Tuesday, 9 August 2022

Market Summary

Market Summary 9 August 2022

Bitcoin Price: US$ 23,810.00 (+2.74%)
Ethereum Price: US$ 1,777.05 (+4.52%) 

Dollar Reigns Supreme, Liquidity Runs The World

  • Since 2016, DXY has continually maintained a strong inverse correlation with BTC, which currently sits at a 5-year high of -0.87. In simple terms, as the DXY increases, BTC usually tends to fall, and vice versa.
  • The US Dollar Index (DXY) measures the value of the US Dollar against a basket of foreign currencies. Currently, the DXY is at a 20-year high with a value of 106.25.
  • Since August 2021, DXY has appreciated by 15%, whereas BTC has witnessed a 50%+ decline. While BTC has recently witnessed a slight recovery, the bulls will likely need a more defined break in DXY strength for a more sustained rally.
  • This week, we’ll get the CPI print for July on August 10 (Wednesday), which gives us data on consumer price inflation in the US. While June CPI’s print came in at 9.1%, July’s CPI print is expected to come in between 8.7-8.9%.
  • Global liquidity is very pro-cyclical. When liquidity is abundant, it reduces systemic risks and the immediate need for liquid safe assets. Risk appetite improves and capital providers are willing to finance and invest in longer duration opportunities like equities.
  • The rise in asset prices serves as a positive feedback loop as collateral values appreciate, which can be leveraged to expand credit and create new liquidity.
  • The expansions and contractions of global liquidity are cyclical, and right now we’re still in the downtrend of the cycle.
  • Global liquidity growth slowed considerably back in 2018 as financial conditions became more restrictive. The result was a sizable correction in risk assets, and a prolonged bear market for the most speculative long duration assets like crypto. We witnessed its power during the post-COVID bull run, and now again in the subsequent bear market.
  • We noted how common measures like M2 are only one part of global liquidity, but it serves as a decent proxy and its relationship with the crypto market is pretty telling.
  • The explosion in liquidity in the aftermath of COVID also led to a sharp rise in institutional inflows. Given today’s challenging macro backdrop, and the subsequent contraction in global liquidity, it’s no surprise institutional interest is a lot quieter now than it was 12 months prior.
  • Recessions tend to hurt profitability, which increases credit risk and reduces credit providers’ willingness to finance new and existing debts. Investors become more risk averse, asset prices fall, and those with the longest duration risk (e.g. high growth stocks, crypto) get hit the hardest. Balance sheet capacity is reduced as credit providers look to scale back risk; the drop in value and accessibility of collateral exacerbates this trend.


Bitcoin likely to transition to a risk-off asset in H2 2022, says Bloomberg analyst

  • Bitcoin is likely to transition from a risk-on to a risk-off asset in the second half of 2022, as the macroeconomic environment is rapidly shifting towards a recession, said Mike McGlone, senior commodity strategist at Bloomberg, in a recent interview with Cointelegraph. McGlone predicted:
  • “ I see it transitioning to be more of a risk-off asset like bonds and gold, then less of a risk-on asset like the stock market.”
  • According to the analyst, the crypto market has flushed out most of the speculative excesses that marked 2021 and it is now ripe for a fresh rally. McGlone also pointed out that the Fed’s aggressive hiking of interest rates will lead the global economy to a deflationary recession, which will ultimately favor Bitcoin:
  • “I fully expect we’re going to have a pretty severe recession globally, which probably will make Bitcoin shine […] along with gold and U.S. Treasury long bonds.”


Fed reverse repo reaches $2.3T, but what does it mean for crypto investors?

  • The U.S. Federal Reserve (FED) recently initiated an attempt to reduce its $8.9 trillion balance sheet by halting billions of dollars worth of treasuries and bond purchases. The measures were implemented in June 2022 and coincided with the total crypto market capitalization falling below $1.2 trillion, the lowest level seen since January 2021. 
  • A similar movement happened to the Russell 2000, which reached 1,650 points on June 16, levels unseen since November 2020. Since this drop, the index has gained 16.5%, while the total crypto market capitalization has not been able to reclaim the $1.2 trillion level.
  • This apparent disconnection between crypto and stock markets has caused investors to question whether the Federal Reserve’s growing balance sheet could lead to a longer than expected crypto winter.


Binance sides with Indian regulators in WazirX fallout to cease support for off-chain transfers

  • As reported by local news outlet The Economic Times on Monday, Binance is scheduled to remove off-chain fund transfers with Indian cryptocurrency exchange WazirX on Thursday, although users will still be able to deposit and withdraw balances via the standard withdrawal and deposit process between the two exchanges.
  • Three days prior, The Directorate of Enforcement of India alleged that WazirX “actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route” and subsequently froze $8.1 million in bank balances related to the exchange. 
  • Simultaneously, there is an ongoing controversy regarding whether Binance owns the exchange. Last Friday, Changpeng Zhao (CZ), CEO of Binance, said that Binance does not own any equity in WazirX’s parent entity Zanmai Labs, and further clarified that a supposed Nov. 21, 2019, acquisition of WazirX by Binance was never completed. 
  • However, in a tweet dated April 5, 2021, Zhao reposted the following statement from The Financial Express: 
  • “Binance-owned Indian crypto exchange WazirX crosses $200 million in daily trading volume; eyes $1 billion in 2021.”


US Treasury sanctions USDC and ETH addresses connected to Tornado Cash

  • The United States Treasury Department has added more than 40 cryptocurrency addresses allegedly connected to controversial mixer Tornado Cash to the Specially Designated Nationals list of the Office of Foreign Asset Control, or OFAC.
  • In a Monday announcement, OFAC effectively barred U.S. residents from using Tornado Cash and placed 44 USD Coin (USDC) and Ether (ETH) addresses connected to the mixer on its list of Specially Designated Nationals. The department alleged that individuals and groups had used the mixer to launder more than $7 billion worth of crypto since 2019, including the $455 million stolen by the North Korea-affiliated Lazarus Group. The protocol was also at the center of some recent hacks and exploits in decentralized finance, including a $375-million attack on Wormhole in February and a $100-million hack on Horizon Bridge in June. 
  • “Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”


Metaverse housing bubble bursting? Virtual land prices crash 85% amid waning interest

  • The metaverse sector is witnessing its very-own housing crisis moment, thanks to massive declines in the prices of its virtual lands in 2022, led by waning users’ interest and a crypto bear market.
  • In particular, metaverse projects built on the Ethereum blockchain, including the Sandbox and Decentraland, have witnessed substantial declines in their valuations and other key metrics, data from WeMeta shows.
  • For instance, the average price of lands sold across Decentraland peaked at $37,238 in February 2022. But as of Aug. 1, their costs had dropped to an average of $5,163. Similarly, the Sandbox’s average sale price dropped from circa $35,500 in January to around $2,800 in August.
  • Overall, the average price per parcel of virtual lands across the six major Ethereum metaverse projects dropped from approximately $17,000 in January to around $2,500 in August, or a 85% decline. 


Crypto lending platform Hodlnaut suspends services due to liquidity crisis

  • Hodlnaut avoided 3AC exposure and earlier denied ever buying UST, but several reports and on-chain data have shown that the lending firm at one point owned over $150M worth of UST.
  • Blaming market conditions and lack of liquidity, Singapore-based crypto lending platform Hodlnaut has become the latest firm to suspend withdrawals and deposits.
  • The crypto lending firm made an official announcement on Monday, claiming that market conditions have forced it to suspend its services and that it is actively working on recovery plans.


Chainlink ditches Ethereum PoW forks for PoS after The Merge

  • Chainlink is aligning itself with the decision of the Ethereum Foundation and its community. Therefore, forked versions of the Ethereum blockchain, which includes proof-of-work (PoW) forks, will no longer be supported by the Chainlink protocol post-Merge.
  • In an official announcement, the Chainlink protocol revealed that its services will remain on the Ethereum blockchain post the long-awaited Merge. The Ethereum blockchain anticipates the Merge in September 2022, which will merge its mainnet with the Beacon Chain. 


Bitcoin core contributor urges maximalists to take a different route

  • There was once a time when Bitcoin (BTC) was the only crypto project that was not a scam, and advocating for only BTC made perfect sense. According to a Bitcoin Core contributor, however, this has not been true for a while, as he urged the community to drop the us-versus-them culture. 
  • In a Twitter thread, Matt Corallo, who contributed to the Bitcoin Core, pointed out to the community that at the moment, instead of BTC proponents advocating why Bitcoin is unique and remarkable, they are spending time attacking other projects.
  • According to Corallo, this situation is leading to what he described as a narrative war, where crypto projects bash each other. Corallo further explained that Bitcoiners coming after Ethereum for the upcoming Merge, saying that proof-of-stake (PoS) will not work, will, in turn, push Ethereum proponents to lobby with regulators against Bitcoin with the same environmental angle.
  • Lastly, the developer urged Bitcoiners to focus on talking about Bitcoin and its positive aspects and drop the culture of attacking other projects that are not BTC.


Buterin: Layer-2 scaling will make crypto payments ‘make sense’ again

  • Ethereum co-founder Vitalik Buterin has argued that crypto payments will once again “make sense,” as transaction costs will soon fall to fractions of a cent due to layer-2 rollups.
  • The Cointelegraph team currently on the ground at Korea Blockchain Week (KBW) quoted Buterin as stating that the final hurdle to getting transactions down to fractions of a cent at scale is blockchain data compression. 
  • He pointed to “solid work happening” with rollups at the moment such as Optimism’s layer-2 scaling solution for Ethereum, which has worked to get the size and cost of data in blockchain transactions down by introducing zero byte compression:
  • “So today with roll ups, transaction fees are generally somewhere between $0.25, sometimes $0.10, and in the future with roll ups with all of the improvements to efficiency that I talked about. The transaction costs could go down to $0.05, or even maybe as low as $0.02. So much cheaper, much more affordable, and a complete game changer.”



  • For the first time in history, $ETH Options Open Interest at $6.6B has surpassed $BTC Open Interest at $4.8B.
  • This appears to be a result of traders betting big with call options the Merge scheduled for mid-September.

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