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ETFS 21Shares Crypto Monitor - 3rd February 2022


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Executive Summary

January was a tough month, not only for crypto, but the entire capital market. Bitcoin dipped to $33K January 24 and picked up again, inching closer to the $40K mark as of writing of this report. From $3,257 to $2,219 in just four days, Ethereum also took a sharp dip starting January 20, and is currently on its way for slow recovery. In this monthly review, we’ll delve into the factors that drove the market’s dip, the crypto regulations that were discussed at Congress and the crackdown on DeFi founders and Bitcoin miners in the US. Ending on a high note, we’ll provide you with an analysis on how NFTs found their way out of the red charts this month.

Factors of Bitcoin's Dip

Throughout history, Bitcoin and the wider crypto market has maintained a lower correlation to the equities and bonds market. However, the current turbulent macroeconomic landscape had instilled uncertainty across all markets with a higher risk-appetite, causing BTC’s correlation against the tech-heavy NASDAQ index to reach a new all-time high on the back of several developments.

Challenging Month


The increasing border tensions between Russia and Ukraine have reinstated agitations around a resurgence of the regional conflict triggered by Russia’s escalating aggression for one. Russia’s central bank proposed a sweeping ban on the mining and use of cryptocurrencies as it echoed fears pertaining to how potential capital flight possesses a systemic risk for the stability of the country’s financial system. Whereas it is realistically argued that it could be a strategic move to quash opposition as they were able to crowdfund donations through BTC after having their bank accounts subdued. As miners started fleeing from Russia to Georgia over the past months due to regulatory uncertainty, a Russian ban was one macro event our research team expected at 21Shares.

January ended with the Fed leaving interest rates untouched, but with the possibility of increasing soon above 2%, Bitcoin was up 2.5% after the decision. Bank of America, however, expects the Feds to raise rates seven times this year to curb inflation, drawing further widespread skepticism towards risk-on asset classes and evidenced by the already-increasing US Treasuries interest rates which signifies a shift to safer value stocks. This risk-off shift could benefit stablecoins including USDC, which reached an all-time high in market value of $50 billion.

Bitcoin: Net Unrealised Profit/Loss (NUPL)


All factors considered, it is difficult to tell as to what degree Bitcoin will dip. The Net Unrealized Profit and Loss metric has served as a great market sentiment gauge in history. When it dips below the 0.2, it could trigger greater fear and capitulation, right now it stands above 0.3. We’ve seen the market crash in the wake of the pandemic and spring back up, breaking new records. At 21Shares, we’re confident in the market’s resilience given the pace of innovation and the major macroeconomic factors that attract talents in this industry:

  • 65% of all active developers came in 2021

  • The Great Resignation wave we see in the US shift from tech giants and traditional banks to crypto / Web 3

Regulations Discussed in Capitol Hill

Congressman Tom Emmer introduced a bill on January 12, prohibiting the Federal Reserve from issuing a central bank digital currency (CBDC) directly to individuals. This comes promptly after China announced it will be piloting its digital yuan in the Beijing Winter Olympics. Emmer argued that a CBDC issued by the Federal Reserve would not only centralize Americans’ financial information, leaving it vulnerable to attack, but it could also be used as a surveillance tool. For the Fed to issue a CBDC, they’ll need authorization from the Congress. Emmer argues that having to open up an account at the Fed to access a US CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism.

The Federal Reserve has been evaluating CBDCs for some time now and has been cautiously releasing statements on the matter without giving away any substantial verdict. On January 20, the Federal Reserve Board released a long-anticipated paper that dissects CBDCs and lists down a handful of pros and cons for CBDCs based on the Fed’s perspective. The paper, that can be found here, doesn’t reveal any decisions taken by the Fed nor rushes into any political conclusions, however invites the US public to give feedback on more than 20 items of discussion.

On January 26, the Securities and Exchange Commission (SEC) announced proposed rules that are aimed to better protect investors and enhance cybersecurity by bringing more Alternative Trading Systems (ATS) that trade Treasuries and other government securities under the regulatory um