Weekly Crypto Market Wrap, 10th January 2022

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Weeks in Review

• Fed Minutes points to earlier and faster rate hikes, abandoning previous pace stance.
• US JOLTS job openings fell to 10.5 million in November against an expected 11 million, with a record 4.5 million Americans quitting their jobs during the period. NFPs headline job growth came in below estimates at just 199k, but with an unemployment rate of 3.9% well below the expected 4.1%. Wage growth, meanwhile, was also well above expectations at 0.6% on the month and 4.7% y/y — pointing to supply side inflationary pressures in the job markets.
• Euro zone inflation hits a new record high for December, at 5% annualised.
• European countries impose new travel restrictions as Covid-19 cases soar — Hong Kong bans inbound flights including US and Canada in new travel ban.
• Happy 13th Birthday, Bitcoin; the crypto’s first block was mined on January 3rd 2009.
• Bitcoin will most likely take a large share from gold in the “store of value” market; Goldman Sachs.
• Kazakhstan government shuts down internet amid protests, causing Bitcoin’s hash rate to drop 13.4% — Kazakhstan is the second-largest bitcoin mining country in the world.
• Crypto investment funds had $9.3B in inflows for 2021 as institutional adoption grew.
• Number of countries banning crypto has doubled in the last three years; US’ LOC report.
• PayPal confirms research plans to launch a stablecoin.
• UK’s advertising watchdog ASA bans two Crypto.com ads for being “misleading because they failed to illustrate the risk of the investment.”
• “We are 50% of the way there,” says Ethereum co-founder Vitalik Buterin on the network’s development — proposes a ‘multidimensional’ fee structure.
• Biden unveils plan to boost competition in US meat industry, plans to issue new rules and $1B in funding in 2022 to support independent meat processors.

Winners & Losers

• The crypto market saw a further sell-off this week in the face of macro headwinds. After losing the $46,000 level, BTC fell as low as 40,500 joined by the rest of the crypto market. The Fed’s announcement of multiple rate hikes in 2022 saw correlation to US growth stocks increase. Lower liquidity at the beginning of 2022 has not helped the recent moves. Overall, BTC returned -11.45% and ETH returned -17.65% WoW.
• Global Stocks began the year on the defensive. The tech and growth sector selloff was more noticeable, with the Nasdaq index opening 2022 on the highest level of the week (16,473) and closing at 15,607, a 5.5% retracement. Shares in Tesla once again dominated the volatility, as it opened the year with a 13.5% jump (1,057.60 to 1,199.87) before the selling momentum accelerated. The stock closed the week at 1,026.96. Shares in Apple, following a brief climb toward the USD 3 trillion valuations, at which the share price reached 182.73, dropped to 172.17-valuing the company at USD 2.875 trillion. On the other hand, commodity shares, as a recipient of higher supply-side pricing, have started the year as the main beneficiary of stock portfolio reallocation strategy, Rio Tinto shares on the ASX closing last year at AUD 99.877, but have since climbed to above 106.
• The fixed income market once again dominated headline trading this week. Ten year UST yield has climbed from the year-end trading level of 1.51 towards a high of 1.77 this week. In conjunction with growth shares selloff, and an abundant supply of new corporate USD issuance, the credit market also took the full impact of liquidation flows. Despite the FED insisting that they will be patient with rate normalisation, the market is now pricing in the first rate movement to begin in April 2022, with over 3 hikes being priced into the current year. On the credit front, Chinese Local government investment vehicles currently have USD 8 trillion of outstanding liability via the bond market, that’s over half annual GDP, and they have been big dollar bond issuers. Collapsing property sales and Omicron stress are putting pressure on this part of the debt arena. Beijing may let some default; others might try to dump assets in a weak market.
• Volatility was elevated during the first week of trading in 2022. What began as a steady climb quickly shifted gear into a sudden rally from mid-17 on the VIX index to breaking through 20 on the topside. Despite closing off the high, there remains unease in risk markets going into the weekend. Cryptocurrencies took the brunt of the risk to unwind during weekend trading, with BTC liquidation flows testing the psychological support of 40,000 and ETH at 3,000. Liquidity in asset trading should improve in the coming weeks as institutional demand returns from the Christmas break. However, with US CPI data forecast to be elevated, and central banks worldwide now searching for strategies to exit the world of extraordinary stimulus, it might be difficult to see actual volatility collapsing anytime soon.
• Macroeconomic data in the US focused on Friday’s Non-Farm Payroll figure for the month of December. On the headline, it completely missed the mark. Economists were forecasting 450,000 jobs created, but the data printed only 199,000. On closer inspection, previous months numbers were revised higher by 39,000, and the unemployment rate dropped to 3.9% from an expected 4.1%. There was also added inflationary pressure from stronger than forecast hourly earnings (4.7% YoY against expected 4. 2%).
• The FX and commodity markets were actually on the sideline for most of the week, as portfolio allocation moves appeared to maintain similar ratios or slight increases towards commodities. Gold prices did not benefit fully from this week’s movement despite continual inflation concerns. As short term interest rate spikes suddenly, Gold prices tend to play a defensive role because short-term money market funds tend to seek out opportunities with a yield element rather than precious metal. The market traded to a high of 1,831.31 before dropping lower to close the week at 1,795. AUDJPY reflected the risk mood of general asset risk tolerance, opening the year on a high of 83.66 but closing below 81.00.

Macro, Technicals & Order Flow

Bitcoin

• Last week, as traders braced for a potentially volatile year and three expected rate hikes, relatively thin liquidity persisted around the 46,000 mark. On Wednesday, minutes from the Fed’s December meeting provided the stimulus to push BTC down to the 45,000 level where stops began to trigger, adding to the bearish pressure. As the market soaked up Wednesday’s news, BTC bottomed out around 41,000 before bouncing back to the 42,000 level where price action remained relatively stable.
• 40,000 is the key support, with 37,000 below this. Topside resistance sits at 46,000. It’s important to zoom out on the charts and maintain perspective on these moves. There are clearly market cycles playing out in price, and short-term risk moves occur when uncertainty abounds. The key is maintaining longer-term views on asset allocation — what happens when capital is forced to reallocate and hedge? How does BTC play out when the market is bidding scarcity premiums? These are some of the key fundamentals that we think about internally.

Fed Minutes and resulting cross-asset returns (Delphi)

Bitcoin Net Position Change

Bitcoin Net Position Change of long-term wallets

BTC Funding Rate Across Exchanges

BTC Perpetual Swaps Funding — Aggregate

OI Interest by Strike — Mar 25, 2022

BTC Implied Volatility

BTC Futures Annualised Rolling 1 Mth Basis (Deribit & CME)

Bitcoin Futures Open Interest

Ethereum

• Despite a recent surge in ETH co-founder Vitalik’s social media activity, the price of ETH remained relatively stagnant at the start of the week, setting weekly highs around 3,900. ETH, like the broader market, followed hints from the Fed to trim its balance sheet sooner than expected.
• Bearish pressure persisted for the remainder of the week marking the weekly lows around 3,000, dropping alongside its implied volatility.
• Importantly, the key support level at 3,600 was breached, with the next notable support at the 3,000 and 2,550 regions respectively.

ETH ATM Implied Volatility

Blockchains by Total Value Locked (TVL) (Delphi)

Daily Transactions on ETH, AVAX & FTM (Delphi)

• Gas fees on Polygon have increased 10x during the last week, with the launch of a new game called “Sunflower Farmers” now consuming about 30% of the gas on Polygon.
• Another L2 blockchain, Arbitrum One, experienced network outages for upwards of 4 hours yesterday, exhibiting the infancy stage of ETH-centric L2 solutions, and presents an opportunity for further competitors to enter the space.

Gas Price on Polygon (Delphi)

ETH Open Interest by Strike: Mar 25, 2022

ETHBTC Daily Chart

Ethereum Exchange Net Position Change

ETH Perpetual Funding Rates

ETH Futures Annualised Rolling 1 Mth Basis

DeFi & Innovation

• AAVE launches Arc, a permissionless lending pool for institutions, with 30 organisations already joining its whitelist — AAVE is part of our DeFi Index Fund.
• China’s central bank releases digital yuan wallet apps for Android.
• OpenSea raises $300 million for encrypted NFT marketplace, now valued at $13.3B.
• Australian Open becomes first grand-slam to join NFTs and metaverse trends.
• Samsung launches a metaverse store on Decentraland, replica from its NYC flagship store.
• Bored Ape Yacht Club crosses $1B in total NFT sales — OpenSea freezes over $2.2 million of stolen Bored Apes.

What to Watch

• Health reports on Omicron, travel restrictions with focus on the US and Europe as Covid-19 surge continues to concern global markets.
• Fed Chair Powell’s testimony on its renomination tomorrow — will potentially discuss rate hikes and current economic uncertainty.
• US’ CPI and Retail Sales, on Wednesday and Friday respectively.
• ECB President Lagarde speaks on Friday, following the Eurozone hitting a new record high for inflation in December.

Disclaimer

This document has been prepared by Zerocap Pty Ltd, its directors, employees and agents for information purposes only and by no means constitutes a solicitation to investment or disinvestment. The views expressed in this update reflect the analysts’ personal opinions about the cryptocurrencies. These views may change without notice and are subject to market conditions. All data used in the update are between 3 Jan. 2022 0:00 UTC to 9 Jan. 2022 23:59 UTC from TradingView. Contents presented may be subject to errors. The updates are for personal use only and should not be republished or redistributed. Zerocap Pty Ltd reserves the right of final interpretation for the content herein above.

* Index used:

Originally published at https://zerocap.com on January 10, 2022.