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ETFS 21Shares Crypto Monitor - 10th March 2022

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Market Outlook

It’s been a hard week for the markets as the Russian invasion of Ukraine prepares for its third week, killing at least 474 civilians. Other macroeconomic triggers include the Federal Reserve’s infamous interest rate hike to curb inflation which is at its 40-year-high now. The hike is expected to float at 0.25%; a decision is scheduled to be made on March 16. Another related trigger that’s been affecting the markets is the Consumer Price Index which will also be affected by next week’s interest rate hike, which will essentially track how much consumers will be impacted in terms of loans, investments, savings, job prospects, and prices for goods and services. In consequence, Bitcoin is down by 6.4%, Ethereum is down by 8.5%, equity 3.5% over the past week. Meanwhile, oil and wheat have surged historically as the breadbasket of the world continues to bleed.

As it appears in the chart below, the correlation is rising above the 0.3 mark, indicating that Bitcoin and S&P 500 are historically in higher correlation, however it’s still weak. Values at or close to zero imply a weak or no linear relationship.

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There are undoubtedly opportunistic inflows into commodities, including palladium and gold, which reached all-time highs in light of the Russo-Ukrainian conflict, of which capital likely came out of the equity market. As discussed previously, Bitcoin's dominant use case in the past couple of weeks has been to serve as a neutral and non-sovereign payment alternative to support the Ukrainian government. It's clearly time for Bitcoin to shine as a non-state, non-sovereign, and emerging store of value — and this decade has clearly been battle-testing this thesis.

Crypto in the Russo-Ukrainian Conflict

The Ukrainian government decided to cancel the airdrop of its token after the announcement of Peaceful World tokens (WORLD), which was later realized as a “spoof” token with a circulating supply mimicking the world’s population at 7B. The Ukraine wallet then appeared to send nearly a million WORLDs to a wallet that used the tokens to seed a liquidity pool on Uniswap. Blockchain analysts were skeptical of the incident since the Ukraine wallet never directly interacted with the tokens.

At the time of writing, it appears that there have been 2,277 WORLD transfers made and Etherscan displayed a warning that the token has been reported to have been used for misleading people into believing it was sent from a well-known address and maybe spam or phishing. Retreating from issuing fungible tokens, the Ukrainian government tweeted that it would drop some NFTs to support the Ukrainian army.

On the same philanthropic note, Uniswap added a new “Donate to Ukraine” feature to encourage ETH donations to the war-ridden country. The feature automatically exchanges any of Uniswap’s listed tokens to ETH for Ukraine.

Coinbase also announced that it had blocked more than 25,000 wallet addresses linked to Russian individuals or entities who are suspected of having engaged in illicit activity. Similarly, but with users based in another sanctioned state, OpenSea deactivated Iranian-based accounts without prior notice or explanation, on the back of the escalating conversation about sanctions. Moreover, two fundamental pieces of the Ethereum ecosystem, Infura and MetaMask, are restricting access to users in certain geographical areas, shying away from giving any specific details. At 21Shares, as noted in our State of Crypto magazine, the decentralization of the crypto web development layer will be key to unlock the full potential of Web 3. There are competitors and alternatives to inInfura such as Pocket Network attempting to become the TCP/IP of Web3 node infrastructure – a multi-chain relay protocol that incentivizes RPC nodes to provide DApps and their users with unstoppable Web3 access.

US Regulations

Amid concerns about Russia’s use of cryptocurrency to mitigate US sanctions, although very unlikely as discussed in our previous newsletter, US President Joe Biden is expected to sign an executive order this week directing the Justice Department, Treasury, and other agencies to study the legal and economic ramifications of creating a US central bank digital currency (CBDC). At 21Shares, we expect the US to speed up the execution of an All-American CBDC in order to counter the efforts China and Russia have made on that front to both evade sanctions and hedge against the US dollar hegemony.

Biden’s executive order has also been reported to direct federal agencies to examine potential regulatory changes, as well as the national security and economic impact of digital assets.

In other news, crypto payments infrastructure provider and stablecoin issuer Circle has delayed its DeFi applicat