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ETFS 21Shares Crypto Monitor - 31st March 2022

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Market Outlook

One of the reasons driving bullish momentum towards risk-on assets such as tech stocks and crypto is the potential flow of capital from the bond market as the sector became unsettled by inflation worries. The inverted yield curve - a historically reliable indicator that has been used for spotting a potential recession - is now indicating that short-term interest rates are priced at a higher value than longer-term ones. This is an abnormality, as long-term risks should traditionally be valued at a higher rate due to the increased risk it carries; hence it paints a dim economic picture of the future.

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Source: TradingView

As a result, some investors believe that the Fed will have a challenging job taming inflation without causing a recession over a longer time horizon due to the economic uncertainty aggravated by Russia’s actions. In that view, investors opting for safer havens such as government bonds and treasury yield become instead incentivized to look for riskier options such as crypto and tech equities. Ergo, crypto’s total market cap saw an increase by almost 20% over this past week on the back of these macro developments to reach a $2.15T valuation.

BTC managed to lock in a 10% increase to reach an all-time high for this year, with the rest of the large caps gaining at least a double-digit increase in their valuation from last week - which is not all purely attributable towards the timid economic reality.

Bitcoin, for instance, had been relishing supplementary buying pressure as Terra’s Do Kwon had been routinely buying $125M worth of the BTC to bolster UST’s reserve as part of his pledge to fortify the stablecoin’s peg with $10B worth of the emerging reserve currency.

Institutional adoption and speculation, too, are once again picking up pace. Conglomerate funds like Dalio’s infamous Bridgewater fund have articulated their intention to invest in external vehicles involved in the crypto market due to the exasperated economic risks inflamed by the Ukrainian conflict. Meanwhile, 60% of Goldman Sachs’s investors have divulged they’ll be looking toward increasing their crypto holdings over this coming year. The American investment bank executed their first successful BTC options OTC trade in collaboration with galaxy digital at the same time that Israel’s 2nd largest bank - Bank Leumi - had given the green light to offer crypto trading.

Beyond the realm of Bitcoin, searches volume for Eth Merge has reached an all-time high following last week’s testnet milestone, accompanied by signs of reverse in search interests for web3, uniswap, opensea. A trend not seen since May of last year. On the other end, Alt L1s such as Avalanche garnered even more momentum due to their newly announced $100M Culture Catalyst initiative program, which will exclusively focus on building social experiences via the network’s Op3n protocol - establishing a new era for entertainment and pop culture. That, in conjunction with Grayscale’s decision to include the asset into their new smart-contract fund and the Avalanche foundation’s disclosure of their plan to build a native wallet that will incorporate bitcoin bridging.

Oil and NFTs

In a conference held on Thursday, the chair of Russia’s Duma Committee on energy revealed the country’s intentions to be more lenient with its allies, selling its oil to Turkey and China for lira, yuan, and Bitcoin. Whereas, for countries imposing sanctions on Russia, that would be either gold or rubles.

With the US already banning Russian oil as of the issuance of President Joe Biden’s Executive Order, the EU is left in a pickle. Russian oil fields supply Europe with a quarter of its oil, which gives reason to its division on the fuel matter.

On the other side of the war, Ukraine’s deputy minister of digital transformation said that crypto is playing a significant role in Ukraine’s defence. Although the amount ($71.6M) of donations made in crypto is just a small fraction in comparison to those made in fiat, Ukrainian authorities highlighted that the speed and ease of use of crypto transactions is what really has helped the war-ridden nation.

On that front, Ukraine has announced its “Museum of War;” a timeline of photos documenting the Russian invasion of Ukraine sold as NFTs. The project aims to preserve the memory of the real events of that time, to spread truthful information among the digital community in the world, and to collect donations for the support of Ukraine.

The Ukrainian government partnered with Fair.xyz, a one-stop shop for NFTs, to build the collection website on the Ethereum blockchain. The first sale is planned to take place on Wednesday and is expected to raise at least $2M; it will feature 5,000 to 7,000 NFTs priced at around $450 each.

Regulations

On Thursday, the European Parliament Committee on Economic and Monetary Affairs will vote on an Anti-Money Laundering (AML) regulatory package that seeks to revise the current Transfer of Funds Regulation (TFR) in a way that extends the requirement of financial institutions to attach information on the transacting parties to crypto assets.

Patrick Hansen from blockchain firm Unstoppable DeFi warned that the latest draft of the regulation would require crypto service providers, such as crypto exchanges, to continue collecting personal data related to transfers made to and from unhosted wallets and to also verify the accuracy of the data gathered.