Newsletter Volume 7

As of Friday, 23rd December 2022

Bull & Bear

Article 1 — The Market This Week

Post last week’s immediate gains after the FOMC announcements, the markets went into a tailspin after Jerome Powell suggested that rates will need to be raised to higher levels to dent inflation. Bitcoin now sits under the $17,000 mark, and Ethereum, after falling below $1,200 levels during the last week, now sits at $1,221. The number of Americans filing new claims for unemployment benefits increased less than expected last week, pointing to a still-tight labour market, data released on Thursday showed. A second report on the same day confirmed the U.S. economy rebounded in the third quarter at a pace faster than previously estimated after contracting in the year’s first half.

The yen fell about 0.2% to 132.67 per dollar today but is on track for its third-largest weekly gain of more than 3% this year. The Bank of Japan’s surprise tweak on Tuesday to allow the 10-year bond yield to move 50 basis points on either side of its 0% target, wider than the previous 25 basis point band, has provided strong momentum for the previously sliding yen. The central bank’s move has ramped market expectations that it could be a prelude to the full abandonment of its yield curve control policy. Meanwhile, data showed that Japan’s core consumer inflation hit a 40-year high of 3.7% in November as companies continued to pass on rising costs to households.

Despite the downtick in crypto markets, there were things to cheer about, one being Sam Bankmain-Fried being extradited to the U.S., where he was released on a historic $250 million bail. Some have compared Bankman-Fried to Bernie Madoff, who was released on $10 million bail in 2008 after authorities said he had confessed to a $50 billion Ponzi scheme. The former FTX founder faces charges including wire fraud, money laundering and violating campaign finance laws. The bond was secured by the equity in Bankman-Fried’s family home and by the signatures of his parents and two other individuals with considerable assets.

IC15 index again dipped this week to 24,423 from 25,659 a week ago. The consensus market sentiment is that we will have a recession in 2023, with some debate over its potential magnitude. The market also seems to trust that central banks will continue to tighten until inflation is under control. Though contrarian, some investors think it’s more likely that the Federal Reserve will pivot once the recession gets going and accept multi-year high inflation instead of a depression or global reserve currency crisis.

Key Indicators

○ Crypto Market Cap: $845 Billion

○ Bitcoin Market Cap: $324 Billion

○ Ethereum Market Cap: $147 Billion

○ Ethereum Gas Price: 15 Gwei

○ DeFi TVL: $58 Billion

Article 2 — Weekly Review of IC15

The IC15 Index, also known as the Index of Cryptos, is a rule-based broad market index by market capitalisation that tracks the performance of widely traded liquid cryptocurrencies worldwide. Here is a review of the top constituents of the IC15 index.

A rough year for global markets is winding down, but the market’s pain may be far from over, as investors brace for an expected recession in 2023. Firms projecting at least a mild recession include BlackRock, the world’s largest asset manager, Barclays and Oxford Economics. Fund managers in a BofA Global Research survey named a deep global recession and persistently high inflation as the market’s biggest risks, with a net 68% forecasting a downturn as likely in the next year. Recession worries are filtering into cryptocurrency prices reflected in the IC15 index, dropping 4.83 compared to last week, while the Treasury yield curve has been inverted since early 2022, a signal that has preceded past downturns.

All of the top IC15 constituents ended the week in red, with Cardano being the biggest loser. Meanwhile, peer-to-peer marketplace Paxful deciding to remove the world’s second-largest crypto from its platform didn’t ode well for Ethereum prices and the broader markets. In a tweet on Wednesday, CEO of Paxful, Ray Youssef, pointed to several reasons for Ethereum’s removal, including the blockchain’s recent switch from a proof-of-work consensus model to proof-of-stake.

Coinbase’s stock has hit its lowest price since the company went public last year, with COIN falling 87.04% to $35.00, compared to $268.15 on December 21, 2021. While tech stocks have taken an overall beating in 2022, Coinbase is unusual as a publicly traded company whose primary business is cryptocurrency — a select cohort that includes Block and crypto mining companies Core Scientific and Riot Blockchain. Despite COIN being down, Cathie Wood, Chief Investment Officer and Portfolio Manager of Ark Invest, bought another 297,000 shares of Coinbase Stock worth $11.9 million last week. The investment fund currently holds 6,139,480 Coinbase shares worth $246.7 million.

Core Scientific Inc, one of the biggest publicly traded cryptocurrency mining companies in the United States, said it filed for Chapter 11 bankruptcy protection on Wednesday, the latest in a string of failures to hit the sector.

We are going through a tough time globally, especially in crypto markets, but as we always say, zooming out, Bitcoin and Ethereum are up more than 1000 times since they entered the scene despite the recent drawdown. So, it’s all about staying in the game for longer without getting knocked out.

Article 3 — Battle of Bull and Bear

This week saw the markets moving downward, with a slew of negative news coming in, especially on the economic front, with inflation turning out to be more sticky than what many expected. The Texas-based firm’s cash flow is still positive, the company said in a press release, but it’s insufficient to repay an equipment financing loan. Core Scientific plans to continue mining while repaying the company’s majority debtholders.

Meanwhile, Digital asset trading firm Orthogonal Trading, which became insolvent after the sudden implosion of FTX, has been placed under provisional liquidation by the British Virgin Islands courts.

Gemini co-founder Cameron Winklevoss took to Twitter to explain the path for asset recovery for Gemini Earn users. The update comes in an attempt for the beleaguered firms to pay back Gemini Earn users, a program in which individuals lent out their digital assets and expected a yield. The program has been frozen since mid-November amid a liquidity crisis from Genesis and DGC. Gemini has been working with Genesis and DCG since Nov. 22 to help customers get their Earn redemptions. Genesis owes Gemini Earn users $900 million.

In a more positive development, decentralised lending protocol Aave announced it will implement a proof of reserve system to protect bridged assets on Avalanche, a DeFi twist on the CEXs racing to shore up customer confidence in the wake of the FTX collapse. Aave approved blockchain oracle Chainlink’s Proof of Reserve smart contract by a vote of over 99% in favour. It will specifically cover Aave versions (v)2 and v3 on the Avalanche blockchain.

Market Sentiments

Article 4 — Weekly Spotlight

According to PolygonScan, the number of unique addresses on the Polygon network passed the milestone of 200 million this week, reaching an all-time high of 201,024,643. The rest of Polygon’s network indicators remain in a steady upward trend. For example, the number of daily active addresses on the network is approaching the 500,000 mark. At the same time, the daily number of transactions using MATIC is more than three million. Passing the 200 million mark in the number of unique addresses occurred at the same time as the announcement of the launch of the second and final public test of its zkEVM network. The mainnet itself is expected in early 2023. But notwithstanding the steady progress, MATIC slid over 10% compared to last week. None of the major coins also didn’t manage to eke out a gain last week.

As the year is about to draw to a close, signs are starting to emerge that the FTX turmoil may have passed. Whether that translates to a market turnaround in 2023 might depend, to a certain extent, on the direction of U.S. Federal Reserve monetary policy. Bitcoin’s overall price direction is still closely linked to the trajectory of traditional markets, and the largest cryptocurrency by market value often sets the course for broader digital-assets markets.

When you zoom out and see the bigger picture, you’d understand that the current bearish year is normal. From a market cap of $250 Billion in 2020 to a current market cap of $845 billion, the crypto market is definitely in good shape over the long term. Further, this time the innovation continues to happen despite the bear market. The question remains, when will the crypto market go back to its uptrend? Well, the short answer, as we say often, is not likely next week.