Wartime Sell-Offs
2022–02–28
Market Recap
It was another week of volatile, yet rangey market as macro environment continued to be uncertain; BTC (-1.6%) and ETH (-0.5%) ended the week relatively flat, but this masked the volatility behind. Market sold the rumour and bought the fact, as risk assets sold off on Wednesday in anticipation of Russian invasion (BTC $39k -> $35k), before making a V-shaped recovery. Bitcoin is flirting with 50dma, but failed to claim above the 50dma level. Ethereum saw similar price action.
With the choppy price action, funding rates remained choppy around zero territories (Chart 1), making spread trading to be extremely difficult. On the liquidation fronts, long and short liquidations were quite balanced as well. Both hint that market sentiments are generally neutral/bearish. Alts generally underperformed, resulting in bitcoin dominance to climb 20bp to 41.9%. Outperformers were LUNA (+43%), DOT (+2.7%), ATOM (+4.4%), OSMO (+7.8%), JUNO (+24%), AR (+13%), ANC (+59%).
(Source: Coinglass)
On the fundraising side, private raises showed no respite despite relatively shaky secondary markets; Amber Group, a liquidity and market making firm, secured $200mio funding round at $3bn valuation, led by Temasek, the Singapore’s sovereign wealth fund. On the more crypto-native fronts, Helium ($HNT) raised $200mio at $1.2bn valuation to continue building decentralised telecommunications and scale into 5G coverage, while Luna Foundation Guard closed $1bn private token sale to establish $1bn BTC reserve backing its stablecoin UST. Other news worth noting came from the equities markets, as listed crypto-affiliated companies reported their earnings. Coinbase beat analyst etimates, as their Q4 income more than quadrupled on YoY basis, bringing net income to $3.62bn for the year of 2021 (and revenuf of $7.36bn). Number of users also beat estimates (89mio vs. Est. 78mio). For Block (previously Square), its bitcoin purchasign service continued to print, as nearly half of the company’s revenues came from selling bitcoin through its Cash App.
On the macro side, geopolitical tension between Russia and Ukraine continued to be the major concern. Although a Russian invasion into Ukraine had been widely anticipated, market seemed rather surprised by Putin’s decision to launch a broad-scale invasion into Ukraine, including its capital Kyiv. The knee-jerk reaction was for the market to speedily sell-off across risk assets. However, risk rallied sharply at the end of the week after Russian government spokespersons stated that Russia was ready for negotiations with Ukraine and that it was prepared to send a delegation to Belarus for talks. Crypto also played a part in the Russia-Ukraine conflict, as the Ukrainian government raised over $10mio in crypto donations including $2mio gains from NFT sales, and the ‘UkraineDAO’ has raised another $3mio in ETH for Ukrainian Army. Oil price jumped to $100 and Russian fiat, Ruble, slumped 50% after the confirmation of invasion. At the same time, the demand of crypto stablecoins in Ukraine and Russia has increased dramatically, bringing the market dominance of the largest stablecoins, USDT, up to 5% last week. Aside from economic sanctions which could further drive up inflation, especially around energy prices, US/UK/EU have also agreed on removing Russian banks from SWIFT banking system.
Conclusion
There is a saying that in times of crisis, correlation goes to 1. In light of high crypto/macro correlation, and heightened volatility, it is quite a challenging market to trade/formulate medium-term view. As such, we continue to keep light in our bags, and concentrate our efforts on building our ammunition that we can take out once the rough seas become calmer. Good luck!
