Bitcoin and crypto markets: signs of slow recovery | BetaShares %

Bitcoin and crypto markets: signs of slow recovery

BY Justin Arzadon | 8 February 2022

Range-bound for most of the week, the bitcoin price managed to surpass US$40K for the first time in over two weeks. Dipping slightly to $37K after the U.S. jobs report was announced on Friday, the price rallied over the weekend and is sitting at $41,473 at the time of writing.

Ether’s price action was much stronger, up 14.64% in the last 7 days vs bitcoin’s 8.55%.

Bitcoin’s market cap is $785.6B, market dominance is sitting at 41.45%, and the value of the entire crypto market rose to $1.71T.

Price High Low Change from previous week
BTC (in US$) $41,473 $41,847 $36,375 8.55%
ETH (in US$) $3.001 $3,054 $2,489 14.64%

Source: CoinMarketCap. As at 06 February 2022. Past performance is not indicative of future performance. Performance is shown in U.S. dollars and does not take into account any USD/AUD currency movements.

News we are keeping an eye on 

Fidelity Investments, with ~$4.2 trillion under management, is a giant in the managed funds, brokerage and asset management space. Chris Kuiper, Director of Research at Fidelity Digital Assets, released a report titled “Why investors need to consider bitcoin separately from other digital assets”1. Amongst a number of points, the paper asserted the following:

  • Bitcoin is best understood as a monetary good, and one of the primary investment theses for bitcoin is as “the store of value asset” in an increasingly digital world.
  • Bitcoin is fundamentally different from any other digital asset. No other digital asset is likely to improve upon bitcoin as a monetary good because bitcoin is the most (relative to other digital assets) secure, decentralised, sound digital money and any ‘improvement’ will necessarily face tradeoffs.
  • There is not necessarily mutual exclusivity between the success of the Bitcoin network and all other digital asset networks. Rather, the rest of the digital asset ecosystem can fulfil different needs or solve other problems that bitcoin simply does not.

However, not all asset managers are bullish on bitcoin and the rest of the crypto asset class. A recently released 31-page report from J.P. Morgan Asset & Wealth Management Chairman, Michael Cembalest, digs into what he sees as crypto’s many shortcomings. “The Maltese Falcoin: On cryptocurrencies and blockchain” examines the adoption trends, capital flows and use cases for cryptocurrencies and blockchains, including crypto as a store of value, cross border remittances, decentralised finance, non-fungible tokens and blockchain adoption in financial services. It’s important to note that in the report Cembalest states he “doesn’t speak for anyone at JP Morgan other than himself”2. Quotes from the report include:

  • As a store of value -“Bitcoin’s volatility continues to be ridiculously high, and its volatility often rises when equity market volatility is rising too.”
  • Cross border remittances – “For people with bank accounts, off-ramp costs from crypto to fiat are equal to the cost of converting from dollar-based stablecoins to local currency, and then any cost of withdrawing that fiat.”
  • Decentralised finance – “Crypto collateral may not be dedicated and assigned solely to the activity against which it is posted. In other words, crypto collateral can be ‘rehypothecated’ to back multiple activities.”
  • NFTs – “An analysis of transactions between April and September 2021 found that the top 17% of NFT art owners controlled 81% of them. In the long run, concentration is rarely a good thing for investors.”
  • Blockchain adoption in financial services – “For these firms, the blockchain is simply another cost-saving or productivity tool in the long history of such innovations.”

Although estimates vary depending on the source used, a bitcoin mining report released by Coinshares last week estimated that “the Bitcoin protocol emitted 42 megatons of CO2 in 2021”3. The study says: “As a point of reference, total global energy consumption (not production, which is considerably higher) in 2019 has been estimated at 162,194 TWh. At an annual energy draw of 89 TWh, the Bitcoin mining network uses approximately 0.05% of the total energy consumed globally. This strikes us as a small cost for a global monetary system, and on the global energy balance sheet, it amounts to a rounding error”3.

On-chain metrics

With bitcoin in a bearish trend since the all-time high in November, we look at two on-chain metrics around demand.

Number of Addresses with a Balance > 0.01 BTC is a metric that shows the number of unique addresses holding at least 0.01 bitcoin.

Looking at data from on-chain analytics company Glassnode, the number of bitcoin addresses with at least 0.01 BTC has steadily increased from October onwards, after recovering from the last high in April. The number of addresses hit a new all-time high of 9.47 million addresses and 40.2 million with a non-zero balance.

Source: Glassnode.

The recent drawdown has enticed investors back into the Purpose Bitcoin ETF, the world’s largest spot bitcoin ETF.

The number of bitcoin flowing to the Purpose Bitcoin ETF was considerably positive over the last week. Last Tuesday saw inflows of over $38 million worth of Bitcoin, the third-largest daily inflow to date since launch. Inflows of this magnitude, not seen since mid-December, suggest that investors are comfortable in this price range and/or confident that the price will not head too much lower from current levels. The total amount of BTC held in the Purpose Bitcoin ETF reserves has climbed from approximately 25,404 BTC on 1 December to 30,966 as of 3 February.

Source: Glassnode.

Altcoin news

Sydney-based Immutable which has created Immutable-X (IMX) – a solution for scaling and trading Non Fungible Tokens (NFTs) – has partnered with Gamestop (NYSE: GME), to launch its own NFT marketplace later this year. Gamestop was Reddit’s darling stock of 2021, when traders from one of the world’s largest online communities bet on the stock to keep rising, whilst professional managers of Wall Street hedge funds were short. The companies also announced a $100 million fund in IMX tokens to support developers who will launch their NFT content on the marketplace4.

Immutable-X is a layer 2 of the Ethereum blockchain. According to Immutable’s website, “The future of asset trading is digital.” Immutable wants to ensure NFTs are traded in an open, decentralised ecosystem, secured by Ethereum: Zero gas fees for peer to peer trading, the ability to set your own trading fees, no custodial risk as users will keep their private keys, and will be scalable. IMX is not a centralised sidechain, a true L2 inheriting security of L1 on Ethereum, and any NFT that is created or traded on Immutable X is 100% carbon neutral5.”

Investing in crypto assets or companies servicing crypto-asset markets should be considered very high risk. Exposure to crypto assets involves substantially higher risk when compared to traditional investments due to their speculative nature and the very high volatility of crypto-asset markets.

Investing in crypto assets or crypto-focused companies is not suitable for all investors and should only be considered by investors who (i) fully understand their features and risks or after consulting a professional financial adviser, and (ii) who have a very high tolerance for risk and the capacity to absorb a rapid loss of some or all of their investment.

Any investment in crypto assets or crypto- focused companies should only be considered as a very small component of an investor’s overall portfolio.

  1. (Pg. 2)

Off the Chain will be published every Tuesday, and provide the latest news on bitcoin and the rest of the crypto market along with analysis and insights into the world of crypto.

It provides general information only and is not a recommendation to invest in any crypto asset, crypto-focused company or investment product.

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