Apr 11
Weekly Research Report — Crypto plunges as Fed decides to shrink balance sheet
2022–04–11
Market Recap
Crypto market was down and traded with high volatility last week.
Bitcoin was rejected at $48k, 200dma, in late March. It plunged to a lowest of $41.8k last week, which coincidently is near the 50dma and 100dma. Bitcoin ended the week with -9.15% as the Fed announced their decision to reduce balance sheet more aggressively. Despite the 2-week price correction, the bulls in March have successfully brought the 50dma to up-cross the 100dma this week.
Altcoins underperformed Bitcoin this week, implying a decrease in investors’ risk appetite during a volatile week ($ETH -9.17%; $SOL -15.82%; $AVAX -15.83%; $LUNA -21.35%).
Derivatives Market
Average funding rates turned negative as crypto prices plunged this week. (Chart 1)
According to the average funding rates this week, the estimated annual funding rates for BTC and ETH would be -4.83% and -2.37% respectively.
The change can be explained by the BTC long liquidations, which was over $945m last week. (Chart 2)
These turned the bull market sentiment in previous weeks back to neutral.
Altcoins Roundups
Solana had a double-digit correction this week (-15.82%), after the outperformance since the NFT listings news on OpenSea. It still marked a gain over 30% in last 30days.
Luna plunges over 20%, underperformed the major crypto tokens. The Luna Foundation Guard purchased another $230m worth of BTC for $UST stablecoin reserve this week, the total reserve is worth over $1.6m. Besides BTC, Terra also added $100m worth of $AVAX into the reserve. Despite the support for $UST reserve, the market did not realise the demand of $UST. The increased demand of $UST will drive its price above 1 and cause $LUNA to be burnt, which should drive LUNA price up. LUNA fell behind the crypto market, indicating the demand for $UST may possibly be slowing down.
Crypto Natives
The ‘Bitcoin 2022’ has begun and ended in Miami last week. The CEO of Strike, the largest digital payment platform built on BTC lightning network, Jack Mallers, announced Strike’s upcoming partnership with Shopify, NCR and Blackhawk Network at the conference. They will enable bitcoin payments.
Robinhood, a stock and cryptocurrency trading app, will add Bitcoin lightning network to facilitate on-chain transactions. In addition, it will also launch its own crypto wallet.
Government Front
The ‘Bitcoin 2022’ carried its positive atmosphere on the government front.
Roatan island, Honduras, and Madeira, autonomous region in Portugal, followed the step of El Salvador, adopting Bitcoin as legal tender. Traders are not required to pay personal income taxes in Madeira.
Mexico also proposed to set BTC as legal tender.
The SEC has approved Teucrium’s bitcoin futures ETF.
Proshares, which previously approved by the SEC for bitcoin futures ETF, files with SEC again for Short Bitcoin ETF, allowing investors to bet against BTC.
Institution Front
This week was relatively packed on institutional front.
Tesla, Block and Blockstream integrated to mine Bitcoin off solar power in Texas. Tesla will provide solar technology and resources to power the facility.
Motus Capital Management, formed by previous co-heads of Citi Bank’s digital assets group, is a crypto-focused investment firm. It aims to seek alpha from tokens and deliver yield opportunities for clients.
Intel launched an improvised version of its Bitcoin mining chip with higher mining efficiency.
NEAR protocol raised $350m in a funding round led by Tier Global, causing its market cap to go over $10b.
Binance.US valued at $4.5b after closing a $200m seed round funding led by VanEck, Circle Ventures, RRE Ventures etc.
Macro Front
As Russian-Ukraine woes stepped into the second month and global inflation continued to surge, the Fed decided to take aggressive monetary approach by shrinking its balance sheets by $95b every month. A further increase of the future interest rate hike is expected.
US Treasury Secretary, Janet Yellen, addresses new crypto regulation policies. She mentioned that crypto industry should follow the same rules as the traditional financial system. The SEC chairman, Gary Gensler, also announced several initiatives to expand protections in the crypto space, including regulatory, asset custody, and partnership with regulated trading platforms in tradfi space.
Stocks traded sideways compared to crypto plunges this week (DJIA -0.28%; S&P500 -1.94%; NQ -5.42%). Commodities were traded with high volatility as geopolitical concerns kept up (Gold +0.6%; Oil -3.65%; Wheat +6.34%).
Conclusion
Crypto market plunges due to Fed’s hawkish decision and proposal of new crypto regulation. On the other hand, crypto adoption across countries and institutions continue to grow rapidly.
SR will be cautiously accumulating solid tokens for medium- and long-term holdings.
Be patient and Good Luck!
