Over the last week, crypto market sentiment was dampened by increasing uncertainty surrounding the macroeconomic environment as jobs and PMI data obscured the path for US monetary policy. However, market volatility was also exacerbated by the regulatory concerns that resulted in crypto exchange Kraken ending its staking services for its US retail consumers. We discuss some of the market implications in this week’s commentary. We also look at recent developments in the bitcoin mining sector.
Meanwhile, we published our Monthly Outlook (Decoding the rally) on February 2nd, where we discussed some relevant on-chain market indicators that may help capture key fundamentals for digital assets. These include growth in on-chain activity, value locked in protocols, and respective adoption rates. For more, please see our full report here.
Weekly Market Call
View replays of our weekly crypto market analyses from our Americas, APAC and EMEA Coinbase Institutional teams, available here.
Market View
Overall, it seems like the upside for most risk assets including crypto appears to be capped for the moment, as unpredictability surrounding the macro environment has increased. Following the significant rally in January, we expect to see more investors on the sidelines absorbing the data on US labor markets, housing and inflation. January CPI (to be released on February 14) is expected to show further disinflation in the headline figure to around 6.2% YoY (Bloomberg survey) though in our view, core CPI is what really matters at the moment.
In cryptocurrencies, regulatory developments have also added to the market volatility. After an announcement from Coinbase CEO Brian Armstrong (February 8) about a rumor the SEC was considering a potential ban on crypto staking for US retail customers, centralized exchange Kraken said on February 9 that it will close its crypto staking operations in the US as part of an SEC settlement. We think the end of Kraken’s US staking services could affect staked ETH withdrawals when Ethereum’s Shanghai Fork takes place, presumably in March 2023. That is, the additional unstaking from Kraken users could extend the exit queues and lengthen the withdrawal period by perhaps a month (as exits are rate limited to 1575 validators per day). This is also likely to affect the amount of ETH that could circulate in the open market when those ETH are unlocked, as well as the underlying pace of staking growth going forward.
Chart 1: Distribution of staking pools
The ETH/BTC cross has retraced higher since the end of January, which we think partly reflects some profit taking flows in bitcoin given its recent performance. Leverage reduction has been visible on the derivatives side, where we have seen the BTC rolling 1m basis fall from highs of 9.0% on Deribit at the start of February to 4.6% as of February 9 though futures open interest has been stable to marginally higher over that time. The ETH rolling 1m basis, on the other hand, has been relatively rangebound over that same period.
Some of that move may also be attributable to higher NFT trading volumes on Ethereum which recently increased to a weekly average flow of US$168.9M year-to-date compared to $110.6M in the last two months of 2022, according to data from The Block. DeFiLlama also indicates that DeFi activity on the network has picked up from $23.2B to start the year to $28.9B as of February 9.
Nevertheless, the recent rally in bitcoin has offered some reprieve to mining operators for the time being. The hashprice (representing the expected daily market value from operating a single terahash per second of hashing power) has expectedly had a positive correlation with changes in bitcoin price. This profitability indicator has risen to ~$0.071 USD/TH/DAY, an increase of ~29% from the lows of ~$0.055 in November in the wake of the FTX collapse. Because hashrate and resultant mining difficulty have also increased over the period, the rise in hashprice has been slightly outpaced by the rise in bitcoin price (up ~32% over the same period).
There have also been notable developments in the historically illiquid market for bitcoin mining ASIC hardware. Bitcoin mining services firm, Luxor Technologies, recently launched an ASIC marketplace to connect buyers and sellers within a unified platform. Users can openly bid on hardware – including new and used rigs, replacement parts and graphics cards – and negotiate with sellers directly. Because the market for bitcoin mining hardware is relatively opaque and fragmented, the development of these types of marketplaces could enhance the liquidity of secondary markets for ASICs and improve the overall transparency of hardware pricing. If successful, a more efficient market for hardware could make the procurement and deployment processes for mining operators less burdensome and far more predictable.
Crypto & Traditional Overview
(as of 4pm EST, February 9)
Asset | Price | Mkt Cap | 24 hour change | 7 day change | BTC correlation |
|---|
BTC | $21,861 | $421B | -4.84% | -6.90% | 100% |
GBTC | $10.63 | $7.36B | -9.53% | -12.51% | 82% |
ETH | $1,547 | $189B | -6.60% | -5.90% | 91% |
Gold (Spot) | $1861.88 | - | -0.70% | -3.44% | 48% |
S&P 500 | 4,081.50 | - | -0.88% | +0.12% | 44% |
USDT | $1 | $68.18B | - | - | - |
USDC | $1 | $41.76B | - | - | - |
Coinbase Exchange & CES Insights
Crypto saw a week of underperformance on the back of uncertain macro conditions and shifting regulatory tides following last Friday’s (February 3) blowout employment report. On Coinbase Exchange, ETH has finally overtaken BTC as the top traded token for the week. ETH has been supported by bullish narratives surrounding the benefits that staking will have on the token post-Shanghai Fork. MATIC was well-bid, overtaking popular alternative L1 SOL in volumes.
On the CES desk, flows continued to be dominated by BTC and ETH, with ETH continuing to have a slightly better buy skew. As mentioned in the market view above, the ETH/BTC cross outperformed (+2.8% in the last 7 sessions) with ETH benefitting from the Shanghai upgrade and the boost in NFT trading volumes in January. BTC on the other hand, saw more profit taking interest post FOMC, as expectations of further rate hikes were priced in.
Regulatory concerns have driven trading volume and activity post Kraken’s SEC settlement. De-risking in BTC (1.5x’s better to sell), and ETH led desk flows. Recent outperformers also saw some activity with profit taking evident in some of the AI-associated tokens.
Bitcoin Technicals
Early this week, BTC flashed a golden cross signal - where its 50-day moving average crossed over its 200-day moving average for the first time since 2021 - signaling a newly forming bull market. The last golden cross on the BTC technical chart appeared in September 2021, which preceded the absolute peak of Bitcoin at $69,000. On Thursday, on news of Kraken’s SEC settlement, BTC finally broke below the support level of $22,500 level that has been tested multiple times over the past 12 months, and has failed to retest that level as support since. Looking ahead, with the RSI at the strongly oversold level of 22, we might see a small retracement over the weekend as investors digest the headlines.
View From Around the World
Asia
“Indonesia’s Ministry of Trade is planning to launch a national crypto exchange by June this year, a revision from its earlier target of December 2022. There are currently five active crypto exchanges that are currently registered with the country’s regulators, and the ministry’s crypto exchange could encompass all of them. According to CoinTelegraph, while these exchanges are currently facilitating all trades within the nation, the ministry’s exchange would act as a clearing house and custodian in the local crypto market.” (CoinTelegraph)
Europe
A fully-reserved stablecoin backed by the Euro ($EUROe) has been launched by Finnish company Membrane Finance, with the aim to facilitate instant payments globally at a lower cost compared to traditional fiat methods of payments. There are plans to extend EUROe's support from Ethereum to other popular blockchains to improve its cross-compatibility. (CoinTelegraph)
