Friday, 28 January 2022

Market Summary

Market Summary 28 January 2022

Bitcoin Price: US$ 37,160.10 (+0.95%)
Ethereum Price: US$ 2,424.25 (-1.57%)

 

Post-FOMC Sentiment, Deleveraging, NFT Activity

  • The FOMC decided to leave rates untouched but signaled for a hike in March’s FOMC. US10Y closed the trading day up 5%, and DXY was up 0.46%. Risk assets like SPX, NDX, and crypto assets wound up pairing back their initial gains as the market digested the Fed’s commentary.
  • The first key level of resistance we identified was $38.5K. Bitcoin started to make a strong move towards this level ahead of yesterday’s meeting, but its rally proved to be short-lived. We saw extreme volatility on the intraday chart as price whipsawed traders with a $1.5K swing in the minutes immediately following the 2 pm FOMC statement release. Prices topped out as high as $38.9K for a very brief moment before falling back towards $37.4K as Fed Chair Powell kicked off the post-meeting press conference. During Powell’s speech, price all but retraced the entire move made in anticipation of his remarks.
  • In terms of support, $34K has been the clear level in the sand thus far. We are looking for this level to hold (as discussed in last week’s Market Insights post). The rest of this week should be telling.
  • Funding turned even more negative post FOMC as investors were spooked by Powell’s resolve to fight inflation.
  • All in all, it seems like the market is expecting Bitcoin to make a lower low after recently testing the $34k level.
  • Stablecoin utilization rates on major money markets have fallen since Bitcoin hit all-time highs in October last year.
  • On-chain data shows that utilization of stablecoins on Aave and Compound, the two largest multi-collateral money markets on Ethereum, has fallen as investors pay back their loans. Liquidations have shot up during this volatile period which may have contributed to the deleveraging.
  • The risk-off sentiment is present in exchange data as well, as we’ve seen open interest on perpetuals decline significantly this year.
  • Despite the broader market downturn, NFT activity remains vibrant. The number of unique wallets buying NFTs this month has doubled from just 5 months ago (380k now vs 190k in August 2021), showing that interest in the space is booming, with a sizeable number of new entrants monthly.
  • We can reasonably expect many new users are speculators/traders seeking short-term opportunities in the volatile NFT markets. The number of actual long-term collectors is probably much lower. This will be more apparent by observing how many buyers remain if/when the NFT markets start to turn downwards.

 

Supersize Fakeouts, Hold the “Fed Put” – Market Insights #3

  • It’s important to note BTC and crypto assets aren’t the only ones that’ve struggled recently either. Immediately following the FOMC release, equities popped higher too as the market initially interpreted the statement as less hawkish than many had anticipated. But those gains also proved illusive as the market digested the Fed’s commentary.
  • The latest selloff has put bitcoin on the wrong side of the wrong kind of halving: a nearly 50% drawdown in price from its all time high. Historically speaking, 50% discounts often turn out to be attractive entry opportunities, however the timing of a full fledged recovery is far more difficult to predict. We know BTC volatility is much greater than traditional assets, and we’ve seen far greater drawdowns of 70-80% in prior cycles, so context here is important to remember.
  • Implied volatility relative to last year might look cheap, but realized volatility has taken a beating. This suggests we could be in a new volatility regime, one that could transition BTC towards a less-volatile asset (at least relative to its own history). This is evidenced by the large variance premium between implied volatility and realized volatility (the latter measured using the Parkinson’s method). And while the premium is starting to move lower, it means options sellers still hold an advantage to options buyers, since options are being priced higher than realized volatility dictates.
  • When compared to bitcoin, ETH has taken a larger hit during these last several weeks. But more importantly, ETH has been slower to recover from its lows too. While BTC was able to revisit the first area of resistance at $38.5K, before ultimately rolling over post-FOMC, ETH didn’t quite make it that far, exhibiting clear signs of relative weakness. ETH experiencing larger drawdowns than BTC is to be expected given its perception as a higher beta asset. However, this relationship should also hold true as these assets start to recover.
  • The relative strength of ATOM and LUNA (versus peers) became more apparent as the weekend continued. ATOM and LUNA experienced a shallower drawdown – in the range of 10-15 percentage points vs. notable peers) – and were among the quickest names to recover out of the lows. Much of this initial outperformance has been given back to the market in the wake of this week’s volatility – which further supports the correlation conversation we touched on earlier – but these names are still on our radar, both this week and beyond, given their potential to lead any sort of recovery.

 

Cardano network at record capacity due to SundaeSwap launch, but not all users hail it as a success

  • According to both Cardano Blockchain Insight and pool.pm, the Cardano (ADA) network has maintained record capacity for nearly two weeks due to the launch of decentralized exchange, or DEX, SundaeSwap, the first of its kind to go live on Cardano. At the same time, the total value locked for the ADA blockchain reached a record of approximately $80 million, despite the recent fall in the token’s price from the ongoing down market.
  • The current average blockchain load of the network hovers at 93.19%, which means that 93.19% of its blocks are being filled. In context, the metric amounted to only 32.49% on New Year’s Eve. The number of ADA wallets is also on the verge of breaking the 3 million mark.
  • Many ADA enthusiasts took to social media to celebrate the milestones. However, the phenomenon of the network nearing full capacity due to the addition of just one DEX raised questions about its utility, although scaling solutions are coming soon. Reddit user Additional_Till_838 pointed out:
  • “I dislike this because it paints a picture of Cardano’s blockchain being overloaded and struggling to handle the load. This could scare investors away from Cardano and make them think that it is not a reliable blockchain network.”

 

SEC rejects application for Fidelity’s Wise Origin Bitcoin Trust spot ETF

  • The United States Securities and Exchange Commission has disapproved asset manager Fidelity’s Wise Origin Bitcoin Trust spot exchange-traded fund (ETF) application.
  • According to a Thursday filing, the SEC rejected a proposed rule change from the Cboe BZX Exchange to list and trade shares of Fidelity’s Wise Origin Bitcoin (BTC) Trust. The regulatory body said any rule change in favor of approving the ETF would not be aimed at preventing “fraudulent and manipulative acts and practices” nor would it necessarily “protect investors and the public interest.”
  • The SEC extended its deliberation window to approve or deny the offering in July and November following Fidelity’s original application in March 2021 — but published in the Federal Register on June 1. The SEC added that the BZX exchange “has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section.”

 

The Sandbox Partners with Warner Music Group to Create a Music-themed World in the Metaverse

  • The Sandbox is extremely proud to announce that it has entered into a partnership with the Warner Music Group to open a new corner in The Sandbox metaverse: the first music-themed world.
  • With this partnership, Warner Music Group (WMG), one of the world’s biggest music companies, marks its first steps into the NFT and metaverse realm.
  • “Our partnership with The Sandbox adds a new layer of possibility in the metaverse, with the ownership of virtual real estate. As a first-mover, Warner Music has secured the equivalent of beachfront property in the metaverse. On the LAND, we’ll develop persistent, immersive social music experiences that defy real-world limitations and allow our artists and their fans to engage like never before.” — Oana Ruxandra, Chief Digital Officer & EVP, Business Development at Warner Music Group.
  • As part of this agreement, WMG acquired an ESTATE, that will act as a portal through which we can expect some of WMG’s talent to make an appearance in The Sandbox — thus creating a new arena for musical entertainment in the metaverse.

 

Reddit is testing out NFT profile pics, but ‘no decisions have been made’

  • Reddit is testing out nonfungible token (NFT) profile pictures on its platform, with the news coming just a week or so after Twitter implemented a similar feature.
  • The popular social media platform had around 430 million monthly users in 2021 and is reportedly working on an NFT profile picture implementation that will enable users to set their profile picture to any NFT with an attached image.
  • In an Interview with TechCrunch on Thursday, Reddit spokesperson Tim Rathschmidt stated:
  • “We’re always exploring ways to provide value for users and communities on Reddit. At the moment we’re testing the ability to use NFTs as profile pictures (avatars) and verify ownership.”

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