Jan 31
January Overview
Your Monthly Brief into the World of Digital Assets
- January in Review
- Macro View: FED’s Inflation Strategy
- Regulators
- Bitcoin mining shutdown in Kazakhstan
- More News on Regulators - Corporations
- PayPal confirms its plans to launch a stablecoin
- Animoca Brands is now valued at $5.5 billion
- Google is extending its exposure to crypto
- Further readings - Financial Institutions
- Coinbase launches crypto derivatives in the US
- Further Readings
JANUARY IN REVIEW
For the third month in a row, Bitcoin is closing in a red territory. This month, largest cryptocurrency is down 20%, with its price ranging from a top of $47.9K on January 2nd to a low of $32.9K on January 24th. Overall, Bitcoin is more than 45% down from its November’s all-time-high of $69K.
This month we had witnessed a death cross formation on the BTC price chart, which combined with macro headwinds prepared grounds for January’s major sell-off. Last time we had witnessed the death cross pattern in June 2021. Back then, the sell-off and following consolidation lasted 32 days before the market flipped its direction. Today, we are 18 days into the death-cross, with no signs of a trend reversal so far.
ETH was trading in line with BTC in January, down 30% for the month and nearly 50% down from its November’s ATH. In January, Ethereum ranged from a top of $3.9K on Jan 2, to a low of $2.2K on Jan 24.
After an extensive period of Open Interest accumulation (Dec 11-Jan 9), leverage traders are now gradually closing their positions (see graph to the left). Basis and funding rate are flattest they have been in the last year, providing little room for arbitrage in the crypto space.
Over $500M long Bitcoin positions were liquidated between Jan 21 and 22 following the sell-off in traditional markets, dragging the BTC down nearly 15% over two days (track all liquidations here).
MACRO VIEW: FED’S INFLATION STRATEGY
After increasing its balance sheet to 9 trillion dollars to stimulate the post-pandemic economic recovery, the FED is finally set to reduce the purchasing and accumulation of financial assets. Minutes of the FED FOMC meeting published on the 5th of January showed a consensus among the members to shrink its balance sheet and increase interest rates to slow down inflation. Historically, bitcoin has been privileged by investors as a hedge against rising prices, especially since the FED started printing trillions of dollars to save the economy. FED’s efforts to fight inflation put selling pressure on bitcoin, which briefly dropped down to a low of $32.9K on January 24.
What caused an accelerated sell-off in both equity markets and crypto is the pricing of more than 25bps for the Fed’s March meeting. This implies the FED may front load the hiking cycle and accelerate the balance sheet taper: negative news for risk sentiment in the market and represents a material impact on the money supply.
January 26 (ET) everyone was watching the FED again for Powell’s message on interest rate hikes. Post FOMC, Deutsche sees 5 rate hikes this year: three hikes in March, May and June meetings + two more in the second half of 2022. Their expectation for three hikes in 2023 remained unchanged, leaving the terminal rate just above 2%.
Overall, it seems the market is very set on a full hiking cycle which should bring real rates higher. Under the assumption that inflation falls to 1.75% in the medium term (FED’s target band is inflation below 2%), this would imply a 25bps positive policy real yield if 2% is the terminal rate.
Traditional finance also took a hit from this news with the S&P 500 (increasingly dependent on the FED’s QE policy) down 7% in January and nearly 10% down from its ATH. This is yet another reason behind bitcoin’s daunting January performance, given the ever-growing correlations between bitcoin and equity markets.
REGULATORS
Bitcoin mining shutdown in Kazakhstan due to protests
A spike in fuel prices initiated major protests in Kazakhstan. The government had to shut down internet connection which completely stopped mining operations. Kazakhstan is the second world’s largest mining country controlling 20% of the bitcoin mining network hash rate. Following this event, bitcoin hash rate fell by 13.4% which means all foreign miners had more chance to win blocks and collect the rewards. Nevertheless, it raised concerns over the network hash rate centralization and reminded the mining community of the importance of political stability in hosting countries.
More on Regulators:
· Countries banning crypto have doubled in the last three years according to report (Read More)
· Witnesses Debate Crypto Mining’s Efficiency in Congressional Hearing on Environment (Read More)
· U.K. Government to strengthen rules on misleading cryptocurrency adverts (Read More)
· EU Markets Regulator Calls for Ban on Proof-of-Work Crypto Mining (Read More)
· Russia proposes ban on use and mining of cryptocurrencies (Read More)
· Indonesian Islamic organization issues new fatwa against crypto use (Read More)
· Crypto Exchanges Will Face More Scrutiny From SEC, Gensler Says (Read More)
· IMF research affirms positive regulatory adoption will greatly improve the ecosystem (Read More)
· Tether (USDT) freezes $150 million from three addresses to allegedly comply with US law enforcement requirements (Read More)
· Pakistan plans crypto ban; industry players call it big mistake (Read More)
· Jack Dorsey announces Bitcoin Legal Defense Fund (Read More)
· Fed’s Lael Brainard invites Congress to choose whether to compete with China’s digital yuan (Read More)
· CBDC wallet tops mobile app store charts in China (Read More)
· Brazilian mayor to reportedly invest 1% of city reserves in Bitcoin (Read More)
CORPORATIONS
PayPal confirms it is planning to launch a stablecoin
PayPal’s integration with the crypto and blockchain ecosystem is developing slowly but surely.
First, in September PayPal announced the release of an app dedicated to digital payments services. Then, in November during an interview PayPal SVP and GM of blockchain, crypto and digital currencies mentioned PayPal’s interest in stablecoins. He expressed the need in the crypto space for a stablecoin able to handle a high number of transactions of small amounts. He raised many issues regarding such a stablecoin, including concerns over government surveillance if it was to be backed by a central bank, or the need for an internet connection to transact compared to physical cash. He summarized that we are still very early in the development and policy debate process. Yet, beginning of January, he confirmed PayPal is assessing a potential launch of a stablecoin. He insisted on the fact that PayPal is keen on working closely with regulators. The world’s third largest digital payment company by revenue is surely waiting for a more regulated stablecoin ecosystem, and we will probably witness the launch of PayPal’s stablecoin only in the longer term.
Animoca Brands is now valued at $5.5 billion
The Hong Kong VC raised $65 million in October and $360 million this month. Animoca multiplied its valuation by 2.5 in less than 3 months from $2.2 billion to $5.5 billion. Animoca established itself as a leader in blockchain digital entertainment in recent months, by developing Sandbox and investing in Axie Infinity and OpenSea. The funds raised will be used to foster new investments, develop new products and acquire popular intellectual properties. The latest major investment Animoca made was a $200 million blockchain gaming program developed in partnership with BSC. Animoca also recently led a $40 million fundraising for the ‘Fan controlled Football league’ and an $8 million round for an NFT platform built on Solana. Animoca doesn’t seem to slow down its expansion and is on the way to become one of the future giants of the gaming and NFT space.
Google is extending its exposure to crypto
First in April 2021, Google payment division ‘Google Pay’ partnered with the crypto exchange Gemini to allow the purchase of cryptocurrencies on Google Pay using fiat. Later in June, the company announced their new partnership with Coinbase, allowing users to make payments in Google Pay with their Coinbase card. Similarly, Google partnered with the crypto exchange Bakkt in October to allow their investors to pay for goods and services with cryptocurrencies through Google Pay. Finally, on January 20th, Google announced hiring an ex-SVP of PayPal, Arnold Goldberg, to take charge of the development of Google payment solutions including cryptocurrencies. According to Google’s president of commerce: “Crypto is something we pay a lot of attention to […] As user demand and merchant demand evolves, we’ll evolve with it.”
We are currently witnessing institutional adoption in the crypto space and Google is not the only tech giant joining the movement. In the long term, offering cryptocurrency payment services could push companies like Google and PayPal to add bitcoin to their balance sheet if only for liquidity purposes.
More on corporations
· Intel To Unveil Bitcoin-mining ‘Bonanza Mine’ Chip at Upcoming Conference (Read More)
· Elon Musk says Tesla to accept dogecoin for merchandise (Read More)
· Disney patents technology for a theme park metaverse (Read More)
· Meta poaches staff from Microsoft and Apple for metaverse plans (Read More)
· According to Visa survey, over 24% of small to mid-sized businesses plan to accept crypto payments (Read More)
· Apple on Metaverse: We See a Lot of Potential and Are Investing (Read More)
FINANCIAL INSTITUTIONS
Coinbase launches crypto derivatives in the US
Following FTX and Crypto.com acquisition of the derivatives platforms LedgerX and Nadex respectively, Coinbase bought FairX to offer derivatives products to US clients. FairX is a fully US regulated derivative platform registered on the Commodity Futures Trading Commission. Meanwhile, Coinbase is also currently waiting for approval to join the National Futures association to improve the safety of the derivatives market and protect investors to the inherent risks. Despite its young age FairX is well connected to top online brokers such as TD Ameritrade and E*Trade.
Being US based, Coinbase is suffering from tougher restrictions and higher taxes than its foreign based competitors. Buying FairX is a strategic move to become a major US figure in retail derivative trading and expand its customer base.
More on financial institutions
· Grayscale Bitcoin Trust Discount Hits Record Low. Crypto trading company Tantra ($80 AUM) goes into liquidation (Read More)
· Crypto.com Halts Withdrawals after Suffering $33M Hack (Read More)
· Gemini Acquires Trading Technology Platform Omniex, Launches Gemini Prime (Read More)
· Crypto Enthusiasm Prompts Philippine Bank to Launch Trading (Read More)
· Crypto funds outperformed traditional hedge funds and digital asset benchmarks (Read More)
· According to survey 79% of institutions ($108.B AUM) consider trustworthy custodian of their digital assets as the most important parameter to enter the market (Read More)
· Block’s Cash App Is Finally Integrating the Lightning Network (Read More)
DISCLAIMER
The contents of this material have not been reviewed by any regulatory authorities. You are advised to exercise caution in relation to the contents of this material. Although information contained in this material has been compiled from sources believed to be reliable, JKL does not represent or warrant the accuracy, completeness or reliability of the information contained in this material. If you have any doubt about any of the contents of this material, you should obtain independent professional advice. Neither JKL nor any of its affiliates, nor any of its or their respective directors, officers, employees, and representatives will accept any responsibility or liability whatsoever for any direct, indirect, or consequential loss arising from the use of or the reliance upon any information contained in this material. This material does not constitute an offer or an invitation to subscribe for or purchase any financial product. It is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation to purchase any financial product.
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