PTGR MARCH HIGHLIGHTS
Dear valuable clients,
Please find the following key insights from our aggregated research:
Overall Take-Home Message:
Market enthusiasm in January gave way to anxiety in February as investors drove down the prices of the majority of the main digital assets.
The pullback occurred at the same time as a series of worrying increases in consumer expenditure and a steady increase in unemployment claims, which followed tepid consumer price index data from the first part of the month. It also occurred in the midst of a frenzy of regulatory action in the United States that sparked worries about overreach or improper focus on the part of government agencies.
Bitcoin was recently trading under $23,000, unchanged from a month ago, although being far down from its mid-February highs above the $25,000 mark. At the end of February, Bitcoin had increased by more than 40% year to date.
The second-largest cryptocurrency by market value, ETH soared to a 90-day high of $1,732 on February 21 after beginning the year at $1,192, signifying a 45% year-to-date growth (year-to-date)
Market interest in liquid staking derivatives increased due to Ethereum’s impending Shanghai upgrade, with LDO, the governance token of the decentralized autonomous organization that runs liquid staking provider Lido, rising 33% for the month. The native RPL token of its rival, Rocket Pool, increased 18%.
According to Katie Talati, head of research at the crypto asset management company Arca, “I think the narrative of ETH withdrawals and the Shanghai update that’s coming made a lot of people worry that those wouldn’t perform as well.” Yet many people have collected income from the fees they have earned over this staking time.
NEWS UPDATE OVERVIEW
1) What happened in February?
Crypto exchange Binance has announced it is prepared to pay fines to settle ongoing investigations by U.S. regulators and law enforcement. The company had “grown too fast,” according to Patrick Hillmann, Binance’s chief strategy officer. As a result, he said, it was not initially aware of the myriad laws and regulations designed to prevent money laundering, sanctions evasion and corruption. As a result, he said, the exchange expects to be fined, but wants to work with regulators to determine what measures are needed to make amends.
The SEC’s recent fine against rival exchange Kraken for allegedly violating exchange laws has shown that crypto exchanges are coming under increased regulatory scrutiny. Kraken had to pay $30 million and stop staking for U.S. customers. It remains to be seen whether and in what amount Binance will be affected by a fine. In any case, cooperation with regulators is crucial to meet regulatory requirements and to strengthen customer and public confidence in the cryptocurrency industry.
Colombia’s judicial system conducts metaverse experiments
A recent article states that a Colombian court just held the first ever judicial trial to take place in the metaverse, with the court magistrate stating that it seemed more genuine than a video chat. A court case involving players in a traffic conflict was held in the metaverse on February 15 according to a Reuters story that was released on February 24. The lawsuit, which lasted over two hours and pitted a local transport union against the police, will partially proceed in the metaverse. The metaverse is another possible location for the judgment.
In a digital courtroom with Magistrate Maria Quinones Triana clothed in formal black robes, the participants were represented by avatars. One of the first nations to test out legal processes in the metaverse is Colombia, it was stated.
This follows a previous study conducted by CoinWire on Jan. 16 that revealed 69% of respondents thought the metaverse will eventually change social behaviors as a result of novel ways to leisure and activities.
The World Economic Forum tried out some Metaverse experiences in January of this year. The conference included its own 3D immersive digital sessions, dubbed the “Global Collaboration Village,” where attendees could interact with the forum.
Hong Kong’s SFC is planning to introduce Bitcoin and Ethereum retail trading.
The Securities and Futures Commission of Hong Kong issued an official statement on Monday outlining its proposal to enable individual investors to trade cryptocurrencies such as Bitcoin and Ethereum. Retail investors will be able to trade major cryptocurrency assets on exchanges approved by the regulator, according to the consultation document issued. Yet, any virtual asset trading platforms must consider investor protection. This implies they must check items such as exposure limits, risk profiles, and so on.
Without naming the large-cap assets in which people would be permitted to trade, the agency underlined that they must be included on at least two acceptable, investible indexes from independent sources. Particularly, one of them should have had roots in the traditional banking industry. The consultation session, according to the SFC, will finish on March 31. It plans to allow retail trading under the new crypto exchange licensing scheme. As previously stated, the same is slated to take effect in Q2, specifically on June 1 of this year. According to the most recent proposal, all trading platforms that want to apply for a license should begin to assess and change their systems and controls in order to prepare for the new regime.
China is apparently supporting Hong Kong’s ambition to become a cryptocurrency center.
According to a recent Bloomberg story, China is supposedly supporting Hong Kong’s aim of becoming a crypto powerhouse. Officials from China’s Liaison Office, according to the article, have been regular attendees at Hong Kong’s crypto meetings. Quoting anonymous sources, Bloomberg underlined that their interactions had been pleasant. The following are the results of a survey conducted by the National Institute of Standards and Technology (NIST).
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 February. Late in February, the price of bitcoin briefly reached $25,000 before falling to $23,327 at the month’s end, a gain of 1.3%. The price of Ethereum (ETH) increased 3.7% in February, ending the month at $1,630. Matrix (MATIC), one of the top 10 most valuable cryptocurrencies by market capitalization, had the strongest performance in February with a rise of 6.6%. With a loss of 7.4%, Dogecoin (DOGE) had the lowest performance.
The vast majority of clients still cannot access their frozen assets more than three months after FTX filed for bankruptcy. According to the U.S. Commodities Futures Trading Commission (CFTC), FTX client money are missing to the tune of more than $8 billion. Creditors “will likely not come close to collecting the full amount of their losses, and it may take some time to recover anything,” according to Judge John Dorsey, who is presiding over the FTX bankruptcy case.
Sam Bankman-Fried, the founder and CEO of FTX, received extra bad news in late February when federal prosecutors added four additional financial crimes to the eight fraud accusations that had already been brought against him. Conspiracy to run an unauthorized money transfer company and conspiracy to conduct bank fraud are included in the new accusations. Bankman-Fried was detained and charged with eight counts of criminal fraud in December. FTX, which had a market value of $32 billion, formally applied for bankruptcy protection in November 2022, and Bankman-Fried left his post as a result.
By forcing cryptocurrency exchanges and other custodians to obtain or maintain federal or state registrations in order to keep customer funds, the SEC has proposed a new rule that would update federal custody standards.
The new regulations may make it challenging for Coinbase (COIN) and other cryptocurrency exchanges to legally protect the crypto assets of its institutional clients. The SEC also accused Terraform CEO Do Kwon of “orchestrating a multi-billion dollar crypto asset securities scam” on February 16. Kwon founded the unsuccessful cryptocurrencies Terra Dollar and Luna, which collapsed last year and destroyed $60 billion in investor value.
Moreover, the cryptocurrency trading platform Kraken consented to pay the SEC a $30 million punishment and discontinue its crypto staking business for American clients on February 9. The SEC said that Kraken’s “staking as a service” offering was not registered and lacked the necessary investor protections.
On Chain Data:
As more network participation and utility raises the network’s total worth, a rise in network activity is typically accompanied by an increase in price. Since inscriptions often occupy more space in each Bitcoin block, the current rise in network activity in this case is mostly attributable to an increase in transaction volume and block size. Like with other blockchains like Ethereum or Solana where NFT transactions contributed to a big share of value traded, inscriptions are probably going to continue to enhance retail engagement for Bitcoin and might be a key value-driver.
For instance, in the case of Ethereum, NFT transactions now make up about 15% of the total number of transactions and about 25% of the total amount of gas used and transaction fees paid. According to some on-chain analysts, the introduction of NFT transactions on the Ethereum blockchain starting in the middle of 2021 has greatly supported the price throughout the weak market because overall network activity had been much lower before NFTs. Images are now the most common sort of data inscription on the Bitcoin blockchain, followed by plain text messages. The Bitcoin Mempool is currently less crowded as a result of inscriptions and is full of numerous transactions that pay incredibly low fees—typically 1-2 Sat/vByte.
Overall, spot prices have begun trading above key technical and on-chain thresholds, network usage is increasing (higher on-chain activity, increased network congestion, increased fee revenue), market profitability has returned, and the balance of wealth is primarily on the side of long-term holders, who can now begin distributing their holdings to new short-term (retail) market participants. Meanwhile, we are seeing more exchange liquidity, which should help cryptoasset prices in the future.
Little Increase in Profitability
During February, crypto asset values were mainly flat, as the market was divided between favorable on-chain fundamentals and the prospect of a longer-than-expected Federal Reserve tightening. Because of a spike in US interest rates, which weighed heavily on traditional financial assets such as equities and bonds, the dollar was the best-performing asset class. Gold was also under substantial pressure as a result of the repricing of Fed rate rise expectations.
Polygon, Polkadot, and Ethereum have been the highest performances among the top ten major crypto assets. On a 1-month basis, altcoin outperformance has lately grown and momentarily exceeded 50% for our tracked set of altcoins. At the same time, crypto dispersion has been steadily decreasing, showing that crypto asset performance was mostly influenced by systematic rather than coin-specific characteristics.
What Could Happen?
Staked ETH has been locked on the network since the Ethereum merging was finished last year. Users will be able to withdraw their staked ETH currency for the first time with the impending Shanghai update. One of the next events in the crypto industry that is most eagerly awaited is the Shanghai upgrade, which is planned to take place in March. The Shanghai update, which enables users to swiftly and conveniently stake and unstake ETH, is the next development in Ethereum’s roadmap now that the merging has been successfully accomplished.
Investors should prepare for some potential volatility in Ethereum pricing related to the upgrade in the upcoming weeks.
In September 2022, Ethereum successfully switched from a Proof of Work (PoW) consensus method to a Proof of Stake (PoS) consensus mechanism, which requires less energy. Ethereum investors may now risk 32 ETH to participate in the blockchain validation process rather than mine ETH by employing specialized computers to solve challenging computational puzzles.
Despite 2023’s promising start, Bank of America analyst Alkesh Shah predicts that the next months of the year may be difficult for cryptocurrencies.
Strong economic statistics postponed the timing of a recession, but they also point to the possibility of reflation and further rate rises, so our strategists are still concerned about growth, according to Shah.
Given that the risk asset rally in January was fueled in part by short covering and mean reversion, the likelihood of higher rates for a longer period of time may put pressure on growth and, consequently, on digital assets.
According to Gav Blaxberg, CEO of Wolf Finance, a crucial psychological milestone to watch for Bitcoin investors in March is $25,000.
Watch the latest Bitcoin rise to see whether it breaks and holds at $25,000 since it will be yet another significant milestone, he advises.
In the short term, cryptocurrency investors need to keep an eye out for any indications that the tight labor market may be loosening once the Labor Department releases its February employment report on March 10.
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