Introduction
Risk markets continue to trade poorly as investors pivot from concerns over inflation to concerns over global growth, due to potential (additional) COVID-19 related lockdowns in China and Russia blocking gas exports to EU countries. The U.S. FOMC decision on May 4 will be a major macro event, particularly after the 1Q22 GDP miss. In the crypto space, we’re seeing more developments on the algorithmic stablecoin front as well as innovations in NFT launches following the Moonbirds mint two weeks ago. We discuss these in our market view below.
Also, we highlight a new report, Demystifying NFTs, where we aim to go beyond the basics of NFTs and map out the current ecosystem – assessing where things are headed and how institutional investors can best approach the space. We analyze the size/scale of the NFT market and explore various trends in liquidity and concentration. We also categorize different segments of the NFT space and explore the notion of “utility”. Lastly, we discuss several innovative use cases for NFTs outside of art/collectibles and contextualize the breadth of current/future institutional involvement in the space.
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Market view
Stablecoin competition
The recent proliferation of platform-specific algorithmic stablecoin launches seems to be an extension of two important themes from last year: the rise of alternative layer-1 (L1) networks and the stablecoin movement that took off in earnest due to DeFi. In our view, this was best encapsulated by the launch of Terra, which by the end of last year had total value locked (TVL) on its network that outpaced other major L1s like Solana and Avalanche. In fact, current TVL on Terra is ~US$29.1B which is second only to Ethereum’s $114B, according to DeFiLlama.
That said, more than half of that amount sits in Terra’s lending/borrowing platform Anchor, attracting participants looking to capitalize on the 19.55% yield for using stablecoin TerraUSD (UST). New DeFi protocols have been introduced on the blockchain including Astroport, Mirror and Prism, as well as 4pool to help concentrate liquidity as the competition for stablecoin market share heats up.
Chart 1. Market capitalization of key stablecoins
Terra pioneered a centralized planning approach to building crypto ecosystems, as previously decentralized applications formed organically on networks like Ethereum. Other alt L1s like Near and Tron now seem to be following in Terra’s footsteps. Near launched its USN algorithmic stablecoin on April 25, and Tron plans to launch USDD on May 5. Algorithmic stablecoins maintain price stability by balancing its supply against another token, creating a symbiotic relationship such as the one between UST and LUNA on the Terra blockchain.
Tron’s USDD stablecoin has attracted attention because the decentralized autonomous organization (DAO) managing its reserves “will set its basic risk-free interest rate to 30% per annum.” That compares with a minimum ~11% rate offered by Near’s Decentral Bank, the DAO managing Near’s reserve fund.
At this time, Tron has not specified the assets that will be held in its announced $10B reserve fund, but the size would be akin to the Luna Foundation Guard’s (LFG) ultimate reserve target for UST. Recall that LFG’s accumulation of bitcoin for its reserves helped support the market from a technicals perspective (it currently holds 42,530.83 BTC or ~$1.7B.) Near’s reserves will include a combination of NEAR tokens and other stablecoins (initially Tether or USDT.)
What motivates this stablecoin competition is interest in capturing a slice of the liquidity pie that makes up the broader DeFi sector, reminiscent of the Curve Wars we saw in 2021. Doing so reduces transactional frictions, helps keep users on the platform and thus grows the value of the network. We think the success of Near and Tron could help shape the development of future crypto ecosystems going forward.
Innovations in NFTs
NFT profile-picture project, Moonbirds, has attracted significant attention recently after minting on Ethereum on April 16 and quickly outpacing the vast majority of historical NFT collections in terms of both trading volume and floor price velocity. The project was launched by the PROOF Collective, a private group led by Kevin Rose (a well-known internet entrepreneur in NFT circles) that is accessible only to those who own one of 1,000 NFT passes.
Moonbirds minted for 2.5 ETH (a relatively high mint price for any NFT collection) and within 24 hours generated over 65,000 ETH in secondary trading volume resulting in a floor price of over 16 ETH. Much of this initial traction could be attributed to the success of the PROOF Collective membership passes which minted in December 2021 for an average price of ~2 ETH. Days prior to the Moonbirds mint, these passes had a floor price of over 80 ETH (though they have since risen to ~125 ETH or approximately $362,000 each as we go to publish.)
Initial pricing for Moonbirds was predicated on the logic that the NFT collection’s economics should be based on the aggregate value of the PROOF Collective. In other words, some participants assumed that given that the total supply of Moonbirds (10,000) is 10x the amount of PROOF passes (1,000), that would imply each NFT in the collection should be worth at least 8 ETH. Momentum picked up and the floor price for Moonbirds briefly peaked at ~40 ETH during its first week of trading before settling at a still high ~26 ETH. That amounts to total secondary sales volume of ~118,900 ETH as of publication.
While the structure of this launch (balancing the value of the NFT collection against the value of the PROOF pass) is not necessarily new, the success of Moonbirds may represent a model of direct access that could define future NFT launches. That said, this may have been marred by the departure of Ryan Carson, one of the co-founders of PROOF and Moonbirds, who is leaving to start his own NFT investment vehicle. His exit so soon after the Moonbirds mint has been viewed by critics as a potential conflict of interest, while it has simultaneously drawn scrutiny to the management of the PROOF Collective itself.
Coinbase Exchange and CES Insights
Exchange
Trading volumes on the exchange have remained in a sideways trend over the past week despite the volatility as BTC has seen its share of the volume traded jump to almost 32%. This comes on the back of BTC dominance slowly increasing to 42% indicating some risk-off sentiment within crypto taking hold given the “choppy” price action over the last week with significant sell offs in U.S. equities as well. ETH remains in the second spot of the most traded coins while APE and JASMY have overtaken SOL this week.
APE has shaken off some negative headlines after a number of Bored Ape Yacht Club (BAYC) NFT owners were targeted in a phishing attack losing several million dollars worth of NFTs. While the buy ratio in APE has remained very volatile on Coinbase exchange, Yuga Labs’ Otherside metaverse land auction has driven social media engagement resulting in an exponential rise of APE reaching new ATHs at just under US$20.
Coinbase Execution Services
The trading environment over the last week was difficult with significant volatility in both directions. While early last week, the markets looked like they were on the way to new local highs as BTC touched $43,000, this rally has since dematerialized as quickly as it appeared as the risk-off sentiment spilled over from traditional financial markets.
On the back of this we have seen mostly two way flows over the course of the week by macro accounts while the trading volume was concentrated in BTC and ETH for the most part as longer tail assets such as SOL have been out of favor. As BTC is currently holding the all important $37,000 level we have started to see some cautious capital deployments from institutional clients this week.
Bitcoin Technicals
Since rejecting the EMA100 and closing below the EMA9 on April 21, BTC is basically flat over the last week. The chart still remains bearish given BTC has rejected the EMA9 four times in the last week and is struggling to reclaim the 23.60% Fibonacci (FIB) line. Until BTC closes above the EMA100 ($42,500), retesting the $38k level followed by the next levels of support around $35k and $32k is still possible. The MACD is in oversold territory so we could see a potential restest of the 23.60% FIB ($41,500) before rejecting it, given that the move on Thursday (April 28) was on very low volume.
View From Around the World
Asia
Three cryptocurrency exchange-traded funds scheduled to launch on the CBOE Australia exchange on April 27 have been delayed. The Australian Financial Review has reported that this is due to “checks” still being undertaken by a "prime" or "executing" broker who has yet to approve the products due to a delay in appointing a market maker for the product's launch. (CoinDesk)
OCBC Bank and MetaVerse Green Exchange, a digital green exchange licensed and regulated by the Monetary Authority of Singapore, have announced tokenized carbon credits in the form of MVGX’s Carbon Neutrality Tokens (CNTs), for large corporates to offset their carbon emissions. The CNTs are supported by MVGX’s proprietary non-fungible digital twin distributed ledger technology that provides corporates with a verifiable, immutable and constantly updated record of the carbon performance of the climate-action projects that they have invested in through these digital carbon credits. (MVGX)
Europe
The world's first exchange-traded product (ETP) that combined exposure to bitcoin (BTC) and gold has been listed on the Swiss SIX stock exchange. The product was developed by ETP issuer 21Shares and crypto data provider ByteTree Asset Management. The ByteTree Asset Management BOLD ETP will track a customized benchmark index comprising bitcoin and gold, which rebalances on a monthly basis according to the comparative volatility of the two assets. Whichever has been less volatile over the past 360 days will be given the higher weighting. (CoinDesk)
Grayscale Investments LLC, which runs an almost $30 billion Bitcoin trust, is getting ready to expand into Europe, according to Chief Executive Officer Michael Sonnenshein. The company has yet to decide on which exchanges or in which countries it will offer products, or which offerings to launch first, Sonnenshein said in an interview in London on Tuesday. He added that he’s holding meetings with various local partners to discuss the timeline. Grayscale plans to run a series of pilot tests in different markets. (Bloomberg)
