Valour

Market Update 14/04/23

April 18, 2023

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Bitcoin started the week breaking past the $30,000 level having remained stagnant around the $28k mark. The largest digital asset broke past its highest level since June 2022 ahead of the publication of key U.S CPI data. The surge in price saw several core Bitcoin-related stocks experience significant gains, with public mining companies Riot Platforms and Marathon Digital up over 15% and 11%, respectively. Similarly, MicroStrategy’s long bet on BTC returned to profit, given the firm’s $29,803 cost basis for its 132,500 BTC holdings. Following Wednesday’s CPI and PPI results whereby both indicated a cooling of inflationary pressures, markets capitalised on the bullish narrative with BTC breaching $31,000 on several trading venues. Increasing by over 10% in the last 7D, BTC’s illiquid supply hit an 8-year high. Meanwhile, on the Ordinal front, inscriptions on the protocol surpassed the 1 million mark, with the uptake in users embedding data into the Bitcoin blockchain suggesting that Bitcoin’s sole narrative as a store of value may be as relevant as its status of a risk asset, not least as it continues to outperform traditional equities and markets.

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‍Ethereum successfully completed its long-awaited Shanghai upgrade, enabling validators to withdraw their staked assets on the network. Following its transition to Proof-of-Stake last September, close to 18 million ETH had been staked ahead of this week’s Shanghai upgrade. Within the 30 hours following the upgrade, close to 240,000 ETH had been withdrawn. However, almost 100,000 ETH had been deposited, reflecting a net outflow of circa $277m. Whilst over 1.07m ETH was pending for withdrawal (approximately $2.3bn worth of ETH), over 60% of that had been attributed to Kraken whose staking services were suspended by the SEC earlier this year. Following the successful implementation of both partial and full staking withdrawals, ETH rose to a 11-month high, increasing by 13.7% over the last 7D. Currently trading at $2,110, the shift in focus to Ethereum has seen the smart contracts platform knock Bitcoin dominance down from its 21-month high, with Ethereum dominance rising to a 1-month high of 19.8%. On the layer-2 front, scaling solution zkSync has seen more than 7m transactions conducted on its network since its launch late last month, with close to $250m in TVL across the scaling solution’s ecosystem of protocols. The launch of its ‘Era’ public mainnet reflects the rapidly advancing landscape for L2 solutions, with Polygon zkEVM having launched at the same time.

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Uniswap’s decentralised exchange (DEX) is set to launch on Polygon’s recently released zero-knowledge EVM rollup solution following unanimous support from all 191 Ethereum addresses that voted on the proposal. The soon-to-be integration will provide off-chain transaction validation and fast finality, improving the protocol’s overall performance for the end user. The latest development comes as the Uniswap Foundation announced that it has funded efforts to improve the current UNI DAO incentive mechanisms. Selecting risk management solutions provider Gauntlet for the role, the project will see a minimum of three new proposals including; a quantitative framework for evaluating future successes/failures, an analysis of trader and LP behaviours, and several proposals for new incentive mechanisms. The announcement follows a month of stellar performance whereby the DEX handled over $70bn in volume reaching a 10-month high as a regulatory clampdown and banking crisis prompted traders to move away from CEXs. Riding on the back of this success, Uniswap released its mobile wallet application providing users with a new means of buying crypto, offering a competitive 2.55% fiat on-ramp fee to promote wider DeFi adoption.

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Avalanche’s Cortina upgrade went live on the protocol’s testnet, prompting AVAX to rally by 2%. The new upgrade aims to make it easier for exchanges to support the network’s X-Chain, used by the blockchain for sending and receiving funds. Further improvements include simplifying fee distribution for validators, as well as increasing the network’s C-Chain gas limit. The launch on testnet follows Avalanche’s release of Evergreen Subnets, a suite of blockchain deployments and tools for financial institutions. Its first deployment, the Spruce Subnet, will enable firms to explore and quantify the benefits of on-chain finance, experimenting with self-executing applications and blockchain rails to facilitate faster, more efficient, and cost effective transactions. Boasting integrated compliance features to keep institutions covered by KYC requirements, Avalanche has partnered with the likes of WisdomTree, Cumberland, and T. Rowe Price Associates to test a blockchain based foreign exchange via the network’s Spruce subnet. At time of writing, AVAX was trading at $18.90, up 6.9% for the week.

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BNB completed its 23rd scheduled burn, in which more than 2m BNB (approximately $674m worth) was permanently removed from circulation. The quarterly event, part of the network’s mechanics to reduce total supply to 100,000,000, has seen a total of 46.1m BNB burned to date. Said coins are removed from circulation by being sent to a black hole address, after which they can no longer be used, accessed, nor recovered. The quarterly event follows the network’s Auto-Burn mechanism which determines the burn amount based on BNB’s price and the number of BNB Chain blocks generated during each quarter. The Auto-Burn mechanism also takes into account the BNB Pioneer Burn Program, the network’s initiative aimed at helping users who have mistakenly lost tokens. Notwithstanding the network’s auto-burns, BNB introduced BEP-95 in October 2021, adding a further deflationary element to the network, in which a fixed ratio of each block’s gas fees are burned. Earlier this week, Binance confirmed the successful execution of the Plank hard fork intending to improve the security and scalability of the layer-1 network, strengthening the cross-chain bridge between the network’s Beacon and Smart Chains. The upgrade comes as the BNB ecosystem began testing its decentralised storage solution on the BNB Greenfield testnet.

For Cardano, Polkadot, Solana, Cosmos and Enjin, no noteworthy updates this week.

Macro & Markets 🏦💱

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The Week Behind: 🗓️⬅️

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11/04: IMF forecasts UK economy to shrink 0.3% in 2023 with a sharp recovery by 2028

12/04: U.S stocks slide after Fed’s March FOMC minutes suggest possible mild recession

13/04: EUR surges to 12-month high as USD retreats amidst prospect of slowing Fed policy

The Week Ahead: 🗓️➡️

17/04: CNY GDP (YoY) (Q1)
17/04: CNY Industrial Production (YoY) (Mar)
18/04: UK Av Earnings + Bonus (Feb)
18/04: GER ZEW Economic Sentiment (Apr)

18/04: U.S Building Permits (Mar)
19/04: UK CPI (YoY) (Mar)
20/04: EU Account of Monetary Policy Meeting

21/04: UK Retail Sales (MoM)

21/04: UK Composite, Manufacturing and Services PMI

21/04: GER Manufacturing PMI (Apr)

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Fear & Greed Index 😨🤑

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The multifactorial index looks at investor sentiment across Bitcoin and other large cap crypto markets, covering volatility, volume, momentum, dominance, and social trends. A score closer to 0 represents ‘Extreme Fear’ whilst a score closer to 100 is linked to ‘Extreme Greed’.
The crypto fear and greed index retained its upwards trajectory as crypto markets continued to rally. Having fallen (within the greed territory) to a reading of 61 last week, the index jumped back to its previous 16-month high, currently standing at 68. The change in sentiment from last month’s neutral domain follows the market’s sustained momentum, with BTC recording weekly gains of 10%, and the global crypto market capitalisation rising 2.9% (7D), to a cumulative $1.28tn.

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CBOE VIX Index 📉🦘

The CBOE VIX Index measures the implied volatility of S&P 500 Index options, traditionally following an inverse relationship.

The VIX was down 8.4% over the past week, having fallen to its lowest level since January 2022. Mixed data prompted a surge in the S&P earlier on Thursday, as weaker-than-forecast wholesale inflation data sent stocks upwards. Sentiment had been boosted by March’s PPI reading, having marked its lowest level since January of 2021. The continued downtrend in production prices, coupled with easing of inflationary pressures on the demand side, has shifted the attention towards future interest rate cuts and the prospect of a reversal in current monetary policy. At time of writing, the VIX was priced at 18.07 (pre-market).

BTC/DXY Correlation 💵📈
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The DXY provides an indication of the value of USD relative to a basket of U.S trade partner currencies.

The USD faced further turmoil as minutes from the Fed’s March FOMC meeting, as well as recent U.S CPI data, sent U.S Treasury yields and the USD lower. Continuing to trade below its 20-day EMA, the USD is poised to trail behind the EUR for the 7th consecutive week in light of softening CPI and PPI data. With the labour market showing signs of easing, the Fed is expected to reconsider its current monetary policy stance. As BTC closes the week in the green (up 10% over the last &D), the 1Y DXY/BTC correlation continues to fall, currently standing at -0.47.

Market Dominance 📊👑

Bitcoin dominance: 46.4% (+0.2%)
Ethereum dominance: 19.8% (+1.0%)

BTC EU Crypto ETP dominance: 54.8 (+1.2%)
ETH EU Crypto ETP dominance: 26.2 (-0.2%)

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Risers & Fallers 📈🚀

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⬆️ Arbitrum ($ARB) is up 30% over the last 7D trading at $1.54. Having launched late last month, the governance token of the Ethereum-based layer-2 scaling solution saw some price volatility after the first governance proposal caused a divide amongst holders. AIP-1 attempted to allocate 750m $ARB to the Arbitrum Foundation for future grants and operational costs. Reacting to the proposal, token holders rejected the DAO’s first vote, with the Foundation acknowledging that the proposal did not discuss transparency over fund use. As part of the new budgeting AIP, the foundation has created a new proposal, providing transparency over the Foundation’s setup, with the new AIP-1.1 addressing lockups, budgets and transparency, and AIP-1.2 amending current founding documents.

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⬇️ Enjin Coin ($ENJ) was trading at $0.44 at time of writing, down 7.85% from last week. The recent dip follows $ENJ trading volume reaching a YTD high having peaked at $460M. Earlier this month, Enjin developers previewed their new upcoming platform as well as showcasing the soon to be released NFT.io marketplace. Focusing on creating a product ecosystem to facilitate advanced virtual economies through DLT systems, the new platform is aimed to simplify the lives of developers, indie game daves, and anyone passionate about blockchain technology, providing a complete tech stack and integrated solution for NFTs.