Valour

Market Update 24/02/2023

February 27, 2023

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

Bitcoin’s price took a temporary slide in response to the hawkish comments coming out of the Fed’s FOMC meeting late Thursday. With many expecting further hikes to the tune of February’s 25 bps increase, the FOMC minutes suggested a reversion to more aggressive federal fund rate changes in the hopes of curtailing inflation. Although prices slid by some 3% in response to the news, markets seemed to rebound beyond $24,000 in the early hours of Friday. Up 47% YTD, Bitcoin has made a significant recovery from the 2022 lows experienced in the wake of the FTX collapse. Recent data from Arcane Research points towards new yearly highs in terms of daily spot trading volume with the 7-day average having hit $13bn, whilst data by Glassnode indicates the level of old supply last active > 6 months nearing record levels. Meanwhile, Hong Kong’s Securities and Futures Commission has revealed further plans to position the region as a crypto-friendly financial hub. In a major regulatory reversal, retail trading will be permitted on licenced exchanges in accordance with certain safeguards and limits on exposures. The latest development follows an across the board regulatory overhaul surrounding the treatment of crypto assets in light of last year’s numerous contagion events and bankruptcies, with many questioning whether current approaches are truly aimed at protecting investors, or guised as such to restrict innovation in areas of conflicting interest.

‍

Ethereum developers announced Feb 28th as the scheduled date for the Shapella upgrade on the Sepolia testnet. Set to take place at epoch 56832, the Shapella (Shanghai and Capella) hard fork(s) will test the functionality of the long anticipated upgrades on both the execution and consensus layers whereby validator withdrawals will be enabled. Once integrated on mainnnet, validators will be able to choose between partial and full withdrawals, either opting to withdraw accumulated rewards exceeding the 32 ETH stake, or withdrawing the full balance and exiting. Since the Merge, Ethereum’s supply has decreased by more than 34,700 ETH. With over 520,000 active validators (16.64m ETH staked), fewer than 230 have been slashed to date, with most penalised for attestation violations in which they have attested two candidates for the same block; a process known as double voting. On the trading side, ETH derivatives continue to show an overly bullish outlook with a current lessened demand for leveraged shorts. Seemingly, investors are looking towards the Shanghai upgrade to assess the price effects of its change on liquid supply. On the ecosystem front, leading Layer-2 solution Arbitrum surpassed Ethereum’s daily transaction once again, with the optimistic rollup netting a 590% increase in transaction volume since the start of the year, as unique addresses on the network reached an all time high of 2.95m. Competition within the L2 ecosystem continues to intensify with Coinbase unveiling its own ETH-based scaling solution. Launching its Base testnet earlier this week, the OP stack contributor aims to drive the company’s vision of bringing the next billion users to Web3.

‍
Solana peaked earlier this week after IoT network, Helium, confirmed its move to the L1 blockchain. With the merge scheduled for 27th March, the blockchain connectivity network will help onboard 1m hotspots worldwide across the LoRa and 5G networks, presenting significant opportunities ahead of Solana’s Saga mobile release. Marketed as the first Web3 phone, Solana’s Saga will feature a dApp store, seed vault wallet and additional dApp building toolkits. Having been disproportionately impacted by the collapse of FTX late last year, Solana has faced great scrutiny over the blockchain network’s relationship with the exchange’s founders. Despite this, many have argued Solana’s case, with Coinbase highlighting the L1’s sound technical capabilities, pointing to the fact that Solana’s market cap is less than 5% of Ethereum’s whilst DAU’s make up close to 44% comparatively - suggesting that the asset is materially undervalued.

‍

Uniswap’s NFT aggregator introduced a new feature allowing traders to purchase NFTs using any Ethereum-based token through the platform’s simplified interface. Based on the Universal Router contract, Uniswap finds the most cost-efficient route to execute a swap from any Ethereum-based token into the token required for the NFT sale, finalising the transaction on OpenSea’s Seaport protocol. With planned support for combined sums of multiple crypto currencies within a single sale, Uniswap is looking to capture a wider share of the expanding NFT market. Earlier this week, challenger marketplace Blur saw an 81% share of weekly NFT volume activity following the platform’s 360M $BLUR token airdrop. Having acquired the Genie aggregator last year, Uniswap continues to expand its ecosystem, bringing Web3 to the masses.

‍
BNB’s BUSD stablecoin briefly dropped to $0.2 against the DAI stablecoin after a large market sell order triggered a cascade of slippage due to insufficient liquidity. With traders quick to spot the arbitrage opportunity, BUSD quickly regained its $1 peg. The stablecoin has been subjected to regulatory scrutiny after the SEC and NYDFS suspended its issuer Paxos from minting new tokens. As a result, BNB lost some ground relative to BTC with the ratio falling to levels last seen in August 2022. Meanwhile, the SEC has sustained its opposition to Binance.US’ $1.02bn acquisition of bankrupt lender Voyager Digital’s assets. In what seems like a clear agenda by the SEC, lawyers for Voyager have announced that creditors have demonstrated overwhelming support for the acquisition, with 97% voting in favour of the plan with several hours remaining in the voting process.

‍

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

‍

Macro & Markets 🏦💱

The Week Behind: 🗓️⬅️

22/02: Global debt falls below the $300tn threshold in first annual drop since 2015
22/02: U.S mortgage rates rises to highest levels since Nov, with 30-y fixed rates up 23 bps
23/02: Minutes from Fed’s FOMC indicates further rate hikes to be expected

‍

The Week Ahead: 🗓️➡️

27/02: U.S Pending Home Sales (MoM) (Jan)
28/02: U.S Consumer Confidence (Feb)
28/02: CNY Manufacturing PMI (Feb)
01/03: Germany CPI (YoY) (Feb)
01/03: UK Manufacturing PMI (Feb)
02/03: EUR CPI (YoY) (Feb)

‍

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’.

The brief pullback prompted by the outcome of the FOMC minutes saw the fear and greed index move back into neutral territory. Currently reading at 53, investor sentiment has wavered between greed and neutral, as key support levels continue to be tested. Having received indication of sustained central bank monetary tightening, investor concerns over its effects on the recent upwards swing seen in the crypto markets has resulted in a more cautious outlook than last week’s reading of 61.

‍

CBOE VIX Index 📉🦘

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

Reaching near highs for 2023, the VIX peaked at 22.9 earlier this week ahead of an uncertain outcome from the Fed’s FOMC meeting. Fears of further rate hikes at higher than expected levels saw heightened volatility return to equity markets. Currently sitting at 21.4 (pre-market), the VIX remains in the higher volatility threshold as Bitcoin’s correlation with the SPX turned negative once again for the first time since the FTX collapse. Thursday marked the first day in green for the S&P 500 after a 4 day losing streak.

BTC/DXY Correlation 💵📈

The DXY provides an indication of the value of USD relative to a basket of U.S trade partner currencies. Having rallied back up towards its 7-week high, the USD has benefited from news of expected future rate hikes. Yields on two-year treasury notes have risen more than 50 bps this month, currently standing at 4.66%, with potential further rate hikes having been priced in. Bitcoin’s 1Y correlation with the USD stands at -0.65, with its recent decoupling from both the DXY and SPX having seen a slight retrace towards the end of the week.

‍

Market Dominance 📊👑

Bitcoin dominance: 42.2% (+0.0%)
Ethereum dominance: 18.5% (-0.2%)
BTC EU Crypto ETP dominance: 51.5% (+0.6%)
ETH EU Crypto ETP dominance: 27.1% (-0.3%)

‍

Risers & Fallers 📈🚀

⬆️ Stacks ($STX) was up 135% this week, rallying on the attention received by the recent Bitcoin Ordinals inscription craze. The Bitcoin layer for smart contracts enables DeFi, NFTs and other smart contracts to operate on Bitcoin’s base layer where transactions are settled. Stacks’ Proof-of-Transfer chain facilitates the complex apps and smart contracts which interact with Bitcoin state, creating a Web3 ecosystem for the largest single digital asset. The spike in price saw Stacks’ trading at $0.76, with its market cap surpassing the $1bn mark.

‍

⬇️ Render Token ($RNDR) dropped 15.5% over the last 7D, falling to $1.63. The decentralised GPU based rendering network matches render jobs with idle GPUs to advance the development of the open metaverse. Having recently announced the formation of the Render Network Foundation, the network’s DAO adopted a new tokenomics model that saw its price significantly increase. The recent downtrend can thus be attributed towards the hype tapering off, with speculative investors looking for their next quick profit.

‍