Efficient Frontier
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Efficient Frontier

The Russian bear market

Welcome back to Efficient Frontier’s biweekly email, sharing our insights into the world’s most volatile markets. We hope you enjoy our executive summary of the effect of recent events from a crypto perspective. Scroll down for our “Four months of bear” review.

Published February 25th on Substack

Market wrap: Ukrainians are buying Tether

Ukraine’s central bank officially halted their foreign currency markets yesterday due to the state of emergency and limited cash withdrawals to 100,000 UAH or roughly 1.4 ETH to prevent bank runs.

Ukraine-based crypto exchange Kuna experienced a spike in trading, jumping from $1.5 million on February 23rd to $4.6 million yesterday as users traded UAH for Tether and other cryptocurrencies.

Tether to Hryvnia pairs have been trading at a premium across Kuna and Binance, showing a strong demand.

Tether is trading at roughly a 10% premium in online UAH markets. Black: UAH/USD, Orange: UAH/USDT (Tether)

Binance has 7 pairs trading against the UAH: BTC, USDT, BUSD, BNB, ETH, LTC and SHIB. All besides SHIB experienced spikes in trading volume yesterday.

USDT/UAH did 4 times the usual trading volume exchanging $8 million in 24 hours.

ruary 24th-25th. Vix, gold, ruble, oil, corn, weat, UAH, Nasdaq, S&P, Ruble, Bitcoin

Due to the region’s dominance in commodity production the price of corn futures jumped by 8.2%, wheat by 12%, oil by 6% and gold by 3% in the 24 hours following the news and the VIX jumped by 25%, but since, these commodities have gone back to original levels or lower.

“Western leaders have thus far decided not to block Russia from the SWIFT global payments system, which has outraged the Ukrainian government.” Morning Brew reported.

We’ll see in the coming weeks if Bitcoin is traded as a safe haven asset, or if it is too damaged by its volatility and speculative volume to rise to the table just yet.

Tether USDT is clearly being used for this purpose, and it couldn’t exist without a blockchain.

Bitcoin

Looking at Bitcoin’s chart you actually wouldn’t necessarily assume a war started in Europe yesterday as Bitcoin can be volatile even with no news at all.

BTC/USD February 11–25. The black arrow shows 3 AM UTC February 24th when war on Ukraine was declared

Previously, after rising over the last month from $32,9373 to $45,899, Bitcoin made its way down back to $34,425, assisted in the last leg down by Putin’s declaration of war which was broadcasted yesterday a few minutes before 3:00 AM UTC (5 AM in Keiv and 10 PM in New York). At the time of writing Bitcoin rose to $38,440.

In the 6 hours following the invasion announcement the altcoin index fell 9.2% on the news before recovering and the DeFi index fell 12% as well. The Greed Fear index was at 23.

February 11th-25th, arrow at 3:00 AM UTC Feb 24th. Green: Defi/USD, Pink: Alt/USD

Funding is currently slightly negative, in line with previous weeks.

Cold but not freezing

As an algo trading firm it’s uncommon for us to share operational information, as much of it is ‘trade secrets’, but we’re glad to share that recently we’ve been completing improvements and upgrades to our various systems.

Our drive to continually improve goes in parallel with the rest of the crypto space. Despite 4 months of falling prices, DeFi software keeps improving, and development on all fronts of crypto is moving at a fast pace. In our deal flow we’re encountering a lot of building and activity despite the tough prices environment. Specifically we’re seeing a lot of new gaming, metaverse and NFT related projects, as well as DeFi.

Crypto’s venture capital market and valuations are still boiling, after over $30 billion came into crypto from VCs in 2021 (morAs an algo trading firm it’s uncommon for us to share operational information, as much of it is ‘trade secrets’, but we’re glad to share that recently we’ve been completing improvements and upgrades to our various systems.

Our drive to continually improve goes in parallel with the rest of the crypto space. Despite 4 months of falling prices, DeFi software keeps improving, and development on all fronts of crypto is moving at a fast pace. In our deal flow we’re encountering a lot of building and activity despite the tough prices environment. Specifically we’re seeing a lot of new gaming, metaverse and NFT related projects, as well as DeFi.

Crypto’s venture capital market and valuations are still boiling, after over $30 billion came into crypto from VCs in 2021 (more than the last 13 years combined), and even just last week we saw Sequoia Capital launch its first crypto fund which will invest $600 million, mostly in tokens.

Founders have learned from the previous bear markets (2014–2015 and 2018–2019) and have been hoarding profits and loading up on capital ammunition for the years ahead, just in case.

All this was done right before the great 2022 interest rate scare. Good timing.

But the prices…are not a fun sight:

Bitcoin’s price lost 42% against the dollar since it’s all-time peak in November 2021. That’s -18% in 2022 and -%6.5 since our last email 14 days ago.

FTX’s Altcoins index did -51.5% since November 2021, — 30.8% since 2022 started and -%17.3 in the last 14 days.

FTX’s DeFi index lost 60% and did -43% and -29.5% respectively.

The FTX midcap index lost 46% (since its peak in may 2021), 29% and 17%

Black line is November 9th 2021. Green:DeFi/USD, Pink:AL/USD, Purple:MID/USD, Orange: BTC/USD
Most top 100 coins are down more than 75% from ATH. Source:Larry Cermak on Twitter
The green bars show the amount of Bitcoin flowing in and out of exchanges in aggregate daily across major exchanges (according to CryptoQuant blockchain analytics.)

The drop in prices is caused by lack of retail interest and has been waning since April 2021, as seen in the above exchange flows chart. On the other hand, accumulation by long term holders restarted post April.

In conclusion: Hold on tight! Whatever project survives this correction will be doing well in future run ups.

News

  1. FBI launch cryptocurrency related crime-fighting unit
  2. EU Threatens to blacklist Switzerland due to money laundering concerns
  3. Ukraine legalizes cryptocurrencies
  4. Binance becomes 2nd biggest owner of Forbes magazine
  5. Canadian emergency rule allows freezings bank and custodial crypto accounts without court order
  6. Ukraine military group receive $1 million in Bitcoin donation

7. Recommended reading: Galois Capital state of the market

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With over 12 years of high frequency and algorithmic trading experience, our technology powers weekly over $1 Billion of trade. We’re passionate about digital assets and our mission is to bring professional, trusted technology that adds value to the industry and the markets.

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Efficient Frontier

Efficient Frontier

Leading research & algorithmic trading firm for the cryptocurrency markets efrontier.io

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