Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch, and I’ll walk you through the latest and greatest in digital assets this week so far. Find me on Twitter at @FrancesYue_ to send feedback or tell us what you think we should cover.
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Crypto in a snap
You know how bad the market has been when the top five performers, among the 100 largest tokens, are all dollar-pegged stablecoins.
Fears around the Fed tightening its easy monetary policy is not fading, and bitcoin BTCUSD, +0.21% lost 13.6% over the past seven days. Ether ETHUSD, +2.32% is looking at a 22.5% loss over the past seven trading sessions. Federal Reserve Chairman Jerome Powell said on Wednesday that the central bank “is of a mind” to raise interest rates in March to fight inflation.
% 7-day return
Source: CoinGecko as of Jan.27
% 7-day return
Source: CoinGecko as of Jan.27
Buying the bitcoin dip?
Some analysts argue that bitcoin hasn’t bottomed yet, as we’ve discussed here.
However, according to Louis LaValle, managing director at crypto fund manager 3iQ Digital Assets, bitcoin is “at really attractive buying levels if you are a long-term buyer.”
“Because you could be averaging around a 50% discount versus where we saw the all time highs,” LaValle told Distributed Ledger in an interview.
The price range between $30k and $40k is critical for bitcoin. “At a $30,000 price point, I think most folks are buyers, and at $40,000, what you have to watch is will the trend reverse and will we break out to the upside,” LaValle said.
But the range may not hold for an extended period, according to LaValle, as the market eyes the Fed meeting in March, which is less than two months away.
“I don’t really think we potentially test below $30k,” LaValle said. “Again, I think we could, but my rationale is that the risk for those 70% to 80% type drawdowns that we saw in 2014 or 2017 during the last bear cycles is much lower today.”
“Because we have more public adoption, more institutional investor participation. It’s a much different ecosystem,” LaValle said.
DeFi tumbles, NFT booms
Most crypto assets have been hit hard, but not equally.
Bitcoin lost 27% for the past month, while ether posted an even larger loss of 38%. DeFi Pulse Index, a capitalization-weighted index that tracks the performance of decentralized finance tokens, is down 39% from a month ago, and down 75% from its all-time high in May.
Prices of some DeFi protocols are dragged down by those of blockchains they are built on, such as Ethereum, Solana SOLUSD, +3.60% and Avalanche, 3iQ’s LaValle noted.
LaValle also highlighted the amount of leverage on many DeFi protocols. “If you have forced liquidations or forced selling that’s going to be more pronounced if there’s any cascading effect,” LaValle said.
A total of $295.4 million has been liquidated on decentralized credit platforms Aave, Compound and MakerDAO over the past seven days, according to data from Dune Analytics.
In contrast with DeFi, non-fungible tokens, or NFTs, are seeing a boom. At OpenSea, the largest NFT marketplace, monthly volume and the number of active traders on Ethereum are both on pace to hit a record in January.
Rob Frasca, managing director at crypto venture capital fund COSIMO X, said that although he believes in DeFi’s potential in the long term, NFTs now attracts more attention from the mainstream. “We’re moving from this kind of early adopters, who are very tech savvy, crypto savvy, to the mainstream, and those people are going to gravitate towards things that they’re familiar with,” Frasca said.
“You literally go on there and you create an NFT and you’re up and running. Whereas if I try to tell you, ‘hey, I want you to join a liquidity pool in decentralized finance.’ You’re going to be like, ‘what’s a liquidity pool,’ right?” Frasca said.
Factor pricing of cryptocurrencies
Bitcoin has been trading lately in tandem with the stock market, especially growth stocks. “This is the case for any emerging sector,” said Will Cong, a professor at Cornell University.
“Initially, when they are small, there are random shocks, random events that are not very related to systematic factors in the economy. But when it grows to be big — and that’s the case with tech sector as well — it just becomes more correlated because business have been integrated,” Cong said.
Meanwhile, some systematics factors, such as market, size, momentum, value, and networks, have started to emerge within the crypto space, according to Cong, who co-authored a 2021 research paper about crypto pricing models.
Cong’s study noted, among other findings, that portfolios taking long positions in small-cap crypto assets and shorting the large-cap ones tend to generate a significant profit or loss in a short period of time.
It holds true in the recent market turmoil, as the large and medium capitalization index posted a 28% loss in January while the small cap index declined 35%, according to a Tuesday report by research firm Arcane research.
Crypto companies, funds
Shares of most crypto-related companies also suffered from major losses.
Shares of Coinbase Global Inc. COIN, +4.34% traded down 4.2% to $169.97 Thursday afternoon, on track to close at a record low. It was down 23% for the past five trading sessions. Michael Saylor’s MicroStrategy Inc. MSTR, +6.10% traded 8.6% lower on Thursday to $323.36, and has lost 29% over the past five days.
Mining company Riot Blockchain Inc. RIOT, +9.29% shares fell 6.4% to $13.42, with a 23.1% loss over the past five days. Shares of Marathon Digital Holdings Inc. MARA, +11.02% plunged 7.2% to $219.92, and are down 19.4% over the past five days. Another miner, Ebang International Holdings Inc. EBON, -1.07%, traded 18% lower at $0.89, with a 2.6% gain over the past five days.
Overstock.com Inc. OSTK, +9.76% inched 0.4% lower to $39.60. The shares went down 11% over the five-session period.
Block Inc. SQ, +4.49% ’ s shares are down 5% to $105.48, with a 17.4% loss for the week. Tesla Inc. TSLA, +2.08%’s shares traded down 8.7% to $855.60, while its shares logged a 14.1% loss for the past five sessions.
PayPal Holdings Inc. PYPL, +3.42% lost 0.7% to $158, while it recorded a 8.5% loss over the five-session stretch. NVIDIA Corp. NVDA, +4.08% lost 4.11% to $218.36, and was looking at a 9.5% loss over the past five days.
Advanced Micro Devices Inc. AMD, +2.57% went down 6.7% to $103.32 and lost 15.2% over the past five trading days, as of Thursday afternoon.
In the fund space, ProShares Bitcoin Strategy ETF BITO, +6.54% was 2.3% lower at $22.69 Thursday, while Valkyrie Bitcoin Strategy ETF BTF, +6.21% was down 2.6% at $14.05. VanEck Bitcoin Strategy ETF XBTF, +6.35% fell 2.5% to $35.51.
Grayscale Bitcoin Trust GBTC, +6.74% was trading at $24.40, off 4% Thursday afternoon.
Crypto Lending Firms Celsius Network, Gemini Face SEC Scrutiny (Bloomberg)
IMF urges El Salvador to end bitcoin’s legal tender status as the crypto loses half of its value since November (MarketWatch)
Facebook’s Cryptocurrency Venture to Wind Down, Sell Assets (Wall Street Journal)
FTX US Attains $8B Valuation in $400M Fundraise Including SoftBank, Temasek (CoinDesk)
White House Is Set to Put Itself at Center of U.S. Crypto Policy (Bloomberg)
Putin Backs Crypto Mining Despite Bank of Russia’s Hard Line (Bloomberg)