Weekly Crypto Market Wrap #9, 2021

Week in Review

• The Senate passes the $1.9 trillion Covid relief bill.
• Paypal acquires Curvmpc, a digital asset custody provider.
• Amazon Web Services (AWS) added Ethereum into its Managed Blockchain service.
• The Chicago Board Options Exchange (CBOE) applied to list shares of VanEck’s bitcoin exchange traded fund (ETF).
• Citibank released a report stating bitcoin is at the tipping point and could be the preferred currency for the international trade.
• Huobi Asset Management received a license to manage and distribute 100% virtual asset funds, and plans to launch a bitcoin fund, ethereum fund, and a multi-strategy fund.
• Bitcoin miner Cipher is to go public through a merger with blank-check firm Good Works Acquisition Corp, where the combined company would worth $2 billion.
• Meitu Inc, listed on the Hong Kong exchange, announced a purchase of 15,000 ETH and 379.12 BTC as part of their cryptocurrency investment plan approved by their board of directors. 
• Microstrategy spent another $10 million on bitcoin after a recent dip and market uncertainty.
• The Grayscale Bitcoin Trust indicates on their website that they are temporarily closing private placements.
• Bitwise’s DeFi Index Fund raised $32.5M in two weeks after launch.

Winners & Losers

• After lows at around 44,000 last week, bitcoin gradually staged back, managing to hit 52,652 on Wednesday. However, the signal of more potential regulations for cryptocurrencies by Biden’s SEC chair nominee dragged cryptocurrencies and risk-seeking assets down. However, the bitcoin price quickly rebounded. It closed the week 48.904 with a 6% return.
• Ethereum followed bitcoin, both affected by Gary Gensler and Jerome Powell’s talk. However, the booming of non-fungible token (NFT) market enabled ethereum to close the week with a higher return of 13.27% at 1,651.16. The latest in NFT news – Twitter CEO Jack Dorsey is offering his first tweet as an NFT, which is currently bidded at $250M now.
• The U.S. Treasury yield rate experienced another 10% surge to 1.57%, putting government bond prices under heavy pressure. The bond market tug of war between central banks and investors caused weakness on the global share market, compounded by Powell’s dovish statement on Thursday. 
• The gold price slid to a 9-month low ($1716/oz) as the treasury yield kept increasing, with the Fed signalling no immediate move to address the surge in bond yields. The VIX dropped to 24.66. We feel the VIX is underpricing potential volatility from stock markets and interest rates, resulting from inflation which may pick up in the coming months. 

Macro, Technicals & Order Flow

Bitcoin

• BTC key topside level sits at its all-time-high of 58,300.  We had forecast a range-bound week, and range it did.
• The intermediary level to close above is 50,600 on the daily chart, exposing the price gap to all time highs. We feel this will break in the next fortnight should newsflow not turn bearish. 
• Open interest in the derivatives markets is building again after the recent down-move, and general market sentiment is growing.
• We have seen a downtrend in the number of Bitcoin addresses holding over 1k BTC. However, addresses with more than 0.1 BTC continue to increase, suggesting that larger existing bitcoin holders are reducing BTC exposure, while retail continues to increase theirs.
• The futures basis is ranging. We expect some compression until all-time highs are broken again. There are increasing ways for non-bitcoin firms to gain exposure outside of futures markets, and we believe the basis opportunity may decrease moderately during range-bound conditions when compared to the historical mean.

Ethereum

• As mentioned above, NFTs have been raging. ETH has been the benefactor of this volume as most of the NFT projects are built on the Ethereum protocol.
• Given the liquidity move, and subsequent base around 1,400, if we see continued inflows via DeFi and NFTs, ETH could test range highs around 2,000 this week.
• Adding to the bullish case – EIP1559, which introduces the burning mechanism for Ethereum gas fees to reduce inflation and potentially make the network deflationary, is confirmed by developers to be slated into July’s upgrade. 
• Furthermore two scaling solutions, Optimism and ImmutableX, are due to launch this month.
• Grayscale added 3,180 ETH to its Ethereum Trust this week, totalling 3.17m ETH, a 0.1% increase from the prior week. The trust currently holds 2.76% of all circulating Ethereum. 
• The total value locked in DeFi projects increased to $38.86 billion, an 8.21% increase from last week.
• The amount of ETH in the ETH 2.0 staking contract currently sits at 3,427,170, an increase of 3.14% from last week. This represents 2.98% of the total supply estimated to remain locked for 1 – 2 years. 
• Futures basis is ranging, but we expect expansion towards the end of this week given positive event-risk on the horizon.

What to Watch

• The surge in the U.S. Treasury yield has brought great pressure to the valuation of technology stocks and growth stocks. This led to concern around Tesla, as it is essentially a technology growth stock. Since the electric vehicle maker announced its crypto buy-in, its share price has fallen by a stomach-churning 30.8%. It seems that there is a relationship between high tech giants and bitcoin treasury allocation (e.g. Tesla, ARK, Microstrategy). What will high tech companies do in the current macro environment?
• China’s Inner Mongolia has banned cryptocurrency mining and declared that all mining projects will be shut down by April. According to the Cambridge Bitcoin Electricity Consumption Index, China (around 65%) was the largest bitcoin mining area globally, while Inner Mongolia alone accounts for around 8% due to its cheap energy. As a comparison, the United States accounts for 7.2% of global bitcoin mining. Will the shutdown bring more opportunities to miners in other regions? 

Zerocap provides digital asset investment and custodial services to forward-thinking investors and institutions globally. Our investment team and Wealth Platform offer frictionless access to digital assets with industry-leading security. To learn more, contact the team at [email protected] 

Index used:

Bitcoin	Ethereum	Gold	Equities	High Yield Corporate Bonds	Commodities
BTC	ETH	PAXG	S&P 500, ASX 200, VTI	HYG	CRBQX

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About Us

Zerocap provides digital asset investment and custodial services to forward-thinking investors and institutions globally. Our investment team and Wealth Platform offer frictionless access to digital assets with industry-leading security. To learn more, contact the team at [email protected]

FAQs

What significant acquisitions and developments occurred in the crypto market during the week?

During the week, Paypal acquired Curvmpc, a digital asset custody provider, and Amazon Web Services added Ethereum into its Managed Blockchain service. The Chicago Board Options Exchange also applied to list shares of VanEck’s bitcoin ETF, and Citibank released a report highlighting bitcoin’s potential as a preferred currency for international trade.

How did Bitcoin and Ethereum perform during the week, and what factors influenced their prices?

Bitcoin managed to hit 52,652 on Wednesday but closed the week at 48,904 with a 6% return. Ethereum closed the week with a 13.27% return at 1,651.16. Factors like potential regulations, Gary Gensler and Jerome Powell’s talk, and the booming NFT market influenced their prices.

What are some notable developments in the Ethereum network?

Ethereum benefited from the booming NFT market, and two scaling solutions, Optimism and ImmutableX, are due to launch. EIP1559, introducing a burning mechanism for Ethereum gas fees, is confirmed for July’s upgrade. Grayscale added 3,180 ETH to its Ethereum Trust, and the total value locked in DeFi projects increased to $38.86 billion.

What impact did the U.S. Treasury yield have on the market, and how did it affect other assets?

The U.S. Treasury yield rate experienced a 10% surge to 1.57%, putting pressure on government bond prices and causing weakness in the global share market. The gold price slid to a 9-month low, and the VIX dropped to 24.66, potentially underpricing volatility from stock markets and interest rates.

What are some key events and considerations to watch in the crypto market?

Some key events to watch include the surge in the U.S. Treasury yield and its impact on tech stocks like Tesla, China’s Inner Mongolia banning cryptocurrency mining, and the potential opportunities for miners in other regions. The relationship between high tech giants and bitcoin treasury allocation and the actions of high tech companies in the current macro environment are also important considerations.

Disclaimer

This document has been prepared by Zerocap Pty Ltd, its directors, employees and agents for information purposes only and by no means constitutes a solicitation to investment or disinvestment. The views expressed in this update reflect the analysts’ personal views about cryptocurrencies. These views may change without notice and are subject to market conditions. All data used in the update are between 26 Feb. 2021 0:00 UTC to 6 Mar. 2021 23:59 UTC from TradingView. Contents presented may be subject to errors. The updates are for personal use only and should not be republished or redistributed. Zerocap Pty Ltd reserves the right of final interpretation for the content herein above.