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ETFS 21Shares Crypto Monitor - 17th February 2022


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Market Outlook

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The crypto market mildly retroceded some of the profits gained since early February, to see Bitcoin and the rest of the large caps losing roughly 10% over the week. Despite this market decline, it’s important to emphasize that Bitcoin’s volatility is roaming around 3%, the lowest it’s been over the past few months. With that said, several global macroeconomic factors have materialized that throw light on the market downturn.

For one, the CPI reached a 45-year high with a 7.5% increase. The worse-than-expected figures have instilled fears that the US economy could be headed towards a recession as the Fed will be expected to aggressively tighten its loose monetary policy by advocating for a 50 bps in its March hike, as echoed by the central bank’s loudest hawk. This, in turn, puts risk-on assets classes such as crypto and tech stocks in a challenging spot.

In addition, the geopolitical tension between Ukraine and Russia was aggravated as the white house, and the UK advised their citizens to leave Ukraine immediately as an invasion was imminent. The scene at the border now seems to be cooling down as Russia announced it’ll be calling back some of its troops from the border following the completion of their military drills. What’s remarkable about Ukraine’s situation is that NGOs and anti-Russian groups have been resorting to accepting Bitcoin as a payment due to its resiliency against censorship and confiscation.

Another troubling development worth noting is Canada’s newly imposed emergency powers, drafted to authorize financial institutions to cease providing financial assistance to anyone involved in furthering the convoys ‘illegal’ blockades and occupations. This once again highlights the urgent need for a censorship-resistant currency. It appears that COVID has granted a blank check for unprecedented interfering powers that governments will likely use for vaguely criminalizing disputable sets of activities they don't see ‘fit’. Having a disintermediated currency will be an effective instrument for regaining full autonomy over one's finances.

Important to remember that times of extreme uncertainty add fuel to the volatility experienced in global markets and usually invite investors to opt for safer haven assets. A trend reversal in the risk appetite that can be surmised by looking at the 10-year treasury yield that topped 2% for the first time since late 2019. Nevertheless, with the current soaring inflation, investors will still be ultimately left with negative interest rates on their bond yields. The Bitcoin futures market is also trading at a 6% annualized premium, reinforcing the general cautious sentiment that investors are hedging their long spot positions while indicating a reduced likability that an impulsive move to the upside could be on the table in the near term.

Bitcoin_Exchange Net Position Change [BTC] - All Exchanges


However, unlike the previous market drawdowns in May and November of 21 where there was a reasonably consistent pattern of inflows catalyzed by spooked investors selling their holdings to make up for the market uncertainty, large investors have actually been adding to their BTC stack, amounting to almost 220K over the past 7 weeks. Not only is this behavior atypical of the previous market downswings, but this rate of accumulation has been the most aggressive and fastest since September of 2019.

What’s more, is that there has been a significant drop in USDT activity - a metric that historically coincides with reapportionment to the purchase of BTC and the long tail of crypto assets. Bitcoin’s hash rate has also exploded to an ATH underscoring the fact that the world continues to invest new resources for mining the asset and bolstering its security, despite the short term disruption. A development that is complemented by the exchanges’ liquid supply falling t