First Blood in 2022
10 January 2022
There was blood on the street as market broke below its consolidation range ($45.5k-$48k for Bitcoin; $3.6k-$3.9k for Ethereum), sparing little on the way (BTC -15%; ETH -21%; BNB -20%). Previous outperformers (L1s, L2s) which rode on the wave of ‘L1 szn’ generally underperformed the market (SOL -24%; LUNA -28%; AVAX -27%; ATOM -15%; MATIC -23%), with even the latest-and-greatest FOAN complex having erased most of their gains (FTM -4%, ONE -2%, ATOM +1%, NEAR -6%). DeFi and Metaverse sectors were not spared from the wrath of the market as well (AAVE -28%; UNI -22%; SUSHI -32%; GRT -22%; AXS -26%; SAND -23%; ENJ -24%). On the BTC side, Bitcoin rejected 200dma ($48,200) and is now struggling to hold September lows ($40k). In line with our gameplan last week, we turned extra-bearish following a break below 200dma; on the RSI side, bitcoin and ether are entering oversold zone; ether’s RSI (26) is especially concerning as it’s around Mar’20 sell off levels. On the funding side, bitcoin funding rate has surprisingly held up well (Chart 1) despite heavy price action (vs. in May and September when we saw funding rate turn negative), hinting bottom is not in yet.
This is in stark comparison to ether and other alts, which funding has turned firmly negative. Bitcoin was also impacted by the happenings in Kazakhstan — Kazakhstan, the 2nd-largest country by bitcoin hashpower, shut down its internet due to the public protests on Wednesday, resulting in ~12% drop in Bitcoin hash rate, and concomitant fall in bitcoin prices. Overall, panic selling across the crypto complex resulted in liquidation of leveraged hands (Chart 2), including $800mio liquidation on Thursday, but Open Interest still remains relatively elevated ($16.7bn, or 40.5k BTC)
On the institutional side, Paypal, who accepted users to make crypto transactions in 2020, has now announced to launch its own stablecoin. The largest NFT marketplace, OpenSea, was valued at $13.3b in the new round of venture funding, led by Paradigm and Coatue Management. Samsung explored in the Metaverse and opened a virtual store in Decentraland.
Despite the recent crypto price actions, Goldman Sachs reported that Bitcoin could threaten Gold as of the best store-of-value product in the future. The market cap for Gold is now ~$11.3T while Bitcoin is now ~$800B, which is a 14x difference.
On the macro side, Fed’s meeting minutes were more hawkish than market expected, with some FOMC members revealing the plan the raise interest rates (1st hike as early as March) and contract balance sheet earlier than expected. Equities (DJIA -1.5%; NQ -5%; S&P500 -3%), especially the technology-heavy NQ which suffered biggest weekly decline in nearly a year, ended the week in a sour note as long-term bond yields increased. 10-year yields and NQ have displayed high correlation with crypto markets since 2020 (Chart 3), and crypto sold off as we have seen. On the COVID-19 front, US set new ATH in case-counts, but relatively stable hospitalizations and death rates gave assurance to the markets. In the week coming, we keep an eye on the US Fed Chair Powell Testimony (11 Jan) about the general economic outlook and monetary policy.
What is Happening?
Following the November collaboration of Whatsapp and Novi-Wallet, the well-known travelling services company, Airbnb, might launch the function of crypto payment in 2022, said by the CEO, Brian Chesky. The multinational entertainment and media company, Disney, has been approved for a technological patent about theme park Metaverse. Avators in the space can create and project personalized 3D effects onto objects or infrastructure built in the park.
Baron Rothschild is credited with the saying ‘the time to buy is when there’s blood in the streets’, as he made a fortune buying in panic that followed the Battle of Waterloo against Napoleon. Apparently, that’s not the whole story, as the original quote is believed to be ‘Buy when there’s blood in the streets, even if the blood is your own’. It’s not comforting to see our net worth plummet down and see market atmosphere full of FUD (unless you are a full-blown bear). However, on-chain statistics provide us evidence to believe that the bullish cycle has not yet finished and $69k is not the cycle top. We would take a conservative approach and accumulate more once the solid breakout is confirmed. Be patient and act accordingly.