Q9 Markets: The Payoff
4th March 2022
Q9 Capital: www.q9capital.com
- Crypto markets bounce >$2tn on mixed macro news
- Whales driving accumulation upsurge
- Russia, Ukraine highlights “pros and cons” of crypto
Crypto markets bounced this week despite some weakness in the last two days, reclaiming a $2tn total market cap along the way, amongst a slurry of mixed macro events and headlines. As sanctions increase, demand for crypto has amplified among Russians and Ukrainians as a safe-haven asset during geopolitical turmoil; Whales bought Bitcoin in large volumes; and European lawmakers scrapped a section of a pending bill that would have deemed crypto mining illegal.
Bitcoin’s future prospects look bright with inflation expectations surging across Europe and the US, and markets pricing out prospects of a 50bps rate hike later this month. According to Bloomberg, money market traders need more convincing before pricing in the largest Federal Rate rate-hike since the turn of the century later this year, despite the latest signaling from Chair Jerome Powell.
Traders Scale Back Bets for a 50bps Fed Hike as Soon as May
Bank of America released a note, saying it sees no crypto winter ahead, given surging new user adoption and development activity. Still, the note claims volatility will persist for the next six months due to macro headwinds.
Living on the Hedge
Terra Firma
The price surge in Terra’s LUNA coin over the past week (+40%) means that it has passed Ether to become the second-largest staked asset. Over $30bn worth of LUNA is now staked directly on various platforms, representing a majority of the token’s $34bn market cap. Ether, meanwhile has just over $28bn in staked value. Solana remain the most staked asset with over $40bn worth of SOL staked on various platforms.
Ethereum still remains a much larger asset with a market cap of $328bn vs that of $34bn for LUNA — this just reflects that the vast majority of LUNA is staked, whilst it is not for ETH. Ethereum also retains its crown in terms of total value locked (TVL) on applications built on its blockchain. Over $118bn is locked on Ethereum-based apps, compared with $23bn on Terra-based apps and $7bn on Solana-based apps
Staking in crypto refers to a process where token holders deposit (or lock away) a number of tokens to become active participants in running the network in return for rewards. The rewards are referred to as “yields” and are usually higher than those offered by traditional institutions on deposits.
Whale Hello There
Demand from Russia and Ukraine alone is not be enough to push Bitcoin to its current level. Bitcoin Whale transactions and activity has just peaked at its highest level in a month. The number of transactions above $100k and $1mn both reached the highest level since Jan 24th, demonstrating the high likelihood of an accumulation upsurge.
Historically, whales’ purchases largely influence the prices and capitalization of the crypto market. The past case of immense purchases at the end of January resulted in a 15% growth in the BTC price.
Cosmonauts and Currency
To the Moon… Oh wait… The Russian Ruble crumbled vs the dollar (see above chart) even though the Bank of Russia raised its key interest rate from 9.5% to 20%. It is now worth less than a cent. Russian stocks plummeted, the MSCI and FTSE Russell are cutting Russian equities from widely-tracked indexes, and yields on gov bonds due in 2035 topped 18%, the highest since they were issued nearly three years ago.
A report from Arcane Research showed Ukrainians were snapping up stablecoin Tether and Bitcoin with the hryvnia.
Volumes in the Russian Ruble Soaring
…and Ukrainians Are Buying Crypto as Never Before
Quid Pro Quo
Many dinner table conversations this week have centred on crypto, its use, and “pros and cons” in the Russian conflict (we penned a deep dive into this last week).
Ukraine has raised over $54mn in Bitcoin as donations pour in to support the war against Russia, and is now launching its own NFT collection to fund the armed forces (could these eventually become priceless pieces of historical art?). The embedded crowdfunded appeal of crypto sometimes gets lost in the Bitcoin narrative, but we’re really seeing it in action now.
On the flip-side, crypto exchanges have faced growing pressure to put blanket bans on transactions involving Russian addresses (Binance, Coinbase and Kraken have all said no). This argument somehow seems to be reserved exclusively for crypto on Twitter. Meanwhile, traditional banks, brokers and other financial services firms are not kicking out ordinary Russian citizens. What they are doing is freezing accounts of individuals on the OFAC list — it’s important to distinguish between sanctioned Russians and ordinary Russian citizens — and crypto exchanges are also following these rules. Outside of finance, individual athletes such as NHL hero Alex Ovechkin are not being kicked out of playing in western leagues (although it is happening for certain teams representing the country). Besides, the amount of sanctioned Russian assets sloshing about in bank accounts, securities and London property using offshore havens and complex, opaque corporate structures far exceeds that invested crypto.
Crypto is apolitical and having an open, decentralised, stateless, trustless, borderless, transportable and anonymous store of value that can’t be confiscated has its trade-offs. It cannot be all of these things just some of the time. If the choice was between this and a highly centralised, weaponised currency with diminishing value and a rapidly increasing supply controlled by a single state, many would be quid’s in for the former. This war may strengthen the universal crypto narrative, and allow more people see value in these capabilities.
In the News…
- CME to roll out micro Bitcoin, Ether options
- The newest Bitcoin mining ETF on the market
- Bitcoin miners brought in over $1 billion in revenue during February
- Money transfer fintech Wise pulls the plug on its services in Russia
- BlockFi survey says 33% of women plan to buy crypto this year
- FC Barcelona and AS Roma fan tokens rally after Socios partners with UEFA
- El Salvador’s Bitcoin gamble draws crypto-tourists
- Japanese bank MUFG to enter NFTs with Animoca Brands partnership
- Three hundred crypto firms investigated last year, says FCA
- ConsenSys AG shareholders file for independent audit of MetaMask, Infura transaction
- In largest-ever NFT-backed loan, 101 CryptoPunks put up as collateral
Legacy Markets
Oil futures jumped +15.9% (vs previous week) and the SPX rose +1.7%. 10-year US treasury yields slipped 11 bps, the US Dollar index rose +0.7% and the Gold & Silver index rallied +6.9%.
Crypto Markets
- BTC/USD rallied +10.7% and ETH/USD rose +9.1%. The total market cap of crypto universe passed 2tln and Bitcoin’s dominance hovered around 43% during this week
- SOL rose +7.1% from last week levels. In the DeFi space LINK and YFI rallied +12.3% and 11.9%
- Annualised realised volatility in crypto markets continue to hover around previous week’s levels: 67% for BTC and 80% for ETH
Flows
- Pick up in client trading activity with a two-way flow slightly skewed towards buying (1.5x buyers vs sellers)
- Net buyers in BTC and ETH with even sided flow on LINK
- Mild buying activity in SOL, AVAX and YFI
Q9 Capital: www.q9capital.com
