week.
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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.