Market Update: 27/01/23


The purpose of this weekly analysis is to provide a market update regarding the underlying assets of Valour's investment products.

Bitcoin was up 8.75% over the last 7D, hovering around its key $23,000 resistance. The latest price action has seen BTC increase by over x% in the last 30D to reach August 2022 levels, bringing the market cap for crypto assets to a cumulative $1.08 tn. Bitcoin’s recent upswing follows successive weakening inflationary pressures, with current economic data subduing fears of a potential economic tailspin. Despite disappointing Q4 earnings, crypto markets have held firm, partly thanks to positive fourth quarter GDP figures (2.9%), as well as jobless claims falling to their lowest point since April 2022. Seemingly, investor sentiment remains high with the total amount of BTC being held in cold storage (illiquid supply) reaching a milestone 80%. Perhaps catalysed by the collapse of FTX, the total amount of BTC held on exchanges has continued to decline with more than 110,000 BTC moving to cold storage this year alone. Meanwhile, on-chain metrics suggest that Bitcoin has finally traded above its realised price (the value of all coins in circulation at the price they last moved) whilst its MVRV Z-score (assessment of its over/under-value relative to ‘fair value’) has moved out of the undervalue territory. With both indicators leaving investors hopeful of a near end to a prolonged bear market, Bitcoin’s hashrate has returned to a high of 321 EH/s, with further difficulty increases expected in spite of miner reserves hitting a 1Y low, following mounting energy costs amidst turbulent macroeconomic conditions.

Ethereum closely traced BTC charts, hovering around its key $1,600 support level. Although ETH/USD was subject to a brief market pullback at the week’s end, derivatives data reflects a positive outlook with the premium for 3-month futures back within the 4% neutral threshold. With approximately 16M ETH currently locked up in the network’s staking contract, holders are looking ahead to March’s expected Shanghai upgrade in which staking withdrawals will be activated. This week’s successful shadow fork saw developers attempt to process staked withdrawals as well as introduce overall gas cost improvements.The long anticipated upgrade has seen the explosive growth of liquid staking derivative products, with the likes of Lido, RocketPool and Stakewise all experiencing significant growth as a result of their yield generating opportunities. As news came of the network’s successful initial test, decentralised lending and borrowing protocol Aave confirmed its V3 deployment on Ethereum, focusing on user risk mitigation as well as capital efficiency improvements. Ethereum DeFi TVL currently dominates the market landscape, with over $28.3bn locked across some 480 protocols.

Cardano boasted several significant growth metrics since the turn of  the year, ranking third in terms of 30D developer activity. Having added over 50,000 new wallets since the start of January, the network’s recently outlined CIP-30 looks to further increase its adoption. Aimed to facilitate future dApp development, the improvement proposal seeks to address the interaction between Web2 pages and Cardano users’ wallets via a web-based communication bridge. Whilst still only in the ideation phase, Cardano’s overcollateralised stablecoin has been slated to launch next week. Developed by Cardano backers IOG and enterprise L1 platform Coti, the Djed stablecoin will be available to mint by ADA holders with its deployment available across 40 Cardano-based dApps at launch. Backed by other tokens, Djed will require 400% overcollateralisation for issuance, with the mechanism aiming to ensure the stablecoin’s sustained long-term value hold. Together with its payment application DjedPay, users are optimistic about the new initiative’s prospect of increasing Cardano’s DeFi TVL, which at $75m, seems significantly disproportionate to other blockchain platforms given Cardano’s market cap of $13bn.


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.

Avalanche’s total amount of bridged BTC (BTC.b) surpassed that of Bitcoin’s (L2) Lightning Network. With over 5,530 BTC circulating on the AVAX network, the TVL of BTC.b surpassed LN’s present day $120m. Although still short of Ethereum-based WBTC (current circulating supply of 176,498), the shift towards tokenised BTC on alternative networks and sidechains has been prompted by a want for faster transaction finality and increased feasibility. Whereas Bitcoin’s LN stands as an off-chain payment settlement layer, bridged BTC presents additional opportunities for Bitcoin holders to deploy their coins across a wider variety of dApps than those currently afforded to it by the Lapp (Lightning App) ecosystem.

Cosmos was on the receiving end of a recently launched $150m ecosystem development fund, led by Cosmos-based L1 blockchain, Injective Protocol. Targeting early-stage projects, the fund aims to provide each project with bespoke token and equity investments, whilst providing operational support through its consortium of backers, the likes of which include; Pantera Capital, Kraken Ventures, Jump Crypto, Delphi Labs, Flow Traders, and many more. Although primarily focussed on DeFi protocols and interoperability infrastructures, scalability solutions and PoS infrastructure developers will also be supported. Aimed at bolstering Cosmos adoption, the fund announcement follows the launch of Cosmos Proposal 94 (Game of NFTs) which seeks to fund an incentivised testnet of interchain NFTs. A joint effort by several Cosmos development teams, the community fund request will test the interchain NFT feature and build a series of applications on it to further aid interoperability and expand the features of the Cosmos IBC (Inter-Blockchain Communication Protocol).

BNB was up 5% over the last week despite a large drop in the market cap of ecosystem stablecoin BUSD. With Binance deciding to convert all USDC holders to BUSD in Q3 of 2022, recent reports saw its circulating supply decrease to $15.4bn, with more than $2bn in BUSD withdrawn from circulation since December alone. Whilst critics have cited (mis)management concerns as well as a lack of BUSD’s use cases outside of the exchange's native platform, flows into stablecoins typically decrease as the markets for crypto assets rise. Although beneficial to reduce downside exposure during periods of uncertainty, stablecoins equally restrict access to the upside potential of a market rebound. With Binance reportedly amongst the bidders for now defunct lender Celsius’ assets, investors appear to be redirecting funds from stablecoins to other crypto assets to maximise potential value capture.

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

Macro & Markets 🏦💱

The Week Behind: 🗓️⬅️

27/01: BoJ under pressure following near 42-year high inflation levels in Japan’s capital

26/01: U.S fourth quarter GDP surpassed expectations, increasing by 2.9% (annualised)

24/01: Euro Zone posts modest growth with flash PMI rising from 49.3 to 50.2
23/01: UK consumer confidence falls for first time in four months to near 50-year low

The Week Ahead: 🗓️➡️

30/01: Germany GDP (QoQ) (Q4)
30/01: Germany CPI (YoY) (Jan)

01/02:: EUR CPI (YoY) (Jan)`

01/02: U.S Fed Interest Rate Decision
02/02: UK BoE Interest Rate Decision
02/02: EUR ECB Interest Rate Decision
03/02: U.S Unemployment Rate (Jan)
03/02: UK Services PMI (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’.

Currently reading at 55, the index marks the transition from neutral territory to greed. Given that volatility levels have subdued further over the last week, investors are optimistic about a potential bull market as reflected by recent accumulation. All eyes will be directed towards the Fed’s interest rate decision this Wednesday, the result of which could send BTC in either direction. Considering recent economic data, the Fed will have to balance a range of mixed inflation signals when determining the extent of February’s rate decision.

CBOE VIX Index 📉🦘

The CBOE VIX Index measures the implied volatility of S&P 500 Index options, traditionally following an inverse relationship. Down from last week, the VIX was standing at 18.86 (pre-market) ahead of December’s inflation data. Despite mixed Q4 earning reports, both  the S&P 500 and Nasdaq 100 closed in the green on Thursday following positive U.S GDP growth, with the fear gauge reflecting an overly positive landscape, not least in relation to the index’s 52 week extremes (37.79 and 18.01).

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 a current 1Y correlation of -0.81. After the USD rallied throughout much of 2022 on the back of the Fed’s aggressive monetary policy, the DXY is down from its 52-weak peak (114.78) to a near 8-month low of 101.98. Whereas Bitcoin fell by as much as 75%, the recent bounce places BTC slightly above the level where the DXY peaked (+20%). Seemingly, BTC still has room for further upside traction amidst further signs of a weakening U.S economy, especially if its recent correlation with gold can be relied upon as an indicator of future performance against the declining DXY.

Market Dominance 📊👑

Bitcoin dominance: 42.4% (+1.0%)
Ethereum dominance: 18.5 (-0.9%)

BTC EU Crypto ETP dominance: 51.3% (+2.4%)
ETH EU Crypto ETP dominance: 27.5% (-1.5%)

Risers & Fallers 📈🚀

⬆️ Aptos ($APT) rallied more than 120% over the last 7D, taking the crown as this week’s biggest riser. Currently trading at $17.8, the layer-1 Ethereum rival reached a record high $19.8 having increased by over 420% since the start of the year. Developed by former Meta employees, Aptos is a PoS blockchain that utilises the Move programming language to facilitate its parallel execution and modular architecture. $APT has benefited from several developments including the protocol’s recently confirmed multichain farm emission proposal, a surge in its native NFT trading volume, and Binance’s deployment of two new $APT based liquidity pools.

⬇️ Casper ($CSPR) has fallen by 4.6% over the last week, currently trading at $0.034. The PoS (L1) network focusing on accelerating enterprise adoption of DLT received a lot of attention following its attendance at the WEF in Davos last week. Notwithstanding Casper Labs’ central role in the multi-stakeholder Blockchain Hub at Davos, its partnership with digital IP firm IPwe to convert 25m patents to NFTs brought a lot of attention to the business-focussed protocol.

 

Upcoming Conferences

01/02/23 - 05/02/23: SOL Hacker House Istanbul, Turkey

01/02/23 - 09/02/23: ETHTLV, Tel Aviv

05/02/23 - 06/02/23: StarkWare Session, Tel Aviv

That’s all for this week!

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