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ETFS 21Shares Crypto Monitor - 5th May 2022

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This Month in Crypto

The market cap of the overall cryptoassets market is down by 16% since April 2 and dipped to as low as $1.39T on April 18 but quickly jumped back to hover currently at almost $1.82T. Bitcoin and Ethereum are down by 16.6% and 18.9% respectively since last month. April was not a ray of sunshine for the equity market either. The S&P 500 suffered its worst April in 52 years, plunging by 13.3% since the year to date. In this monthly review, we will delve deeper into the macroeconomic factors driving these drops and showcase some valuable onchain metrics indicating healthy fundamentals. We will also shed light on the month’s most significant developments on the regulatory landscape, DeFi, and the wider metaverse.

Figure 1: Total Crypto Market Cap Over The Last 30 Days

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Source: CoinMarketCap

Macro, Regulations; Spot, and Derivatives Markets

In an exciting turn of events, the Securities and Exchange Commission (SEC) approved the fourth Bitcoin futures ETF, however, filed under the Securities Act of 1933 this time as opposed to the Investment Company Act of 1940, which is argued to hold better investor protection. This counts as an essential development to pave the way for the potential approval of a Bitcoin spot ETF in the US, since the previously rejected spot ETFs have been filed under the Securities Act of 1933.

US regulators have had a busy month drafting new policies and tweaking existing ones to meet the deadlines stipulated by President Joe Biden's Executive Order. On April 5, Congress introduced a new bill – the Stablecoin TRUST Act. The act involves regulating stablecoins, offering issuers the option of obtaining a state money transmitter license, a traditional bank charter, or a newly created OCC license for stablecoin issuers, which would also access the Federal Reserve's master account system.

To curtail the possible use of digital assets in circumventing sanctions, Rep. Gregory Meeks introduced the Russia Crypto Transparency Act, the first and only framework that addresses the matter.

Coin Center criticized the amendments proposed by the SEC in March, deeming them unconstitutional for breaching the first amendment. The Washington-based organization argues that changing the definition of exchanges from collecting orders to collecting “buyers and sellers” would be tantamount to coercion. In response, some members of the House Financial Services Committee 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.

The US Treasury Department imposed sanctions on BitRiver, the Russian Bitcoin mining hosting firm whose parent company is based in Switzerland, along with its 10 subsidiaries. Tied to Russian oligarch Oleg Deripaska, BitRiver is one of the largest Bitcoin mining hosts in Europe and operates six data centers, with another three under construction.

Further in this effort, the European Union is forcing Binance to crack down on Russian users moving assets worth more than $10K.

Rug pulls could soon become an outright felony as New York lawmakers lobby for new legislation that proposes limits on the ability of founding development teams to sell significant percentages of their token holdings within a five-year period. This comes shortly after the rug pull of Frosties, a fraudulent NFT project whose creators were charged last month for looting $1.3M in ETH. This could be a great victory for not only US investors, but for the entire DeFi community that is often being associated with rug pulls and fraud

German banking giant Commerzbank has applied for a crypto license, making it the first major bank to move towards cryptocurrencies in the country. Similarly in the UAE, Kraken was granted the license to operate in the emirates, to become the first cryptocurrency exchange to offer direct funding and trading in UAE dirhams against Bitcoin, Ether, and a range of other virtual assets. Last but not least, Portugal's Central Bank granted Bison Bank the virtual asset service provider (VASP) license, making the bank the first in the country to offer its digital asset services to high net worth individuals.

Technical and Onchain Indicators

Whales have been buying the dip shortly after Bitcoin fell below the $40K mark; however not enough to stay above it. Bitcoin miners, on the other hand, appeared (see chart below) to have been selling their long-held Bitcoins in a significantly higher rate than anytime these past two years. Charts haven’t seen the Miners’ Position Index skyrocket like this since late December 2020. Moreover, high outflows of approximately $97M were made from crypto funds in reaction to the Federal Reserve’s plans to shrink bond holdings by $95B a month, as a hedge against inflation.

Figure 2: Bicoin Miners' Position Index in April