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ETFS 21Shares Crypto Monitor - 21st April 2022

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Market Outlook

The crypto market’s price action lingered in a sideways movement this week, stalling last week’s sell-off. Bitcoin hovered around the $40K critical support level, while Ethereum experimented with the $4K level to close the week with a mere 1% move to both sides. As we’ve been suggesting over the multiple previous newsletters, the risk-on asset class is now entirely at the mercy of the global macro outlook - as denoted via BTC’s continued correlation with the stock market.

For one, Russia’s invasion has once again attracted the spotlight as Putin announced that the negotiations had reached a stalemate. The news was followed shortly by a renewed attack on Kyiv. Unsurprisingly, the aggravated conflict has deteriorated the inflation outlook as CPI figures released last week have reached a staggering 8.5%, the highest it’s been in 4 decades. May that be, the glimmer of hope is that Inflation could be peaking at current levels. A realization that might act as a catalyst for investors looking to protect their capital in the short-medium term and prompt a bullish momentum for BTC as it’ll take some time to exert control over the spiraling state of Inflation.

With this in consideration, Bitcoin’s on-chain activity might be emblematic of the price action that signifies a bottomed-out range. Notably, the recent increase in exchange outflows has accelerated to levels seen only during three previous instances in the asset’s history. In addition, the percentage of Bitcoin that hasn’t moved for at least a year continued climbing over the past week to reach a 2.5-year high level. Combining this signal with the fact that price-sensitive investors (whales holding between 1-10K BTC) saw a significant uptick in their holdings for the first time since the year’s beginning, it can be argued that the wider market might be on the verge of a moderate reversal.

Whales Filtered For All Known Entities

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Source: Glassnode, 2022.

Alternately, Ethereum was dealt a setback as the highly-anticipated merge event is now shelved to land around Q3 rather than July - despite the successful shadow fork implementation last week. That said, traders are still withdrawing significant amounts of ETH off centralized exchanges and depositing them into DeFi protocols, implying conviction that the asset still has more potential for an upside movement.

NFTs & DeFi

The metaverse space continued to make headlines last week, with Meta's announced intent on charging 47.5% for NFT sales within its closed immersive world. In other news, Hyundai revealed they'll be collaborating with the Meta Kongz NFT brand. At the same time, the US talent show, American Idol, divulged its plan on partnering with Theta Labs to release their set of NFT collections that would enable holders to become judges and grow beyond just fans. Finally, the infamous videogame company Sega reported their aim to include NFT technology into their new supergame initiative. In the land of DeFi, Circle has been cementing its stronghold within the US as Blackrock and Fidelity raised $400M into the incumbent; meanwhile the stablecoin issuer revealed that it's inching closer to operating as a bank after it undergoes the application process for the US crypto bank charter.

Regulations

US regulators have had a busy week drafting new policies and tweaking existing ones to meet the deadlines stipulated by President Joe Biden's Executive Order, and they have been faced with scrutiny in the process. Coin Center criticized the amendments proposed by the Securities and Exchange Commission (SEC) last month, deeming them unconstitutional for breaching the first amendment. The SEC is proposing to redefine "exchange" from a "system that brings together the orders" of security to one that "brings together buyers and sellers;" the latter would include Communication Protocol Systems, such as decentralized exchanges, which bring in programmers who share code for crypto trade. Coin Center argues that changing the definition of exchanges from collecting orders to collecting people would be tantamount to coercion. In response, ranking member of the House Financial Services Committee Patrick McHenry and ranking member of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets Bill Huizenga, expressed concerns about the proposed amendments in a letter on Monday to SEC Chairman Gary Gensler. They argued that the changes could stifle innovation in the digital asset ecosystem.

On April 5, Congress introduced a new bill – the Stabl