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ETFS 21Shares Crypto Monitor – 27th January 2022

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Market Overview

The crypto industry underwent a brutal meltdown where a trillion dollars had been wiped out from its aggregate market capitalization, triggered by the worsening market’s sentiment shift occurring last week and aggravated by cumulative $1.5 billion of liquidations triggered over the week, combined with increasing selling pressure stemming from the short-term-holders cohort.

Bitcoin Short Term Holder SOPR

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Crypto hasn’t been alone in experiencing this doom and gloom scenario as the Nasdaq 100 stock index, representing the cut of risk-on tech stocks – equally experienced an alarming 15% sell-off over the past month. Even though Bitcoin and the wider crypto market had maintained a lower correlation to the equities and bonds market throughout its history, 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.

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. The Russian ban is a macro event we expected in the research team as miners started to flee to Georgia over the past months due to regulatory uncertainty.

Looking to the other side of the aisle, the US Federal Reserve is envisaged to drive up to four interest rate hikes throughout 2022 to decrease its $9 trillion balance sheet, with the Federal Open Market Committee 1st meeting of the year scheduled for tomorrow to determine if the first rate hike would come about in March or earlier. However, the surging inflation could entice them to push for more, as per JP Morgan’s report, 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.

Despite the current timid picture, the turn of events materializing within the crypto sphere isn’t showing any signs of stalling growth. Web 3 is continuing to drive retail and institutional interest as Twitter has implemented their latest feature allowing verifiably owned NFTs to be used as the platform integrated profile pictures. Another pertains to the partnership inked between MasterCard and Coinbase where users will be allowed to buy NFTs on the institutional platform using their traditional credit and debit cards. And that is not to speak of Meta’s decision to dive into the NFT craze by building their own platform.

DeFi had its fairly eventful week as DEXs such as Uniswap and DyDx had lowered their trading fees in a bidding war, while a proposal to launch Aave’s institutional-grade ARC dApp on Arbitrum and Optimism was put forward. That is in conjunction with Curve’s deployment on the scalable L2, Optimism.

The flow of money and resources into the space hasn’t stopped either when assessing Andreessen Horowitz’ ploy to raise $4.5 billion for investing into new crypto funds, or SBF’s announcement of launching a new $2 billion FTX ventures fund focused on advancing web 3 adoption. The anticipated explosion of NFT gaming over the coming years was also reasserted as the infamous software company and VC Animoca brands led another fundraising round for ~$400M, meanwhile, Microsoft had secured its $69B acquisition of Activision in what is seen by many as a bet on the metaverse. When it comes to talent acquisition, crypto continues to attract some of the brightest minds from TradFi and other industries as the number of Web 3 developers skyrocketed to a new ATH.

Weekly Returns

The returns of the top five crypto assets over the last week were as follows — BTC (-13.2%), ETH (-22.69%), BNB (-21.02%), SOL (-35.09%), and ADA (-27.2%).

Top 5 Assets Weekly Performance

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