Newsletter Volume 14
Article 1 – The Market This Week
The past week in the markets was challenging, making it difficult to predict the fluctuations in prices. On Monday, Bitcoin experienced a dip for the fifth consecutive day but later regained its position and was trading near $23,000. This year, the price of Bitcoin (BTC) has seen a rise of approximately 40%, resulting from the increased confidence among investors that inflation is decreasing without negatively impacting the U.S. economy.
However, the release of an unexpectedly strong employment report raised new concerns. It caused a drop in the prices of crypto assets, falling below $23,000 over the weekend after briefly breaching $24,000 on a few occasions last week. In January, Bitcoin saw a significant surge of more than 39%, breaking through the $23,000 resistance ceiling, marking its best monthly performance since October 2021, leading investors to question if the world’s largest and first cryptocurrency can maintain its upward trend.
Despite the challenges, Bitcoin’s bullish run so far this year, with a gain of almost 40% in just six weeks, is reflected in the futures bets in the CTFC report. According to the report, as of January 24th, asset managers held 7,734 open futures positions for Bitcoin, with 7,671 of those being long positions, or bets that the prices of Bitcoin will continue to rise. The CTFC report provides insight into trader sentiment across a broad range of financial instruments.
Binance, the crypto exchange, has confirmed that it will be temporarily suspending U.S. dollar bank transfers starting Wednesday, February 8th. The company stated that USD bank transfers make up only a small percentage of its monthly active users.
On Monday, most Asian equity markets experienced a decrease following the announcement of the United States’ lowest unemployment rate since 1969 at 3.4% on Friday. However, as a result of this low rate, interest rates may rise to tackle inflation.
In the cryptocurrency market, the benchmark IC15 Index saw a decline of 796 points, settling at 33,114, a drop of 2.35%. Four significant players primarily caused this decrease: Uniswap, Shiba Inu, Avalanche, and Solana, which were all trading in the 4–6% range. The market capitalisation of cryptocurrencies stands at $1.062 trillion, with all its constituents in the red.
KEY METRICS
Total Crypto Market Cap: $1.12 T
Bitcoin Market Cap: $445.31 B
Ethereum Market Cap: $199.07 B
ETH/BTC Ratio: 0.07
Ethereum Gas Price: 39 gwei
DeFi TVL: $73.47 B
Fear and Greed Index: 54 (Neutral)
Federal Reserve Balance Sheet: $8.43 T
Article 2 – Weekly Review of IC15
After a significant dip, the cryptocurrency market showed some signs of recovery. For example, on February 8th, 2023, the IC15 Index, a benchmark for measuring the performance of the crypto market, rose by 286 points to reach 33,400.
A few cryptocurrencies stood out in the positive direction, with Polygon, Litecoin, Binance, and Tron experiencing growth ranging from 1–5%. On the other hand, Shiba Inu, Dogecoin, and Cardano were among the few that saw a decline. The total market capitalization of cryptocurrencies was estimated to be $1.072 trillion.
Bitcoin, the largest and most well-known cryptocurrency, continues to garner attention from institutional investors. The recent surge in institutional inflows, reaching a 7-month high, saw $117 million pour into crypto investment products, with the majority of the funds going directly into Bitcoin. In addition, the 40% rebound in the price of Bitcoin in January, reaching $23,258, has triggered the most significant inflow of institutional cash since June 2022.
Glassnode, a market analysis firm, has observed some striking similarities between the current market cycle and past bear market periods. For example, they have noted that the Network Value to Transactions Ratio (NUPL), a metric used to gauge the health of the crypto market, has turned negative for a prolonged period of time, just as it did in previous bear markets. In the current cycle, the NUPL remained negative for 166 days, which is comparable to 157 days in the 2011–12 bear market and 134 days in the 2018–19 bear market. However, in 2015–16, the NUPL was negative for an even longer duration of 301 days.
Despite the bearish indications from the NUPL, the cryptocurrency market has remained relatively stable, with only minor fluctuations in prices and a reduction in the recent crypto rally’s momentum. It is still being determined what direction the market will take next. Still, investors who want to position themselves during this consolidation phase should consider tokens with a positive fundamental and/or technical outlook. Right now, some of the best cryptos to buy include MEMAG, FET, FGHT, FXS, and CCHG.
Article 3 – Battle of Bull and Bear
The financial markets received the long-awaited “bad” job market news, but the cryptocurrency market had different priorities. During the recent bear market, CleanSpark saw an opportunity to purchase assets and mining equipment at a lower cost. At the same time, many miners struggled with the decline in Bitcoin prices and increased energy expenses.
On the other hand, the initial jobless claims in the United States saw a 7% increase to 196,000 for the week, surpassing predictions of 189,000. This was the first rise in jobless claims in the past six weeks. Surprisingly, investors view a higher unemployment rate as a positive factor for riskier assets, including cryptocurrencies. They believe that a sluggish job market will help combat inflation. This year’s positive jobs data indicates that the United States economy is still growing, and high prices will persist.
Following the latest job market data, traditional equity markets initially rose but eventually ended with a decline. The tech-focused Nasdaq dipped over 1%, and the S&P 500 had a similar outcome. The cryptocurrency market, however, did not see any similar resurgence. This could be due to regulatory concerns taking priority over macroeconomic factors. On Thursday, the cryptocurrency exchange Kraken agreed to cease its staking-as-a-service platform for U.S. customers and pay a $30 million settlement to the SEC for charges of offering unregistered securities.
This news followed the announcement by Coinbase CEO Brian Armstrong that he had heard rumours that the SEC was considering banning retail investors from participating in cryptocurrency staking. This income-generating technique is crucial to the operation of blockchains like Ethereum. A ban on staking would eliminate a source of revenue for some cryptocurrency holders, causing a significant blow to the valued benefits of the crypto space. This threat significantly impacted the prices of digital assets.
The chart of BTC shows its detachment from traditional assets so far this month, as its correlation with the S&P 500 and Nasdaq dropped from as high as 0.77 to the current levels of .44 and .36, respectively. While equity markets welcomed the optimistic job market data, cryptocurrency prices seemed to be weighed down by worries about potential new regulations regarding staking. It is important to note that a possible staking ban would only apply to proof-of-stake blockchains, not proof-of-work blockchains like Bitcoin. Nevertheless, the tweet by Armstrong caused a widespread decline in almost all cryptocurrency assets.
Now, cryptocurrency investors are adopting a more cautious approach rather than a panicked one. Trading volume remains below its 20-day moving average. The upcoming trends in the next few days will be noteworthy to observe.
Market Sentiments
Article 4 – Weekly Spotlight
The US-based cryptocurrency exchange, Kraken, is facing regulatory trouble over allegations of violating securities regulations in selling “unregistered securities.” A report by Bloomberg suggests that the Securities and Exchange Commission (SEC) investigation into Kraken’s conduct is at an “advanced stage” and may result in a settlement shortly. However, the details of the probe, including which digital assets are involved, remain unclear.
The outcome of the SEC investigation into Kraken could have far-reaching implications for the crypto industry in the U.S., as any settlement could set a precedent for other companies to make similar deals with the SEC. However, despite the regulator’s repeated statements that most tokens offered by crypto exchanges are indeed securities and should be subject to regulation, such probes do not always lead to enforcement actions. Kraken, headquartered in San Francisco, is currently the world’s third-largest cryptocurrency exchange by trading volume.
Meanwhile, the Terra Luna Classic price saw a 4.5% drop in the past 24 hours, with 24-hour trading volume remaining at around $100 million, leading to the potential for further significant movement in the coming days.
On the other hand, China has given the green light to establish the National Blockchain Technology Innovation Centre in Beijing, as reported by a local source. The centre will be overseen by the Beijing Academy of Blockchain and Edge Computing (BABEC), a research institution supported by the Beijing government and the developer of Chang’an Chain (ChainMaker), China’s first domestically created open-source blockchain platform. The centre will focus on the research and commercialization of blockchain technology, including the development of fundamental theories, hardware, and software, as well as the building of blockchain platforms. Despite the country’s ban on cryptocurrencies, China sees blockchain as a crucial aspect of its digital infrastructure. The Beijing government recently launched the 2.0 version of its data directory based on Chang’an Chain. This platform collects information from over 80 government departments in Beijing on the blockchain.
