Weekly: Unsettled macro landscape

The relative strength of crypto, and some key layer-2 developments

February 24, 2023

Unsettled macro landscape

At a glance

An increase in month-over-month headline inflation in January combined with stronger-than-expected jobs and retail sales data reported in recent weeks have quelled much of the market’s dovish optimism.

Key takeaways

  • Amidst the prevailing macroeconomic uncertainty, digital assets have shown remarkable resilience since the start of the year, materially outpacing risk assets like US equities.
  • Yesterday (February 23), Coinbase unveiled the testnet launch of Base – a secure, low-cost, developer-friendly Ethereum L2 designed to help scale the web3 crypto-economy.

Written by

  • Brian Cubellis, Research Analyst

This week, we explore the implications of current Fed positioning and discuss some key economic indicators recently released in the US. We remain encouraged by the relative strength of digital asset performance in light of the ongoing macroeconomic uncertainty.

Meanwhile, we take a look at some exciting developments in the layer-2 space, with Coinbase unveiling the testnet of its Ethereum L2 called Base and Arbitrum surpassing Ethereum in terms of daily transactions for the first time. 

Lastly, earlier this week we published our latest Tokenomics report on Solana, which assesses the fundamental value proposition of the network and its competitive positioning within the alternative layer-1 landscape. For more details, please see our full report, “Solana (SOL): Native scalability.”

Weekly Market Call

View replays of our weekly crypto market analyses from our Americas, APAC and EMEA Coinbase Institutional teams, available here.

Market View

The general risk-on sentiment observed throughout financial markets during much of January appears to be subsiding, at least for the time being. Despite the Fed’s decision on February 1 to slow the pace of interest rate hikes from 50 bps (observed in December) to 25 bps, investor confidence in a potentially less hawkish forward-looking stance from the Fed has waned in February. An increase in month-over-month headline inflation in January (reported on February 14) combined with stronger-than-expected jobs and retail sales data reported in recent weeks have quelled much of the market’s dovish optimism. 

Earlier this week (February 22), attention turned to the release of the FOMC minutes from the prior meeting as investors sought incremental clarity from the committee. The minutes suggested that the decision to raise interest rates 25 bps (instead of 50 bps) was not unanimous and “a few” officials were in favor of a 50 bps hike. The verbiage of “a few” suggests more than two officials (outside of the historically hawkish Loretta Mester and Jim Bullard) were in this cohort. Broadly speaking, Fed officials remain wary of upside risks to inflation, as well as labor market tightness, and noted that an “insufficiently restrictive” policy stance could dampen any short-term disinflation trends. Given the recent trend reversal in some key economic indicators released after this meeting, the market’s focus on the next FOMC meeting (March 22) may become increasingly acute. 

Moreover, US GDP growth for the fourth quarter was released on Thursday (February 23), reflecting a downward revision to 2.7% (annualized) from the forecasted estimate of 2.9%. Additionally, the personal consumption expenditures (PCE) price index increased by 3.7% during the fourth quarter, reflecting an upward revision from the previously reported 3.2% (core PCE revised upward to 4.3% from 3.9%). 

Notably, amidst the prevailing macroeconomic uncertainty, digital assets have shown remarkable resilience since the start of the year, materially outpacing risk assets like US equities. Crypto-specific regulatory headlines in the US have been a headwind for digital asset performance, but other jurisdictions outside the US appear to be pursuing more accommodative approaches to regulating the industry. For example, VARA in the UAE published a comprehensive framework for regulating digital assets and the Hong Kong Securities and Futures Commission announced intentions to allow retail investors to trade digital assets (namely bitcoin and ether) on licensed exchanges. Consequently, we believe investor sentiment in this space has been more balanced despite recent US enforcement actions.

Chart 1. YTD performance of risk assets

chart showing YTD performance of risk assets

Web3 & L2s

Yesterday (February 23), Coinbase unveiled the testnet launch of Base – a secure, low-cost, developer-friendly Ethereum L2 designed to help scale the web3 crypto-economy. Base is being built on the OP Stack in collaboration with Optimism, has no token, leveraging ETH as the native asset for gas. The overarching goal of Base is to be a development hub for Coinbase’s on-chain products and foster an open crypto ecosystem for third party wallets, dapps, and developers. By creating a trustworthy and easy-to-use L2 environment, Base aims to accelerate the development of dapps with real utility. Coinbase is targeting a mainnet launch of the Base network in 2Q23. 

In other L2 news, the optimistic rollup Arbitrum(1) surpassed Ethereum in terms of the number of daily transactions for the first time earlier this week. The total-value-locked (TVL) on Arbitrum has grown from just over ~US$1B at the beginning of the year to ~US$1.9B at current, driven in large part by the popularity of the decentralized perpetual exchange, GMX, which accounts for ~29% of the network’s TVL. Whether this increased activity on Arbitrum is sustainable or moreso a function of users’ anticipation of a potential token launch/airdrop (long-rumored but unconfirmed) remains to be seen. Nevertheless, as we previously discussed in our Monthly Outlook from August 2022 (Could L2s eat Ethereum’s lunch?), the growth and adoption of L2s should continue to be a critical component of Ethereum’s ability to scale and remain competitive with alternative L1s. 

Chart 2. Daily transactions (Arbitrum vs Ethereum)

chart showing daily transactions (Arbitrum vs Ethereum)

Crypto & Traditional Overview

(as of 4pm EST, February 23)



Mkt Cap

24 hour change

7 day change

BTC correlation



















Gold (Spot)






S&P 500


















Coinbase Exchange & CES Insights

Volumes on exchange have steadied at levels higher than we saw late last year. The mix of assets continues to reflect a healthy market with BTC and ETH making up just over 50% of the total volumes. That compares to some of the more stressful weeks of 2022 when we saw BTC and ETH comprise more than 70% of volumes. 

Traditional and crypto focused hedge funds have been net buyers recently, as have traditional VCs. Most other groups have been passive sellers. In speaking with clients, there is surprise at how well crypto has traded over the past week. Basis and perp funding rates remain in positive territory suggesting there is still decent length in the market. With recent news reports suggesting Hong Kong is welcoming crypto with Beijing’s quiet support, investors could be positioning for increased buy flows in the region.

coinbase exchange volume chart 2.23.23
pie chart of most traded coins on coinbase exchange 2.23.23

Financing Rates



CeFi Min

CeFi Max







USD - 1m




USD - 6m











Notable Crypto News


  • Google Cloud partners with Tezos blockchain to bring web3 technology to its customers (TechCrunch)
  • Crypto Hedge Fund Galois Capital Shuts Down After Losing $40M to FTX (Coindesk)


  • SEC’s Shadow Crypto Rule Taking Shape as Enforcement Cases Mount (Coindesk)
  • Regulation by Enforcement Continues to be the SEC Strategy for Crypto (Messari)


  • Hong Kong plans to lift ban on retail crypto trading (The Block)
  • Beijing Using Hong Kong as Crypto Testing Ground (Blockworks)
  • Paxos in 'constructive discussions with the SEC,' ends relationship with Binance (The Block)
  • Blur Overtakes OpenSea as Ethereum NFT Trading Skyrockets (Decrypt)


View From Around the World


“Hong Kong Securities and Futures Commission (SFC) is consulting on whether to open retail investors to invest in crypto. Under these plans, bitcoin and ether would be opened up to retail customers and licensed exchanges would be required to ensure clients have ‘sufficient knowledge of virtual assets’ before they are allowed to trade. All digital asset trading platforms operating in Hong Kong or actively marketing to Hong Kong investors would need to be licensed by the SFC. ” (Financial Times)

“Nomura’s Laser Digital has invested in Infinity Exchange, a DeFi protocol for institutional lending and borrowing. This exchange aims to provide users access to both floating and fixed interest rates, as well as the trading of interest rates. This round of fundraising is in addition to the $4.2 million seed round Infinity raised last September from several backers, including GSR and Flow Traders.” (The Block)


“Tough capital rules for banks holding crypto assets must be fast-tracked in the European Union's pending banking law if Europe wants to avoid missing a globally-agreed deadline, the bloc's executive has said. This is in reference to the January 2025 deadline set by the global Basel Committee of banking regulators from the world's main financial centres, for implementing capital requirements for banks' exposures to crypto assets such as stablecoins and bitcoin. To enforce Basel's crypto rules, the EU could either propose a new law, or expand the banking law it is now finalising as called for by the European Parliament.” (Reuters)

The Week Ahead

Feb 27

Feb 28

Mar 1

Mar 2

Mar 3

Notable Macro

US Consumer Confidence


Notable Earnings

Marathon Digital


ETH Sepolia Hard Fork


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