And just like that, ‘Crypto Winter 2022’ appears to have been just a couple of weeks of unseasonably cold weather. Of course, everything could still flip tomorrow, but the weather is fine and sunny this week with Bitcoin up 14.5% to trade around AU$62,000 ($US44K) and Ethereum up 13% to trade above AU$4400 (US$3.1K). Everything else was up by double figures, including Cardano (10%), XRP (29%), and Polkadot (11%). Influencer Lark Davis summed up the price action, tweeting yesterday: “Bitcoin has been in a downtrend since November, we have now broken out of that trend. Next stop? MOON.” The Fear and Greed Index has risen to 45 (Fear) – up from 26 last week – and the total market cap of all cryptocurrencies is up nearly half a trillion this week to AU$2.814T (US$2T).
From the IR OTC Desk
Philip Lowe’s (Governor of the Reserve Bank of Australia) address to the National Press Club of Australia last Wednesday revealed a central bank that will remain patient, as they continue to monitor supply disruptions and wage growth for their assessment of sustainable inflation. In the following Q&A session, the Governor mentioned there are ‘scenarios’ where the RBA could increase rates later this year, responding to questions referencing the material upgrades to the bank’s prior inflation forecasts. Westpac and CBA economics teams are expecting that the first rate increase may be as early as August 2022. While the size of the RBA balance sheet hasn’t been addressed in detail, any hint of change should be carefully monitored.
In the US, the employment market continues to run red hot with January’s Non-Farm Payroll report showing 467k new jobs created for the month. Revisions to the employment reports of November and December (2022) saw an additional 709k new jobs added to the official numbers. In a clear sign that the labour market continues to tighten, wage inflation – as measured by the Average Hourly Earnings YoY (Jan) – also moved higher to 5.7%. Critical to CeFi and DeFi markets this week will be Friday’s US CPI release. With the Federal Reserve highlighting their ability to be ‘nimble’ in how they assess and set monetary policy, inflation data will prove to be critical before the next FOMC meeting in March.
On the OTC desk last week, we mentioned that sell flow had abated and enquiries had become more neutral, under suppressing front end volatility. This week, we are seeing strong buying interest, with a high percentage of flow directed into stable coins. USDT has continued to trade to the right-hand side of par; symptomatic of buy side flow. We continue to monitor ETH/BTC, due to its strong signal for alt coin direction. This week, ETH/BTC has generally traded flat over the week, aftera steep ascent from 0.0650 to 0.0725. In the past, moves upwardin ETH/BTC have corresponded to alt inflows. Continue to watch this space.
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Tesla’s billions in Bitcoin
Tesla’s latest report shows the value of its Bitcoin holdings hit US$1.99B (AU$2.79B) by the end of December. It recorded a paper loss of $101M (AU$142M) due to weird accounting rules, but actually made $272M (AU$382M) in profits from selling some Bitcoin last year. The report states Tesla “believes in the long-term potential of digital assets, both as an investment and also as a liquid alternative to cash.” Tesla’s holdings come in second behind Microstrategy’s $5.4B (AU$7.6B) worth.
The use case for Bitcoin got a big boost when GoFundMe froze US$7.8M (AU$10.95M) in donations for the ‘Freedom Convoy’ in Canada. A lot of people passionately disagree with the truckers of course, but if they can cut off funding to them, they can also do it to BLM protesters, environmentalists or any other group whose politics they don’t like. GoFundMe was initially going to keep the money to donate to charities it prefers, until a backlash forced it into issuing refunds. The truckers are now raising funds via Bitcoin and have received 9 BTC so far, or AU$560K worth.
Lost in a wormhole
The shine has come off Solana lately, and this week’s hack of the Wormhole bridge to Solana didn’t help. The hackers exploited the protocol by faking 120,000 wrapped ETH, which were traded for actual ETH making themselves US$321 million (AU$450M), which trading giant Jump (owner of devs behind protocol) had to stump up. Solana has been criticised for prioritising speed over security: Internet Computer founder Dominic Williams took aim at Solana’s “security” hole that allows consensus to proceed with only one third of nodes: “Hard math proofs show you need 66%+ for safety. No ifs no buts.” SOL is up 18.3% this week regardless.
Wells Fargo Investment Institute has released a new report that talks up crypto as an investment opportunity akin to the early days of the internet. While it says consumers still need time to figure it out, globally crypto users jumped to 221 million in the first half of last year. “If this trend continues, cryptocurrencies could soon exit the early adoption phase and enter an inflection point of hyper-adoption, similar to other technologies,” said the report.
Proof of Stake and the climate
The Crypto Carbon Ratings Institute (CCRI) has released a new report that found that of the six Proof of Stake chains studied, Cardano had the highest electricity use per transaction (51.59 Wh/tx) but the lowest electricity use per node. Solana meanwhile had the lowest electricity use per transaction — an order of magnitude lower than anyone else at 0.166 Wh/tx and lower even than Visa on 1.49 Wh/tx) — but the highest total carbon emissions per year.
Electricity consumption per transaction for PoS systems and Visa. Source: CCRI
Off your Facebook
Meta shares plunged 26% in a day after disappointing earnings and a fall in daily users for the first time. Meanwhile, decentralised Metaverse competitors The Sandbox and Decentraland rose 15.2% and 19.2% over the week. Adding to Facebook’s woes, Twiggy Forrest is pressing criminal charges over crypto scams using his likeness on the platform and the ACCC is investigating the same scam ads under consumer law. Meanwhile the cofounder of Facebook’s defunct stablecoin project Diem, David Marcus, has seen the light, tweeting this week: “It’s become clear to me that #Bitcoin will be the one asset and L1 still around in 20+ years with increased compounding relevance over time… it’s unique and cannot ever be replicated. Its creation truly was the Big Bang event of crypto.”
SEC delays Grayscale ETF decision…again
The SEC has once again delayed its decision on whether to approve Grayscale’s application for a Bitcoin ETF, citing familiar concerns about how the digital asset manager proposes to convert its Grayscale Bitcoin Trust (GBTC) into a spot ETF. The regulator also wasn’t convinced that Grayscale’s proposal was designed to prevent alleged fraud and manipulation in the Bitcoin market. The public has been invited to comment on these issues, with the SEC giving interested parties 21 days to respond in writing. While the SEC has yet to approve a spot Bitcoin ETF, the regulator has been much more responsive to a futures-based product. Grayscale is the world’s largest digital asset manager with US$36.5 billion in assets under management as of 4th Feb.
Bits and pieces
The NFT craze has been pushing gas fees on Ethereum to ludicrous levels over the past year. So it’s particularly galling that a new project called Vanity Blocks is going out of its way to gum up the network; filling up entire blocks so no one else can add a transaction, and selling them as NFTs. Cofounder of Barstool Sports Dave Portnoy famously bought Bitcoin at $11K (AU$15.4K) in 2020 and sold it soon after for a loss. He’s now bought back in with 29.5 BTC worth AU$1.8M and says: “I’m in for the long haul.” Bitcoin analyst Willy Woo praised Ethereum on London Real this week, calling it a “hotbed of innovation.” He compared it to the start of the web: “out came Amazon.com and some very substantial startups that did build key infrastructure for the world and I think it’s valid to say that is happening on Ethereum.”
Until next week, happy trading!