The purpose of this circular is to provide a market update regarding Valour’s current underlying exposures.

Bitcoin rose by more than 18% in a 24h period earlier this week after widespread contagion fears prompted investors to look towards alternative assets amidst a U.S banking crisis. After Silvergate Bank announced that it was winding down operations earlier this month, the FDIC took control over SVB in light of the bank’s inability to pay depositors. With stablecoin issuer Circle disclosing approximately 8% of its reserves tied up in SVB, markets faced immense selling pressure, further influenced by USDC’s depegging that was prompted, in part, by USDC’s 77% collateralisation with short-dated US treasury bonds. Although policy makers were quick to step in and guarantee deposits, markets continued to spiral as Credit Suisse stock plummeted upon its largest investor announcing that it would not be providing the bank with further financial assistance. Seemingly, the rising interest in alternative assets as well as the rebalancing of USDC holdings into BTC saw the largest crypto asset by market cap increase by 36% over the last 7D, driving Bitcoin dominance to a new high since June of 2022. Currently accounting for close to 46% of the total industry’s market cap, investors are hopeful that recent market growth will signal further upwards movement given that previous bull cycles have been prefaced with spikes in BTC dominance. With more than 70K BTC moving off exchanges since the SVB collapse, long term sentiment remains high, propelled by Bitcoin’s continued move away from its previous risk asset status, hitting a new year high of $27,000.

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Ethereum moved into the $1,700 territory following this week’s rally in which investors flocked to digital assets amidst wider uncertainty in traditional financial markets. Currently trading at $1,750, ETH is up 27% for the week, having reached a 6-month high. Ethereum
continues to remain in the spotlight as investors eagerly await its Shanghai upgrade, with its final testing on the Goreli network proving successful as testnet users were able to fully or partially withdraw staked ETH from the testnet’s Beacon Chain. Meanwhile, top 4 Australian bank NAB announced that it completed an intra-bank cross-border transaction using its own ERC-20 stablecoin. The development follows one of the latest Ethereum Improvement Proposals (ERC-4804) which sees the network continue to move away from centralised censorship. The Web3 URL to EVM Call Message Translation is essentially a censorship resistant URL standard whereby HTTP-style Web3 URLs run a query on the EVM, enabling users to both verify and access dApps and websites otherwise at risk of censorship, directly accessing on-chain content.

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Polkadot welcomed the Stellar blockchain to its ecosystem through the newly built Spacewalk bridge that brings Stellar’s fiat on-ramps solution to the Polkadot and Kusama universe. Built by DOT parachain auction winner Pendulum, the bridge will see greater interconnectivity between the blockchains, connecting their native DeFi applications alongside forex markets, especially in emerging markets where Stellar has established its cross-border payments infrastructure solution with MoneyGram. Primarily utilising the USDC stablecoin, the bridge will see the gradual integration of regional stablecoins. On the business development front, Polkadot has partnered with music titan Beatport to create a new marketplace for digital collectibles. Developed alongside Define Creative, the DOT powered marketplace will bring electronic music to Web3, providing fans with access to exclusive collectibles and interactive experiences with artists and labels alike.  

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Uniswap deployed its v3 DEX on BNB Chain following February’s successful governance proposal in which more than 55m UNI was used to vote in favour of the move. The new integration brings numerous benefits to the UNI ecosystem, including new user growth, lower fees and expanded access to new markets. Leveraging BNB’s ecosystem, Uniswap users can trade and swap tokens across the network, accessing the Build N’ Build Chain’s significant DeFi community liquidity. The deployment follows an overwhelmingly successful week for UNI in which the protocol reached a record high trading volume of $11.84bn. Considering the SVB prompted depegging of Circle’s USDC stablecoin, traders rushed to Uniswap’s DEX to offset potential losses. The new developments come as Coinbase announced that it is bringing Uniswap’s DEX to its recently launched ETH-based Layer-2 network, Base.

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Cosmos implemented its Replicated Security (RS) feature with its v9-Lamba upgrade, allowing blockchains within the Cosmos ecosystem to share validation resources for overall improved security. The update will ensure that only approved protocols will be added as consumer chains, with the new feature distributing up to 25% of consumer chain fees to Cosmos Hub stakers in addition to allowing for an allocation from token inflation and revenue streams to Cosmos stakers. This implementation will enable consumer chains to focus on network growth, while Cosmos Hub validators provide reliable security against attacks and double-spending threats.

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BNB benefited from Binance’s $1bn conversion of its BUSD stablecoin from its industry recovery fund into Bitcoin, Ethereum and BNB Coin as part of its attempt to restore calm in the markets. Following a string of events that saw the wider crypto market tumble, the U.S closure of Signature Bank prompted further downward selling pressures, prompting Binance
to consider adding traditional banks into its business plan as a means of bridging traditional finance with crypto markets. BNB currently stands at $335x, up 25% for the week. Earlier this week, BNB saw the introduction of Uniswap’s decentralised exchange on its network, as well as leading Bitcoin DeFi protocol BTC Proxy. The latest integrations reflect the network’s ever-growing landscape, tapping into new DeFi and yield opportunities for its users.

For Cardano, Solana, Avalanche and Enjin, no noteworthy news updates this week.

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Macro & Markets 🏦💱

The Week Behind: 🗓️⬅️

15/03: U.S PPI falls 1.1% (MoM), with February figures showing an increase of 4.6%
16/03: ECB raises interest rates by 50 bps continuing with its fight against inflation
16/03: UK releases reformed budget with figures set to avoid a recession this year
16/03: Swiss Central Bank announces $54bn loan to secure Credit Suisse liquidity

The Week Ahead: 🗓️➡️

19/03: CNY PBoC Loan Prime Rate
21/03: GER ZEW Economic Sentiment (Mar)
21/03: U.S Existing Home Sales (Feb)
22/03: UK CPI (YoY) (Feb)
22/03: U.S Interest Rate Decision
23/03: UK BoE Interest Rate Decision
23/03: U.S New Homes Sales (Feb)
24/03: UK Retail Sales (MoM) (Feb)
24/03: GER Manufacturing PMI (Mar)

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Fear & Greed Index 😨🤑

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’.

Earlier this week’ crypto’s fear and greed index dropped to a 2-month low on the tail of the previous week’s notable banking failures. The run on SVB tied up more than $3.3bn of stablecoin issuer Circle’s USDC reserves, resulting in a temporary (albeit significant depegging) of its widely used stablecoin. Coupled with the earlier closure of Silvergate and the regulatory seizure of Signature Bank, crypto markets were quick to wipe out the year’s gains, before concerns of a wider TradFi banking contagion sent Bitcoin markets up more than 9% in a single day, bringing the total crypto market cap back beyond the $1tn threshold.
At week’s close, crypto markets are up 4.1% (7D), back into neutral territory with a fear and greed reading of 51, up from last week’s 34 (Fear) reading.

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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.

Whilst markets were driven into disarray following the collapse of SVB late last week, assurances by US authorities over deposit guarantees seemed to prime stocks for Tuesday’s in-line 6% CPI data for the month of February. Seemingly, the injection of liquidity into the markets saw a rebounding of banking stocks, whilst futures for both the S&P 500 and Nasdaq 100 buoyed amidst an easing of concerns as Credit Suisse announced their loan agreement with the Swiss National Bank. Prior to this week’s interest rate decision, the VIX stands at 23.0 (pre-market).

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BTC/DXY Correlation 💵📈

The DXY provides an indication of the value of USD relative to a basket of U.S trade partner currencies.

The DXY consolidated its earlier intraday gains on the back of growing macro concerns regarding the effects of the Fed’s interest rate policies on the liquidity levels of leading financial institutions. Although February’s (YoY) inflationary data came in as expected at 6%, the lack of major economic developments to suggest a change in the Fed’s upcoming interest rate decision has resulted in increasing demand for US treasury bonds, prompting the biggest drop in 10-year bond yields in over 4 months. With Bitcoin’s recent surge this week, and the relative inaction of USD markets, the BTC/DXY YTD correlation has dropped to -0.17, with the 6M correlation currently standing at -0.68.

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Market Dominance 📊👑

Bitcoin dominance: 45.0% (+3.4%)
Ethereum dominance: 18.7% (+0.2%)
BTC EU Crypto ETP dominance: 51.8% (+1.0%)
ETH EU Crypto ETP dominance: 27.6% (-0.4%)

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Risers & Fallers 📈🚀

⬆️Conflux ($CFX) pumped over 103% this week, trading upwards of $0.35. The high-throughput, Layer-1 blockchain is marketed as the only regulatory compliant, public and permissionless blockchain in China, building a borderless transactional ecosystem for global crypto projects. Having partnered with China Telecom earlier in 2022, Conflux announced its partnership with Chinese social media giant Little Red Book this January, driving a flurry of interest. With much of the recent crypto market action being driven by Asian markets, Conflux has attracted its own share of the pie, increasing by more than 1,400% YTD.

⬇️ Maker ($MKR) is down 0.98% over the last 7D, standing out amongst the few crypto assets not closing this week in the green. The Ethereum-based MKR DAO token (used to support the stability of MakerDAO’s DAI stablecoin) has faced downwards pressures following the DAI stablecoin’s depegging to its lifetime low of $0.88. Considering that the algorithmic stablecoin was collateralised with MakerDAO holdings (including USDC), the market effects from the SVB collapse led to increased selling pressures, thereby driving down the value of the $MKR token.

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Upcoming Conferences

15/03/23 - 19/03/23: Solana Hacker House, Ho Chi Minh City
16/03/23 - 18/03/23: ETHPorto, Porto
20/03/23 - 24/03/23: Paris Blockchain Week, Paris
23/03/23 - 25/03/23: Art Basel, Hong Kong

That’s all for this week!

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