PTGR – Strategic Digital Asset Management


APRIL 2023

All Articles


Dear valuable clients,

Please find the following key insights from our aggregated research:

Overall Take-Home Message:

Despite many market obstacles, the prices of cryptocurrencies, such as Bitcoin and Ethereum, saw considerable advances in March. Market capitalization of bitcoin increased by 23%, exceeding that of conventional assets like the S&P 500 and Nasdaq. Following suit, Ethereum had a 13.5% growth in March as investors anxiously awaited the Shanghai upgrade.

Santiment, a crypto analytics company, has noticed a rise in large-scale Bitcoin transactions in March, and given that profit-taking appears to have started in late January, it is advised that investors wanting to see Bitcoin rise to $35,000 or higher exercise cautious. This study shows that the social volume and social dominance of Bitcoin point to growing enthusiasm and interest. Overexcitement, according to the analytics company, may be a sign of a local top, and there is a divergence between Bitcoin’s trading volume and price, which points to exhaustion in the price movement. Also, long-term investors are displaying higher unrealized gains than short-term investors, which suggests a similar pattern to 2019 where a strong surge resulted in a bleedout.

In the meanwhile, the US government sold 9,861 BTC on March 14, 2023 for almost $216 million, which was a portion of the 51,352 Bitcoin it had taken from James Zhong in November 2021 for wire fraud connected to Silk Road. In four groups over 2023, the government intends to liquidate the remaining 41,490 BTC. Because of worries about selling pressure, BTC traders originally responded badly, but the cryptocurrency is now stabilized and is now trading around $28,000.

American crypto companies now have fewer banking options as a result of the recent bank bankruptcies. It was noteworthy that the FDIC eventually sold Signature Bank to Flagstar Bank, but the depositors associated with the digital banking sector were not transferred. Initially, Signature Bank had its deposits and the majority of its assets moved to a bridge bank run by the FDIC. While fewer institutions will be ready to accept them, these depositors are urged to shift their money before April 5th. The acquisition agreement for First Citizens Bank, which agreed to buy SVB, ensured that cryptocurrencies and debts backed by cryptocurrencies were not included in the transaction.


1) What happened in March?

After last month’s events, which included Silvergate’s closure and the following regulator takeover of Signature Bank and Silicon Valley Bank, values of US banks have fallen amid the persistent anxiety surrounding smaller banks in the nation.

As part of emergency procedures directed by Swiss authorities to maintain the financial stability of the nation, Credit Suisse was earlier that day bought by UBS Group in Europe for more than $3 billion. As part of the arrangement, the Swiss National Bank promised to give approximately $100 billion in liquidity to USB.

The $3 billion acquisition reflects a significant discount from Credit Suisse’s market value of about $8 billion on March 17.

In March, the Federal Reserve Bank of America (FED) released updated balance sheet data. It is reasonable to state that when the figures are looked at, the bank’s policy shift can be seen.

In April of last year, the FED’s balance sheet peaked at slightly about $9 trillion USD. Since then, in an effort to tighten financial conditions, the FED has been attempting to reduce its balance sheet. It may sound like a lot, but the decline from April 2022 to March 8, 2023 was only around 600 billion USD, or roughly 7%, on the bank’s balance sheet. The most recent data released yesterday was much more intriguing than the FED’s balance sheet growing by $300 billion USD in only two weeks!

In response to a string of financial meltdowns in the US and Europe, the US Federal Reserve has initiated a coordinated effort with five other central banks to maintain the US dollar’s flow. A strategy to improve liquidity circumstances will be implemented, according to the Federal Reserve Board, using “swap lines” – an agreement between two central banks to exchange currencies.

The process of money printing was first talked about as QE (Quantitative Easing), followed by Fed “Emergency Loans,” and now, “USD swap lines” between central banks.

In other words, quantitative easing has resumed in full force.

The larger crypto community is still debating the effects of the closure of three significant US banks. California’s Department of Financial Protection and Innovation closed Silicon Valley Bank (SVB), which had previously assisted entrepreneurs in a number of innovation-related businesses, on March 10. On March 12, Signature Bank, which provides services to several bitcoin businesses, saw a similar outcome. When SVB was shut down, it had a particularly negative impact on the USDC stablecoin since there was a lot of concern about how Circle’s exposure would affect its capacity to handle redemptions.

On March 13, Coinbase CEO Brian Armstrong said on Twitter that the US cryptocurrency exchange has previously thought about solutions that would avoid or fill in gaps caused by the most recent bankruptcy of a major bank. After the Silicon Valley Bank debacle, the CEO of Coinbase contemplates on banking features.

Kraken said on March 1 that it will stop utilizing the cryptocurrency-focused Signature Bank. Non-corporate Kraken customers will no longer be able to use Signature to make deposits or withdrawals in US dollars. One of the most well-known cryptocurrency exchanges in the US, Kraken, apparently intends to establish its own bank. The announcement coincides with a difficult regulatory climate.

2) Where do we stand?

Despite increasing concerns about inflation, a tight job market, and the potential for further Federal Reserve interest rate rises, the leading cryptocurrencies fared well in March

On March 28, the U.S. Commodities Futures Trading Commission brought legal action against Binance, its CEO Changpeng Zhao, and Samuel Lim, a former top compliance officer.

According to the lawsuit, Binance broke US derivatives laws by providing its trading services to Americans without first registering with the proper market regulators. The CFTC charged Binance with putting business success ahead of regulatory compliance.

The CFTC has filed accusations against Zhao and Lim in addition to the exchange, which is another reason why the action gained attention. Also, Binance and its CEO have been charged by the US government with seven breaches of the controlled foreign business regulations and the Commodities Exchange Act.

The CFTC has taken aggressive action against big businesses; it initiated legal proceedings against Tether and Bitfinex in the past, which had a significant impact on the cryptocurrency scene. It appears that the case against Binance will be no different.

The CFTC has brought significant charges against Binance, but the cryptocurrency exchange faces other threats as well. The SEC, Department of Justice, and Internal Tax Service are all presently looking into the exchange.

We saw US regulators (both the SEC and CFTC) continuing their method of regulating through enforcement, which may be related to the banking failures and regulatory concern with the business. In regard to its staking service, a few listed crypto assets, and other goods and services, Coinbase acknowledged that the SEC had sent it a Wells’ Notice. Although this is not an official enforcement, it may be the start of one. According to a blog post, Coinbase plans to defend itself. We may potentially gain some real clarity on the US securities regulation as it applies to crypto assets, therefore it will be fascinating to watch whether this does in fact get to court.

Amidst these regulatory crackdown, the largest asset manager in the world, BlackRock, stated on Thursday that despite market expectations for a rate freeze, it thinks the US Federal Reserve would continue its campaign of future rate rises. Based on past performances throughout 2021 and 2022 and recent comments from the central bank, analysts think it may indicate that a tumultuous road lies ahead for digital assets in the immediate future. In the aftermath of the Fed’s aggressive rate rises, Bitcoin (BTC), which has so far managed to climb a wall of fear, profited from the uncertainty in the banking industry as investors looked to hedge by moving to higher-quality assets. They expect the trend of rising prices for digital assets to continue in the near future.

On Chain Data:

According to data given by Glassnode, network membership continued to grow, dominating on-chain activity, with the number of new organizations joining the network reaching its greatest level annually. Since early 2021, the number of Bitcoin addresses with more than 0 BTC has increased at the quickest rate (non-zero addresses). So, it appears that the underlying network activity is sufficiently supporting the present pricing level.

Despite this, the Bitcoin mempool is not currently too congested compared to the previous week, which suggests that the recent surge in interest in Bitcoin has partly leveled out. Valid transactions have a “waiting space” in the Bitcoin mempool before being included in a block.

The Bitcoin network’s hash rate has been rising concurrently, and another significant rise in the network difficulty of about 7% is expected. The projected number of calculations required to determine the hash of the next block, which is used as a proxy for the network’s level of security, is represented by the network difficulty.

In addition, there haven’t been any significant exchange inflows that may indicate selling pressure at these higher price levels, therefore exchange volume has been somewhat modest. On the other hand, Bitcoins resumed their previous movement out of exchanges, notably into larger wallet sizes, which suggests that some whale purchasing still took place.

Last week, we also observed continuous reductions in Ethereum exchange balances, which is very encouraging. According to the relative Gas usage (i.e., transaction fees), transactions on the Ethereum blockchain currently appear to be dominated by transactions other than NFTs, DeFi, ERC-20, or Stablecoins. This suggests that pure investment demand has also been a dominant force in the most recent price increases.

Bitcoin supply that is idle breaks further records

Despite the fact that Bitcoin is renowned for its capacity to cause supply shocks, the most recent data emphasizes the long-term trend. Despite the return of the Bitcoin price this year, the supply that has lain dormant for at least ten years is now at fresh all-time highs. This week, 2,691,418.953 BTC, which had not left wallets since at least April 2013, broke that record once more. This is equivalent to 12.81% of the 21 million BTC maximum supply, or 13.91% of the quantity mined to date.

As a result, any significant demand for BTC will result in a decreasing supply for purchasers to choose from. Exchange balances are still close to their lowest levels since early 2018, Glassnode confirmed, albeit they will marginally increase in 2023.

The predominant emotion, according to the traditional sentiment gauge, the Crypto Fear & Greed Index, is still “greed.” On April 3, greed was close to its greatest point since the all-time highs of Bitcoin in November 2021, measuring 63/100. Late last month, the analytics portal Game of Trades issued a warning: The crypto market is growing too enthusiastic.  Even while it is high, the degree of greed, as shown by the Index, still has a lot of potential to rise before reaching an “extreme” area closer to 90, which is a typical warning that a large market drop is overdue.

What Could Happen?

The fact that 2024 will be the year of Bitcoin’s half event is one of the reasons why analysts are positive about the cryptocurrency. Every four years, there is a Bitcoin halving event in which the currency’s miner payouts are cut in half (the miner payment will be decreased to 3.125 BTC). Given that halving serves to reduce supply, this occurrence is widely seen as being favorable for Bitcoin’s price. In the past, halving has been viewed as a highly positive indicator for boosting Bitcoin’s price.

If we carefully examine the data, previous Bitcoin halving occasions have been able to identify long-term positive drivers for the price of Bitcoin. The deflationary tendency of Bitcoin is closely related to the halving of its supply, which drives up the price of BTC. The entire quantity of Bitcoin is capped since it is a decentralized cryptocurrency and cannot be issued by governments or any central banks. Big investors, sometimes referred to as “Bitcoin Whales,” have resumed buying bitcoin. The major Bitcoin whales are keeping between 1,000 and 10,000 BTC in their wallets, according to data from on-chain aggregator Santiment. This shows that investors have been stocking up on BTC, which may be a hint of a recovery in the price of Bitcoin.

The much awaited Shapella upgrade, which combines the Shanghai and Capella updates, will go live on April 12, according to the Ethereum Foundation. The advancements will make it possible to cash out from Ethereum 2.0 staking contracts. The initial launch of the staking contract took place in December 2020. It only permitted deposits of one-way ether; this will change following the update. Around 18 million ETH, or about $32.5 billion, have been invested by users into the Ethereum staking contract as of today.

The estimations of ETH sell pressure differ amongst analysts. On centralized or decentralized exchanges, the majority of customers choose liquid staking derivatives. With the Shapella improvement, there probably won’t be any additional motivation to sell these stakers because they are now liquid. Now, decentralized LSD exchanges like Lido represent about 33.2% of all ETH deposits on the Beacon Chain. The remainder is deposited via controlled exchanges like Coinbase, Binance, and Kraken, totaling about 27.1%. As a result, liquid staking mediums are used to deposit 60.3% of the staked ETH. On the other hand, about 40% of the total is made up of illiquid ETH, which is placed into the contracts directly by establishing nodes or via outside service providers. After being unlocked, these will be most likely to sell.

Nansen’s study indicates that between 3.62 million and 4 million ETH, or around 59% of the illiquid deposits, are profitable. When withdrawals are authorized, these users are more likely to undergo partial or full withdrawals. The Nansen research indicated that there may be some illiquid stakers who decide to re-stake, and that there may be a total selling pressure of between 1.2 million and 3 million ETH. But not all ETH will be immediately thrown onto the market.


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