Weekly Crypto Market Wrap, 28th February 2022

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Week in Review

  • Russian forces invade Ukraine.
  • Ukraine’s official twitter page pleads for crypto donations amid the invasion.
  • Donations in BTC, ETH and USDT stood around $16 million at the time of writing.
  • Bitcoin’s exchange volume spikes 200% in Ukraine following the invasion.
  • USDT stablecoin premiums soar on Ukrainian top crypto exchange.
  • Biden imposes sanctions on Russia including technology export blocks and freezing over $1T in Russian assets by severing connections to the US financial system — deploys forces to NATO’s East.
  • US and EU impose SWIFT ban on Russian banks — population rushes to withdraw in USD.
  • ECB President calls for crypto regulations in response to Russia potentially evading sanctions.
  • US Core PCE inflation rose 5.2% in January for the biggest annual gain since 1983.
  • US Secret Service launches Cryptocurrency Awareness Hub to provide educational campaigns on digital assets, which “are not inherently criminal.”
  • China’s Supreme Court adds cryptocurrencies to the list of illegal fundraising methods.
  • Californian bill requests option for residents to pay state services with Bitcoin.
  • BNY Mellon is preparing to launch institutional crypto custody services later this year.
  • Global stablecoin supply hits $180 billion.
  • Sportswear brand Puma rebrands itself to Puma.eth on Twitter in support of the Ethereum blockchain and future crypto plans.

Winners & Losers

  • Geopolitical concerns and haven flow dominated the week’s fixed income market. Risk aversion flows intensified with Russian president Putin signing a decree on Ukraine’s Separatist regions. What was an unthinkable event to most of the world became the largest geopolitical eruption since WWII. Bond yields initially traded higher on cautious tag-a-war between inflation and geopolitical concerns. But as Russian troops entered into Ukraine territory and full-scale war began, G7 Govies quickly became haven assets in a panic risk selloff. Ten year UST yield dropping from above 2% to the low of 1.85% before stabilising into the weekend. The market is reacting to constant media updates relating to both escalation of fighting inside Ukraine and retaliatory sanctions by G7 nations on the financial front.
  • Russia Equity index (MOEX) slumped by 28% going into the weekend as Crude approached US100 on the back of geopolitical uncertainties and respective sanctions by the west. Temporary removal of all Russian institutions from the global USD settlement system SWIFT caused unwanted panic throughout the money markets and cryptocurrency world. Russia’s central bank assets located on the worldwide system will also be frozen, limiting its ability to access its international reserves. President Vladimir Putin initiated Russia’s nuclear deterrence forces onto high alert in response to the move. Germany also said they’d set up a €100bn boost in military budget spending to prepare for the elevated geopolitical concerns in the region.
  • Individual company news, including BP, abandoning its stake in Russian oil giant Rosneft in an abrupt and costly end to three decades of operating in the energy-rich country, marking the most significant move yet by a Western company in response to Moscow’s invasion of Ukraine. Binance to donate USD 10 million to Ukraine’s humanitarian effort.
  • BTC and ETH vols jumped on the back of geopolitical concerns this week. With BTC vols breaking out of the recent low to mid 70% range to hit a high of 89% before settling in the low 80s to close the week. While ETH vols shifted from mid 70s range to above the 100% mark as Russian troops moved inside Ukraine, then closing the week in low 90s.
  • Supply-side pressure on commodity prices was also a worry for growth prospects in spite of the current situation. The escalation is pushing commodity and oil prices higher, with Goldman Sachs raising BRENT oil prices forecast to USD 115/BBL in the short term. Wheat prices jumped by 8% since Friday due to global sanctions worsening supply.

Macro, Technicals & Order Flow

Bitcoin

  • On Monday, in the absence of US market activity, Bitcoin started strong, reaching levels above 39,000. However, US markets caught up on Tuesday and continued the selloff that started prior to the weekend on the back of anticipated risk.
  • Bulls refuted the action, bouncing off 36,500 before reports out of CNN outlining an imminent Russian attack on Ukraine weighed in on the market. Panic took hold, where Bitcoin spiralled to weekly lows under 35,000.
  • Whilst we saw investors choosing to de-risk, others took advantage of the buying opportunity. A lackluster response from world leaders to the geopolitical conflict provided further grounds for a short squeeze. Prices rallied back to as high as 40k shortly thereafter. Bitcoin closed out the week retracing back to lower levels.
  • Beyond the geopolitical news, a noteworthy raise by the Luna Foundation Guard of $1B, forming a decentralized UST reserve denominated in BTC, is intended to contain volatility around UST’s peg.
  • Breaking down on-chain metrics allows us to more clearly understand some of the aforementioned moves and who was affected. The following figure compares the short term holder supply currently at a loss, as a proportion of total short term holder supply. Notably, short term holder supply has been increasing in recent weeks.
  • This depiction shows short-term holders are accumulating around 35k to 45k and approximately 80% are currently at a loss due to the recent bearish action.
  • Some investors are choosing to de-risk whilst others are bidding up — call skew for the 25 March has strong and growing interest. We are basically in a time of great uncertainty, and this is reflected across all markets right now.
  • How to play the current dynamic? Structured products make sense with implied volatility lifting — Yield Entry and Exit notes providing strongly enhanced yields.

Ethereum

  • Early in the week, Ethereum followed the lackluster price action on closed US markets on Monday. However, when US markets returned to the scene, the sell-off continued.
  • The Russian invasion of Ukraine on Thursday and news headlines incited panic, leading to steep selloffs in anything liquid. Risk-off assets including equities, Ethereum and other cryptocurrencies experienced aggressive moves, with ETH setting its weekly lows at 2,300. Gold and Oil subsequently rallied. Following the initial imposition of sanctions on Russia, risk-on markets saw a relief rally, with ETH setting its weekly highs around 2,900. Beautiful bounce off prior levels — but we are in some pretty wild times here. Playing leveraged exposure is very risky right now.
  • The Russian government put their nuclear ‘deterrent force’ on high alert, inciting fear amongst investors, causing a further sell-off with ETH closing the week around 2,600.
  • ETHBTC trended sideways throughout the week, trading above the trend-line support from Feb 2020. BTC and ETH still showing risk on/off dynamics against each other and the broader geopolitical environment.

ETHBTC Daily Chart

ETH ATM Implied Volatility

Pixelmon NFT Collection

Ethereum Exchange Net Position Change

DeFi & Innovation

What to Watch

  • Russia x Ukraine conflict updates.
  • Biden’s executive order on cryptocurrencies — it has been delayed and rightfully so, but for how long?
  • Fed Chair Powell testifies before the Senate, Wednesday and Thursday.
  • US Unemployment Rate, on Friday.

Insights

How Crypto Exchanges Work: The mechanisms at play: In this article, we provide the fundamentals of how crypto exchanges work; their order books, examples of market executions, comparisons with decentralised exchanges and how these platforms turn a profit on their services.

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 21 Feb. 2022 0:00 UTC to 27 Feb. 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 February 28, 2022.

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