Fraud Nation

2022–02–03

Market Recap

It’s never a boring week in crypto regardless of what the price action tells us. From crypto-native drama to government FUD to exploits to the FOMC decisions, let’s unpack them one by one.

On the crypto-native side, the biggest talk of the town was a prominent anonymous figure (0xSifu, CFO of Wonderland, a DeFi- algostable project) being doxxed (Michael Patryn, co-founder of QuadrigaCX, and an exconvict who was sentenced to 18 months for running an identity theft ring). He’s previously been noted for keeping the treasury in his personal wallets — in other words, funds were not sifu (‘safu’, a crypto-lingo for ‘safe’). Worst part was that Daniele Sesta, Founder of Wonderland (and the broader Frog Nation, or is it Fraud Nation?), knew about his identity, hinting more sinister things in the background. Affected tokens: $TIME, $SPELL, $ICE, $SUSHI. Aside from this big scoop, X-Bridge, the ETH-BSC cross-chain bridge of DeFi protocol Qubit Finance, suffered $80mio exploit. Both happenings will definitely be used as evidence by governments and regulators as a case against DeFi.

On the regulatory/government front, White House is supposedly preparing for crypto regulation executive order as a matter of ‘national security’ in the next few weeks; the executive order is expected to task parts of the governments with regulatory framework covering crypto, stablecoins, NFTs, etc. On the other side of the world, Russia backtracked on Bank of Russia’s full ban on crypto, and instead revealed roadmap by government working group to regulate crypto by end of the year.

On the institutional front, SEC rejected another bitcoin spot ETF (Fidelity’s Wise Origin Bitcoin Trust) — no surprise there, given their history of rejecting proposals from VanEck, WisdomTree and Kryptoin. Cathie Wood’s Ark Invest published a new report, forecasting the price of BTC and ETH at $1m and $170k by 2030, and Apple’s Tim Cook revealed that they were ‘investing accordingly’ in metaverse. Primary market also continued hot, with FTX.US, raising $400mio Series A at $8bln valuation, with participation from SoftBank, Temasek, etc.

In terms of price action, it was rather boring — bitcoin chopped around like a headless chicken in the FOMC week, rallying into FOMC and fading the move afterwards. Neutral funding market (Chart 1) is a testimony to the uncertain market sentiments. Alts generally underperformed this week, especially the FOAN and Luna ($LUNA -38%, ATOM -25%, FTM -15%, ONE -15%, NEAR-14%), but metaverse/NFT sector outperformed (SAND +23%, MANA +21%, FLOW +27%, ENJ +9%), buoyed by Apple headlines.

Chart 1: 7dma of BTC, ETH Perpetual Futures Funding Rate

It was equally eventful on the macro side — the much-anticipated FOMC meeting and press conference resulted in the Fed preparing markets for a March move (1st hike since 2018) as well as tapering balance sheet. On the interest rates front, Powell left open the possibility that policymakers would raise rates in 2022 more than 3 25bp hikes that they signalled after their December meeting (ED pricing 125bp rate hike in ‘22). On the balance sheet front, Powell acknowledged bigger-than-necessary balance sheet, but that details of balance sheet reduction are likely to be only announced following March FOMC meeting. On the data-front, Friday’s GDP data (Q4 GDP 6.9% vs. Est. 5.5%) showed that economy grew at fastest pace in nearly 4 decades; earnings season also showed Q4 profits of S&P 500 companies to increase by >24%. US equities ended the week slightly higher, yields also higher in response to hawkish Fed signals. RussiaUkraine tension is also on the back of markets’ mind.

(Jan 31, 2022, Top 5 Crypto KPI)

What’s Happening

Fidelity plans metaverse/crypto ETF. Fidelity Investments filed with the SEC to create a pair of ETFs that will track companies engaged in the metaverse (“Fidelity Metaverse ETF”) and cryptocurrencies industries (Fidelity Crypto Industry and Digital Payments ETF).

Conclusion

The past couple of months in crypto have conditioned the market to fade all rallies, and sell all rips. Until the “meta” of the market changes, we will remain defensive — light in our bags, and heavy in our banks. Metaverse/NFT continue to offer respite to the market with tech names entering the virtual world, but we prefer to express the bullish view via infrastructure names as opposed to single names. Good Luck!

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