Bitcoin and the rest of the crypto market continued to rally over the last week. Driving risk assets higher was the U.S. Consumer Price Index (CPI) July data suggesting that inflation may have peaked.
Ethereum and altcoins continued to gain market share, suggesting an appetite for riskier crypto assets.
At the time of writing, bitcoin is trading at US$24,819. Ethereum performed much better for the week, up 19.55% vs bitcoin’s 7.95% gain.
Bitcoin’s market cap is up to US$474.5B, with the total crypto market rising to $1.19T. Bitcoin’s market dominance is the lowest in 6 months at 39.9%.
| Price | High | Low | Change from previous week | |
| BTC (in US$) | $24,819 | $24,974 | $22,771 | 7.95% |
| ETH (in US$) | $2,011 | $2,022 | $1,665 | 19.55% |
Source: CoinMarketCap. As at 14 August 2022. Past performance is not indicative of future performance. Performance is shown in US dollars and does not take into account any USD/AUD currency movements.
Source: Glassnode. Past performance is not indicative of future performance.
News we’re watching
Sanctions placed on currency mixer
A virtual currency mixer, Tornado Cash, was sanctioned by the U.S Department of the Treasury’s Office of Foreign Assets Control (OFAC). It is estimated that over $7 billion worth of cryptocurrency has been laundered using the service since its creation in 2019.
Tornado Cash claims to “improve transaction privacy by breaking the on-chain link between source and destination addresses”. According to David Yaffe-Bellany from The New York Times, “these crypto ‘mixers’ receive multiple streams of transactions, then combine them to obscure the origin and destination of the funds.”
The website for the Treasury Department stated: “Virtual currency mixers that assist criminals are a threat to U.S. national security. Treasury will continue to investigate the use of mixers for illicit purposes and use its authorities to respond to illicit financing risks in the virtual currency ecosystem.”1
Any American citizens or U.S.-based organisations that intentionally interact or associate with the platform or sanctioned crypto addresses in any way could get investigated, fined, or face charges for disobeying sanctions laws.
RBA to explore CBDC use cases
The Reserve Bank of Australia (RBA) is looking to explore use-cases for a central bank digital currency (CBDC), and grasp the technological, legal and regulatory considerations. A CBDC is effectively a digital version of the local dollar, issued by the central bank. Partnering with the Digital Finance Cooperative Research Centre (DFCRC), the program will run for a year and will obtain feedback from participants on innovative use-cases and business models. The best-use cases selected by the RBA will then move on to a “limited-scale CBDC pilot that will operate in a ring-fenced environment,” the RBA said.2
“CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits,” added Andreas Furche, the chief executive of the DFCRC.
Blackrock offers bitcoin private trust
In its second blockbuster announcement in as many weeks, BlackRock, the world’s largest asset manager, has launched a private trust offering institutional clients in the U.S. direct exposure to bitcoin. This follows last week’s announcement of a partnership with Coinbase to help its institutional clients access bitcoin. Blackrock continues to broaden its work in the digital assets space, focusing on four areas including permissioned blockchains, stablecoins, cryptoassets and tokenisation.
According to the BlackRock blog post on its website: “Despite the steep downturn in the digital asset market,1 we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities.”3
On-chain metrics
Bitcoin (BTC): Accumulation Trend Score
According to Glassnode: “The Accumulation Trend Score is an indicator that reflects the relative size of entities that are actively accumulating coins on-chain in terms of their BTC holdings. The scale of the Accumulation Trend Score represents both the size of the entity’s balance (their participation score), and the amount of new coins they have acquired/sold over the last month (their balance change score).
An Accumulation Trend Score of closer to 1 indicates that on aggregate, larger entities (or a big part of the network) are accumulating, and a value closer to 0 indicates they are distributing or not accumulating. This provides insight into the balance size of market participants, and their accumulation behaviour over the last month.”
Looking at data from on-chain analytics company Glassnode, the trend score has been in a steady decline drifting away from 1 over the last four weeks. This suggests that in the $20K BTC price range, larger entities were happy to accumulate, but have lost interest towards the top of the trading range. Continued momentum higher could be difficult, as reflected in the ratio.
Source: Glassnode. Past performance is not indicative of future performance.
Ethereum (ETH): Net Unrealised Profit/Loss (NUPL)
Net Unrealised Profit/Loss is the difference between market cap and realised cap divided by market cap. Deconstructing this signal into different bands can give insight into market sentiment derived from on–chain data. The thresholds are set at 0.0, 0.25, 0.5, and 0.75. Even though arbitrary, historically they have shown accurate patterns that can be attributed to distinct sentiments throughout the macro cycles.
Looking at the data on Glassnode, NUPL currently sits at 0.24. Sentiment may be just about to break-out of ‘hope’ into ‘optimism’ which could potentially lead to more investors getting back in. The price of ETH has run from $1,039 to $1,957 in only a month, putting investors in a much healthier position.
Source: Glassnode. Past performance is not indicative of future performance.
Altcoin news
In altcoin news, meme-based cryptocurrencies continued to advance vs. the U.S dollar. As reported by bitcoin.com: “53 days ago on June 21, the top meme coins by market valuation were worth $14.5 billion and since then, the meme coin economy has grown by 24.82%, tapping $18.1 billion on August 13.” 4
The two largest meme coins by market cap, Dogecoin (DOGE) and Shiba Inu (SHIB), returned 12.8% and 25.86% respectively over the last 7 days, with SHIB being the top performer among Top 20 coins. We observe that demand for riskier meme coins appears to be coming back, suggesting a degree of optimism around this rally among crypto investors.
|
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. https://www.cnbc.com/2022/08/08/tornado-cash-crackdown-by-treasury-punishes-honest-crypto-investors.html
2. https://www.afr.com/companies/financial-services/rba-to-go-deeper-down-the-central-bank-digital-currency-rabbit-hole-20220809-p5b8da
3. https://www.blackrock.com/institutions/en-us/insights/bitcoin-private-trust
4. https://news.bitcoin.com/while-gains-have-been-slower-than-most-crypto-assets-meme-coin-economy-swells-by-24/
Off the Chain will be published every Tuesday. It provides 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.
This article mentions the following funds
Written by
Justin Arzadon
Director, Adviser Services & Head of Digital Assets.
C4 Certified Bitcoin Professional (CBP) and Blockchain Council Certified Bitcoin Expert™ with over 18 years’ experience in the ETF market. Passionate about the future of money.
Read more from Justin.