Market Update 13/02/23

The purpose of this piece is to provide a market update regarding Valour’s current underlying exposures.

Bitcoin reacted positively to the Fed’s ongoing disinflationary process, following the latest round of the central bank’s slowing paced interest rate hikes. Despite extraordinarily strong labour market data, inflationary pressures have seen a gradual cooling from last year’s record highs, renewing investor interest in alternative asset classes. With Bitcoin’s correlation to gold continuing to surge, BTC has seen the largest institutional cash inflows since June 2022. Data by CoinShares points toward inflows of over $117m into crypto investment products last week alone, reaching a 7-month high. Analysts have been quick to highlight BTC’s 50-day average price close to topping the 200-day, a signal last seen before the 2020/21 bull runs. Although volatility has subdued and a key $22k resistance has formed, several companies are still reeling from the effects of the prolonged crypto winter. P2P exchange LocalBitcoins announced the termination of its services after more than 10 years of operations citing current market conditions. Meanwhile, mining firm Bitfarms has agreed to settle its outstanding $21m debt with bankrupt lender BlockFi for a single cash payment of $7.75m to deleverage the company’s outstanding exposures. These developments follow the latest in a string of failed attempts by self-proclaimed Bitcoin creator Craig Wright, now losing a UK claim seeking to apply a copyright to Bitcoin. On a network level, the Bitcoin community has been split following a recent uptick in activity prompted by the introduction of the Bitcoin Ordinals NFT protocol. According to analytics firm CryptoQuant, Bitcoin’s 7-day moving average of transactions hit 345,000 for the first time since China’s ban in 2021. The minting of an Ordinal Bitcoin-based NFT resulted in the largest block/transaction in Bitcoin’s history, driving a community divide over its necessity. Given Bitcoin’s architecture, inscribing heavy data on its blockchain will result in increased competition for block space, thereby leading to significant increases in transaction fees.

Ethereum recaptured some of its market share pulling in even with Bitcoin’s YTD performance as the Ether supply continues to decline. Since the network’s transition to a Proof-of-Stake consensus in 2022, and combined with the EIP-1559 fee-burn mechanism, Ethereum’s supply has predominantly stood in the deflationary territory with total supply falling by more than 17,800 ETH YTD. The recent supply side dynamics has led to a renewed interest in Ethereum, not least as developers make progress towards activating staking withdrawals across the network. According to a report by JPMorgan, Ethereum’s staking ratio currently stands at 14% compared to the average of 60% for other PoS blockchains. The below average metric is testament to the current high staking requirements in which users need to lock up 32 ETH to validate transactions on the network. Once the Shanghai upgrade goes live, Ethereum’s staking ratio is expected to increase, especially considering the developments made by liquid staking protocols that provide users with liquidity for staked assets via derivative tokens such as stETH. The buzz surrounding Ethereum staking products has seen challenger bank Revolut announce the launch of its crypto staking service in the UK, whilst Russian-based Sberbank continues to move forward with the launch of its Ethereum-based DeFi platform for commercial trade. Whilst primarily architectured to enable staking withdrawals, attempts to improve overall scalability have been postponed to future upgrades. As such, the competitive environment for current Ethereum-based layer-2 scaling solutions continues to intensify, with STARK-based solution provider StarkWare announcing that it is making its entire tech stack open source, including its Starknet Prover scalability engine to further increase transparency amongst developers.

Cardano developers Input Output Global (IOG) released their proof-of-concept Ethereum-compatible sidechain to the public. The testnet demonstrates the blockchain’s extended technical abilities including its utilisation of different smart contract languages and consensus protocols. Accessible via a bridge, the EVM sidechain facilitates the deployment of and interaction with Solidity-based dApps and smart contracts. IOG also released details surrounding an upgrade to Cardano’s pre-production environment. The v8 upgrade will enhance cryptography features encouraging greater interoperability and secure cross-chain DApp development with ADA’s Plutus smart contract language. According to IOG, the new environment will allow the community to continue final-stage integration/ testing before the SECP upgrade on mainnet (scheduled for Feb 14th). Details of the upgrade follow Cardano reaching an 8-month high in TVL, with Cardano-based DeFi applications surpassing a cumulative $100m. The milestone succeeds the recent hailed success of Cardano-based Djed stablecoin which recorded a 14,500% growth in unique addresses over the last 7D. A joint initiative between IOG and the COTI network, Djed achieved a reserve ratio of 800% hours after launch, temporarily halting the minting of its reserve token Shen, until the ratio was naturally lowered.

Uniswap received overwhelming support from its community members to deploy its V3 protocol on the BNB Chain. Proposed by 0xPlasma Labs, the ‘temperature check’ poll saw 80% of UNI holders vote in favour of the move, setting a UNI governance record with 20M supporting votes. Citing the growing popularity of BNB’s DeFi ecosystem, the network’s staking and cross-chain support, the proposal highlights the potential enhancements to Uniswap’s V3 functionality in addition to increasing the DEX’s liquidity by $1bn through the onboarding of 1-2m new users. With a current rollout across a number of EVM compatible protocols (Arbitrum, Optimism, Polygon and Celo), Uniswap stands to benefit from becoming chain agnostic, especially considering that its BSL is set to expire in April. Given that its code will be free for replication and distribution thereafter, deploying the DEX across additional chains will maximise UNI’s trading volume capture, enabling the protocol to become self-sustaining if the fee switch model is approved, thereby permitting the protocol to retain part of the fees being paid out to its LPs.

Enjin backed Efinity received approval from Japan’s Virtual and Crypto Asset Exchange Association (JVCEA) allowing Japanese based crypto asset providers to handle the asset. To date, only 65 tokens have been approved by JVCEA, with the token fueling Efinity’s purpose-built NFT blockchain the latest to be added to the list. Developed by Enjin, the Efinity Polkadot parachain is designed to make the Metaverse more accessible, scalable and decentralised, seamlessly integrating with Enjin’s entire tech stack.

BNB released a white paper for BNB Greenfield, its new decentralised data storage system that will complement its existing decentralised network. Designed to offer complete data ownership to users and dApps through smart contract-integrated Web3 applications, the system will be powered by the network’s native BNB tokens and will support web hosting, publishing, data storage, and personal cloud applications. Several notable companies have announced plans to launch on the testnet, with Amazon Web Services, NodeReal, and Blockdaemon set to integrate its services over the coming months. Binance has continued to push for wider adoption of the BNB Chain hosting several developer incubation events this month, including a Web3 hackathon in conjunction with CyberConnect. A recent report by Messari found that BNB Chain experienced substantial growth in 2022 with daily addresses growing by 30% YoY in Q4, whilst data by BscScan suggests that unique addresses have reached an all time high of over 250m. In other news, Binance has announced that it will airdrop $100 of BNB to all users residing in the regions hit hardest by the recent earthquake in Turkey and Syria.

For Polkadot, Solana, Avalanche and Cosmos, no noteworthy news updates at this time.

Macro & Markets 🏦💱

The Week Behind: 🗓️⬅️

07/02: U.S posts its largest trade deficit on record last year, widening to $948.1bn
09/02: U.S jobless claims rose by 13,000, despite unemployment levels remaining historically low
09/02: Harmonised German CPI rises by less than expected 9.2% YoY
10/02: UK GDP falls in Dec for first time in 3M whilst FTSE reaches intraday record highs

The Week Ahead: 🗓️➡️

14/02: UK Av Earnings + Bonuses (Dec)
14/02: UK Unemployment Rate (Dec)
14/02: EUR GDP (QoQ & YoY) (Q4)
14/02: U.S Core CPI (MoM) (Jan)
14/02: U.S CPI (QoQ & YoY) (Jan)
15/02: UK CPI (YoY) (Jan)
15/02: U.S Retail Sales (MoM) (Jan)
15/02: EUR Trade Balance (Dec)
16/02: U.S PPI (MoM) (Jan)
17/02: UK Retail Sales (MoM) (Jan)
17/02: Germany PPI (MoM) (Jan)

Fear & Greed Index 😨🤑

The multifactorial index looks at investor sentiment across Bitcoin and other large cap crypto markets, covering volatility, volume, momentum, dominance, and social trends. A score closer to 0 represents ‘Extreme Fear’ whilst a score closer to 100 is linked to ‘Extreme Greed’.
This week’s reading of 48 marks a return towards neutral territory. Having started the year in the green, crypto markets close the week in negative territory, falling by 4.32% over the last 24h alone. Recent volatility comes amidst intensifying regulatory scrutiny with the SEC announcing its investigation into the Kraken exchange for alleged securities laws violations, prompting wider concerns over the agency’s intentions for retail crypto staking offerings in the U.S.

CBOE VIX Index 📉🦘

The CBOE VIX Index measures the implied volatility of S&P 500 Index options, traditionally following an inverse relationship. With an overall weakening USD and better performing equity markets, the VIX has shown signs of reduced volatility; a trend that investors are hoping to use as indication of a transition to a risk-off environment. Given that several core U.S datasets are due for publication in the coming week, investors will undoubtedly look towards its effect on the VIX in gauging the coming month’s volatility. At time of writing, the VIX was standing at 21.55 (pre-market).

BTC/DXY Correlation 💵📈

The DXY provides an indication of the value of USD relative to a basket of U.S trade partner currencies. Historic trends point towards an inverse relationship between USD
and BTC with treasury yields being a key factor in influencing demand for riskier asset classes. Last week’s U.S payroll report strengthened the DXY, which until recently, had faced downwards pressures in light of improving inflationary measures. Having plunged 11% lower than its highest point in 2022, the DXY has risen to $103.37 (at time of writing), hovering around the 50-day SMA in the build up to next week’s CPI data.

Market Dominance 📊👑

Bitcoin dominance: 41.4% (-1.0%)
Ethereum dominance: 18.6% (+0.1%)
BTC EU Crypto ETP dominance: 50.1% (-1.2%)
ETH EU Crypto ETP dominance: 27.9% (+0.4%)

Risers & Fallers 📈🚀

⬆️ SingularityNET ($AGIX) climbed 105% this week, rising to $0.42 per token. The blockchain powered AI service platform enables users to purchase a wide range of AI services via the network’s native $AGIX token. Founded by AGI pioneers, the OpenCog affiliated project seeks to advance the fields of finance, robotics, biomedical AI, media, arts and entertainment, utilising various frameworks for artificial intelligence. Interest in AI-related tokens spiked following Microsoft’s $10bn investment in OpenAI’s ChatGPT, with SingularityNET announcing a partnership with Cardano which will see the latter’s Haskell programming language used to enhance the interoperability of SingularityNET’s AI services.

⬇️ Fantom ($FTM) fell 28% over the last 7D, having peaked at $0.65 earlier in the week. The recent price action seems to be a case of ‘buy the rumour, sell the news’ after reports came suggesting that the L1 was working on a new stablecoin. Fantom suffered a major setback last year after its co-founder (founder of Yearn Finance) announced his departure from crypto in March, with the news of his recent return reviving hopes of a major network overhaul.

Crypto Tidbits

A BTC address recently resurfaced after almost a decade of non activity. Having accumulated more than 412 BTC over 4 transactions (at an estimated cost of $8), the wallet sold its holdings for a total $9.6m, thereby netting its wonder a 120,000,000% profit.

Upcoming Conferences

15/02/23 - 17/02/23: European Blockchain Convention, Barcelona
16/02/23 - 17/02/23: Blockchain Fest, Singapore
24/02/23 - 25/02/23: NFT Paris, Paris
24/02/23 - 05/03/23: ETH Denver, Denver

That’s all for this week!

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