Weekly Crypto Market Wrap, 4th January 2022

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Weeks in Review

• Happy New Year!
• Unprecedented Covid surge sees daily cases doubling from April 2021’s previous records.
• US Personal Consumption Expenditures Index hits highest November level since 1982.
• S&P 500 beats Dow Jones and Nasdaq in 2021 by widest margin in 24 years, ringing 68 records during Biden’s first administrative year.
• Biden launches crackdown on largest US meat producers seeking to cut meat prices and benefit smaller producers; industry seen as a source of supply-chain vulnerability and a large cause for high inflation.
• US SEC appoints former Senate staffer Corey Frayer as Senior Crypto Adviser.
• Only 6.3% of bitcoin’s supply is left circulating on crypto exchanges, a bullish sign from a certain analytical perspective.
• Bitcoin’s market dominance fell below 40% for the first time since last May 2021.
• Russia pulls back on crypto ban, set to allow investments through foreign firms.
• Australia’s ASIC reveals how it infiltrated crypto “pump and dump” groups on Telegram.
• Mexico confirms plans to roll out a CBDC by 2024.
• US Senator Cynthia Lummis to propose thorough crypto regulation through the 2022 bill.
• South Korean government demands Apple and Google app stores remove “play to earn” crypto games.

Winners & Losers

• After a failed retest of BTC’s range high, price and volume dropped in the last week of the year. The widespread profit taking activity was soon offset by repositioning and accumulation leading to a tight trading range over the last week. Ethereum followed suit while a select few saw price spikes off the back of low liquidity. Overall, BTC returned -6.95% and ETH returned -5.79% WoW.
• Global Stocks closed the year in a profit-taking mood but opened strong. The S & P 500 took another record high on the first day of 2022 trading despite most of the world is still on holiday break. Apple became the first company ever to achieve a 3 trillion dollar valuation. Tesla beat estimated delivery in Q421, and the stock bounced from a low of 900 in December to start the year at $1,200, a climb of 33%.
• The fixed income market took the most of the outflow in asset portfolio reallocation during the first trading day of 2022. Increased supply of corporate issuance and hawkish central bank comments led to a major bear steepening of the yield curve. 10year UST jumping from pre-holiday of 1.51% to start the year at l.63%. The 30 year UST yield jumped from 19.1% to 2.02%. The next set of indications from the FED will be coming from the last FOMC minutes meeting notes this coming week. Corporate USD papers from 11 firms this coming week total at least USD 11 billion weighs on market pricing for both credit and interest rate hedging.
• Volatility was subdued going into year-end holidays, and the only indication of major fluctuations came from year-end options expiry on the final day of trading. Downside PUT sold created a chain of portfolio insurance type of delta hedging, and despite a rebound in the ETF and crypto stocks, the cash spot continues to be under pressure with BTC and ETH. Stock volatility had begun trending lower before the holiday break and didn’t recover on the first trading day. VIX broke through the 20 levels before Christmas and opened the new year below 17.
• Uncertainty over Chinese property developers for the new year will again dominate the credit market. Evergrande stocks are once again on suspension following year-end negotiations and government intervention for what some say to be a smooth bankruptcy plan.
• Macroeconomic data was light into the holiday season, with Chinese December CAIXIN manufacturing PMI beating expectations and heading back above 50 (50.9 vs 49.9 in Nov). Most of Europe, Australia and some Asian countries were still out and hence not a lot of major economic data announcements on day one of 2022 trading.
• The FX and commodities markets were dominated by the strong USD, with USDJPY up above 115 and GOLD testing its 100 day MA support of 1,803 once again. Oil rebounded strongly following stronger Chinese economic data and research suggestions that the Omicron variant will not close borders in 2022.

Macro, Technicals & Order Flow

Bitcoin

• The last week of December saw boosted sentiment as price rallied over 10% to the 51,500 level. We were expecting more volatility given the expected liquidity drain, but stocks were broadly buoyant and steady which played into steady crypto markets. The caveat to this was Tesla which saw over a 30% oscillation in the stock price.
• As we got closer to NYE, the absence of trading activity, rising tensions around Omicron coupled with the anticipation of $6 billion worth of options expiries on 31 Dec, 2021, contributed to some bearish sentiment, resulting in drawdown across the crypto space,, marking the lows at 45,500, before ending the year marginally above the 46,000 level.
• Consolidated price action has defined the start to 2022 for BTC, whilst later 1 protocols remain buoyant. As spot volumes gradually return to markets, BTC’s price action will be a function of broader intermarket flows as investors begin to make decisions around the impact of Covid-19, inflation, tapering, and other key themes expected in 2022.
• We are getting some positive news on Omicron — so this should support risk in the short-term. Monica Gandhi, an immunologist at the University of California, San Francisco, has noted that this variant may cause so much immunity that it could quell the pandemic. Numbers out of South Africa are supporting this.
• Although inflation numbers are high, and bonds are selling off aggressively in response, we are seeing upside moves in equities and generally positive sentiment. Couple this with a slower than expected taper and we have the right environment for risk assets in the short-term. Inflation shocks are the caveat here — anything that forces faster tightening would be a potential headwind.
• Spot volumes are recovering in BTC:

Spot BTC Aggregated Volumes

Bitcoin Net Position Change

Bitcoin Net Position Change of long term wallets

BTC Funding Rate Across Exchanges

BTC Perpetual Swaps Funding — Aggregate

Liquid vs Illiquid Supply

OI Interest by Strike — Mar 25, 2022

BTC Implied Volatility

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

Bitcoin Futures Open Interest

• Following BTC’s price action, the last week of December created a grind higher as ETH’s price headed towards 4,150, marking the weekly highs. However, as investors realised profits before NYE coupled with a large nominal options expiry, the price retracted and marked the lows around 3,600.
• The clear key support level at 3,600 has been tested, with prior notable highs at 4,200 and 4,800 respectively. We are forming a descending triangle, coupled with very low implied volatility.

ETH ATM Implied Volatility

OpenSea Volume (Delphi)

Smart Contracts deployed on Ethereum (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

• Terra becomes second largest DeFi protocol, surpassing Binance Smart Chain.
• Global web search for “NFT” surpasses “Crypto” for the first time ever.
• DAO treasuries surged 40x in 2021.
• Shanghai includes public metaverse implementation in its five-year development plan.
• Dubai’s World Trade Centre set to become a specialised crypto zone — Binance joins in.

What to Watch

• Statements by nations on future restriction protocols following the recent Covid surge.
• Developments following Biden’s meat crackdown plan — President potentially meeting with farmers this week.
• US’ JOLTS Job Openings and Unemployment rate.

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 20 Dec. 2021 0:00 UTC to 3 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 4, 2022.