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ETFS 21Shares Crypto Monitor – 20th January 2022

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Market Overview

The total market value of Bitcoin increased by 1.8% last week. The most important numbers showing the state of Bitcoin are:

  1. The market realised gradient - which shows how much the price of Bitcoin (market cap, more precisely) is fluctuating versus how much the Bitcoin blockchain is getting used (real onchain inflows).

  2. Funding rates on crypto exchanges like Binance – to simplify, these show how much it costs to bet on Bitcoin’s price moving up or down.

The first of these numbers, the market realised gradient, shows that the Bitcoin blockchain is getting used more relative to Bitcoin’s price. And could mean, essentially, that using bitcoin is for transactions is getting cheaper. This could be a bullish sign.

The second of these numbers, the fund rates, however, is currently negative. This means that short-term traders are betting that the price of Bitcoin will fall. This is a bearish sign.

28-day Market Realised Gradient

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Meanwhile, institutional uptake of bitcoin continues to grow. Recent adoption milestones include the local government of Rio de Janeiro in Brazil planning to invest 1% of its reserves in Bitcoin. In doing so, Rio is following the lead of Miami, the mayor of which announced he would take 100% of his pay in bitcoin and adopt a cryptocurrency for Miami called MiamiCoin.

Outside of Bitcoin, a lot of action in the crypto universe is taking place in Ethereum competitors, scaling solutions and OpenSea alternatives. The top performers of this past week were predominantly:

Ethereum Competitors:

  • Cardano (31.9%) will have its first functional app with the beta launch of its first functional decentralized exchange, SundaeSwap. The ramp-up is also attributed to the need to buy ADA to earn yield in the exchange’s token.

  • Fantom (23.4%) will soon have a new automated market maker (AMM) design launched by two prominent developers in this space, Andre Cronje behind the DeFi-blue chip Yearn Finance and Daniele Sesta from Wonderland.

  • Secret (57%), the first blockchain with smart contracts with data privacy by default capable of interoperability with a range of networks using the Cosmos InterBlockchain Communication protocol (IBC).

Code Vulnerabilities:

One last note from this week as we step into a multi-chain future with a plethora of Ethereum competitors, Vitalik Buterin warned about growing risks in attack vectors for standalone cross-chain applications called bridges. This opens a significant opportunity for interoperability protocols like Cosmos and Polkadot for seamless and more secure cross-chain transfers.

The current solutions offered from third-party cross-chain liquidity bridges leave users to trust the protocol’s security assumptions, essentially forcing developers and users to depend on a single bridge and its supported version of wrapped assets. For applications building on top of cross-chain liquidity bridges, this puts them under unnecessary risk if the liquidity bridge suffers from a vulnerability, congestion, poorly distributed liquidity or reliability issues. As a matter of fact, on January 17th this year, Multichain (previously Anyswap), a leading cross-chain bridge, announced the discovery of a critical vulnerability affecting 6 cross-chain tokens reported by security firm Dedaub and fixed by the Multichain team.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (-1.11%), ETH (-0.91%), BNB (2.79%), SOL (-0.14%), and ADA (33.61%).

Top 5 Assets Weekly Performance