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ETFS 21Shares Crypto Monitor - 14th April 2022

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Market Outlook

The crypto market continued its nosedive as it lost roughly 15% to reach a total market cap of $1.78 trillion. However, it wasn’t only crypto that took a beating. Equities, including the tech-heavy Nasdaq index, dropped almost 3%.

Assessing the transactions of the major groups investing in crypto helps explain who’s driving the price action. As shown below, the group holding Bitcoins from 1-2y crossed the 20% for the first time in 2 years, illustrating some of the recent selling pressure. Meanwhile, whales have been progressively accumulating.

Longer term Bitcoin holders are becoming more common

Bitcoin: Realized Cap HODL Waves

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Source: Glassnode, 2022.

With this in mind, markets were mildly spooked over this past week on the back of a few developments.

Firstly, the US unemployment rate is estimated to hit a new pandemic-era low of 3.6%, combined with the exceptional high inflation figures (8.5%) — as a result of the worsening Ukrainian conflict - have both induced the Fed to reiterate its commitment to a more hawkish stance over the months to come. As a result, it‘s expected that the next round of interest rate hikes increase by 50 basis points to contain the spiralling situation. Furthermore, the Fed will be looking into reducing its balance sheet by almost $95B per month.

Secondly, the central bank’s aggressive tone led the US dollar index to rally to a two-year high, which is usually unfavorable towards risk-on markets such as crypto and tech stocks. Further, the unsettling news of Shanghai’s draconian lockdown measures has again resuscitated fears around the pandemic’s threat to the global economy. Thirdly, the final date for the tax filing is on the 18th of April, which might have slightly contributed to the recent selling pressure.

That aside, BTC has been the talk of the town due to the notable news announced at the Miami XBT bitcoin conference. The biggest story had been Strike’s integration with Shopify and the point-of-sale supplier, NCR. The partnership should now see an exhaustive list of almost 35K merchants worldwide having access to Bitcoin’s lightning network in conjunction with Visa and Mastercard as an alternative payment option - marking a significant step towards the adoption of crypto. The new coalition between the three companies has also enabled CashApp to allow its customers to convert their pay cheques to Bitcoin automatically. In addition, Robinhood launched its newly-anticipated crypto wallet enabling more than 2 million users to withdraw their crypto away from the platform.

Outside the annual conference, Luna’s Foundation Guard has continued their buying spree by adding another ~$170M worth of BTC to their stack to fulfill their $10B pledge. Even if not immediately apparent, Terra’s decision to strengthen its reserves with BTC might be a bullish catalyst that encourages other native ecosystem stablecoins to follow suit and stack the global reserve asset over a medium time horizon. A case in point is Frax’s finance deliberation on adopting the same strategy to back its stablecoin reserve and stabilize its peg in times of extreme disruption. On a different note, MicroStrategy capitalized on the falling prices last week to procure another $200M worth of the reserve currency.

Crypto has also been receiving bullish rhetoric recently in the UK. The burgeoning adoption of the technology could be seen as HM Treasury announced that stablecoins would be recognized as a valid alternative form of payments. This came shortly after Chancellor Rishi Sunak divulged plans last week to help transform the UK into a global hub for cryptoasset innovation. Amongst the first orders to help actualize this reality was the treasury’s Twitter account directing the Royal Mint to issue its first NFT to symbolize the country’s appetite for embracing crypto and harnessing its benefits.

Regulations

US Treasury Secretary Janet Yellen delivered her first speech on cryptoassets at American University in Washington, DC. She agreed on President Biden’s Executive Order regarding the urge for research to understand the implications of a Central Bank Digital Currency (CBDC) and for regulation to keep up with innovation in the crypto space. She also highlighted the economic and national security benefits the US derives from the current role that the dollar plays in the global financial system, suggesting that regulation might be steered towards keeping it that way.

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