The Federal Reserve’s decision last week to make three interest hikes in 2022 left capital markets under a considerable dose of stress and uncertainty. As expansionary monetary policies are expected to eventually come to an end, there is fear in the market regarding the loss of abundant liquidity, which has been the major fuel for the growth of cryptocurrency markets during the last two years. What are the real Fed decision consequences?

Despite ongoing fears though, there is also the opinion that the planned rate hikes by the Fed will not be enough to tame the ever rising inflation rates. Due to that, markets may experience a new leg upwards in 2022 in order for capital not to depreciate against inflation. 

According to Bloomberg’s “Global Cryptocurrencies Outlook 2022” report, deflationary assets like limited-supply cryptocurrencies (aka Bitcoin and Ethereum) should fare well in 2022, due to expectations of sustained inflation with fiat currencies, which have an unlimited supply. The report additionally expects the U.S. to embrace cryptocurrencies in 2022 with clear regulations that put an end to the uncertainties that currently inflict the space.

The total market capitalization of cryptocurrencies is still cruising in the $2-2.2 trillion range since the early December crash, with Bitcoin, the alpha cryptocurrency, ranging between $45,000 and $50,000 per coin. Although the current buying interest is pretty weak compared to the rest of 2021, future developments in the global economy and financial markets will dictate whether cryptos will be able to defend their $2 trillion market cap structure and climb back upwards to their all-time high prices.  

This week’s crypto ecosystem update takes a close look at whether there are any material changes on the chain for Bitcoin and Ethereum and their technicals. We will also discuss some major developments in other cryptocurrency products, which could act as catalysts for increasing cryptocurrency usage in the future.

BITCOIN ANALYSIS

 Price Overview

Last 7-day change: -5.5%

Last 30-day change: -19.5%

7-day low: $45,427

7-day high: $50,821

30-day low: $42,729

30-day high: $60,069

Network Overview

Blocks Mined (7-day): 971

Coins Discovered (7-day): 6,068.75 BTC

TX Count (7-day): 1.8 million transactions

TX Volume (7-day): 27.4 million BTC 

Net Change in Exchange Balance (7-day): -17,138.78 BTC

• On-Chain Activity:

Long-term holder confidence is nearing historically high levels despite the dropping Bitcoin prices, as key indicators show the network is in good health. The confluence of these forces suggest that Bitcoin is approaching a make or break point that will lead to heightened volatility followed by a violent price movement either to the upside or to the downside.

1. Reserve Risk

*Data provided by GlassNode

Reserve risk is an on-chain metric used to gauge the confidence level of long-term holders relative to the market price of Bitcoin. It is determined by dividing the market price of BTC by HODL bank, which is the number of coins being held by longer term holders. Thus, the confidence of long-term holders is high when reserve risk is low (heightened HODL bank against price), and vice versa. Reserve risk has been trending down towards a level of high confidence since the $65,000 top in April. The Bitcoin price was at around $30,000 the last time that reserve risk was at this current level, around .0031, suggesting that a healthy reset in hodl’er confidence has been achieved.

2. Wallet Analysis

*Data provided by GlassNode

Breaking down the entities that accumulate bitcoins offers insight into which market participants are exhibiting the higher degrees of confidence. The number of wallets holding between 0.01 BTC and 100 BTC and the number of wallets with > 10,000 BTC continue their uptrend even during the recent volatility, while the number of wallets between 100 BTC and 10,000 BTC is showing potential signs of distribution. A decreasing number of wallets holding between 100 BTC and 10,000 BTC can suggest that some wallets are advancing to the next highest bracket (> 10,000 BTC) in terms of their BTC holdings.

3. Difficulty

*Data provided by GlassNode

Mining difficulty is a measure of the number of hashes, or energy input, required to mine a single block on the network. A rising difficulty means competition amongst miners is ramping up (making it more difficult to discover blocks), and a declining difficulty indicates miner capitulation. Hash rebounding towards its high set in April has put difficulty within 3.5% of its all-time high. An estimated adjustment of +1.51% will occur on December 25, which would put difficulty within 2.4% of its all-time high. 

• Bitcoin Technical Analysis:

Following the Fed meeting sell-off early in the week of December 13, Bitcoin struggles to find any buying power to push its price back above $50,000.

1. Death Cross by 200 and 400 Daily Moving Averages

The blue line in the above chart is the 200 daily moving average (MA 200) and the burgundy line is the 400 daily moving average (MA 400). If the blue line crosses down the burgundy line, this would make a death cross, which is often followed with a large drop in the price. Plus, these are pretty long moving averages in terms of their time length; the longer the time length of moving averages are, the longer it takes for the expected price action to happen in the future. 

If this death cross happens, Bitcoin may sustain its current downtrend and the expectations of a new rally to all-time new highs may be postponed to the later months of 2022. The last time the death cross between MA 200 and MA 400 took place was in August 2018, which was followed by a 50% price drop 3 months later. 

However, the MA 200 line is perfectly flat now. There have been many incidents in Bitcoin’s history where two major daily moving averages get flattish and eventually kiss each other, and make a bullish (golden) cross instead. If Bitcoin is to start a new rally in 2022, this is what needs to happen with the MA 200 and MA 400 lines.

 

2. Daily RSI Structure

The daily relative strength index (RSI) of Bitcoin has been on a decline since its all-time high in early November. It tried to form a base during the month of November at around 36-40 levels (circled in orange), but it failed, which was followed with the December 3 market crash. 

Now, the daily RSI is trying to form a new base at the oversold territory threshold of 30. The red descending line has been following suit since October, which currently acts as a resistance line. If Bitcoin’s daily RSI fails to break above the red resistance line, it may be followed with another flush, falling back to the oversold threshold or even making a new low down in the white, oversold territory. That may also cause the MA 200 & MA 400 death cross to take place.  

3. Daily MACD Turning Bullish

It is not all that gloomy for Bitcoin’s technicals. In fact, the expected trend reversal may be catalyzed by Bitcoin’s MACD indicator making a bullish cross on the daily time frame.

As you can see in the below daily MACD chart of Bitcoin, the blue MACD line crosses up the orange signal line as of December 19. MACD line’s crossing the signal line to the upside often indicates a reversal in the momentum.  

However, this is just a start. The daily RSI would need to form a base without flushing downwards or there shall not be a MA 200 & MA 400 death cross for this daily MACD cross to have any substance.

ETHEREUM ANALYSIS

Price Overview

Last 7-day change: -3.67%

Last 30-day change: -8.37%

7-day low: $3,643.43

7-day high: $4,186.86

30-day low: $3,575

30-day high: $4,784.50

Network Overview

ETH Burned (7-day): 50,621.15 ETH

ETH Moved in/out of Smart Contracts (7-day): -45,274 ETH

Net Change in Exchange Balance (7-day): +191,241.2 ETH

• On-Chain Activity:

Ethereum’s on-chain activity has been relatively quiet during December as users continue to flock to Layer 2 alternatives. Given the refreshed tokenomics model introduced to the network by EIP-1559 in early August, this can play a role in influencing the economic dynamic that runs ETH.

1. Transaction Count

*Data provided by GlassNode

Ethereum has seen a declining number of on-chain transactions (TXs) since peaking in late October. This is due, in part, to the increased use of Layer 2 solutions; the amount of ETH locked in L2 applications has grown by 37% since ETH on-chain TX count climaxed on October 28. Given the update to ETH’s tokenomic structure by EIP-1559, a declining on-chain transaction count has a net negative impact on circulating supply and can weigh down on ETH’s market price in extreme cases. Under EIP-1559, the more ETH is used to transact with the more supply gets burned; thus the current downward spiral in TXs can lead to less ETH being burned.

2. ETH Burned

*Data provided by GlassNode

The amount of ETH that has been burned on a daily basis has been decreasing alongside TX count since October 28. Over this period new ETH has entered circulating supply at a rate of 2,065 ETH/day on average; compared to 4,260 ETH/day since EIP-1559 was initiated. Though circulating supply has grown at a below average rate over this duration, periods of declining TX count in September and October show how it can negatively impact net ETH issuance. Supply grew at an average daily rate of 6,160 ETH as TX count declined from September 8 to September 25 (44.6% higher than the average since EIP-1559 initiation) and at a rate of 4,423 ETH/day between October 6 and October 23 (3.8% higher than the average since EIP-1559 initiation). Though it has not yet been witnessed, elongated periods of below average TX count can have an impact on net ETH issuance and circulating supply.

• Ethereum Technical Analysis:

Ethereum’s price action has historically been very strongly correlated to that of Bitcoin. Throughout the history of the cryptocurrency market, Bitcoin managed to drag Ethereum and other cryptocurrencies along with itself, either to the upside or to the downside. The reason for this synchronized price action was that funds entering and exiting the cryptocurrency market initially flowed into Bitcoin, which then moved in and out of Ethereum and other cryptocurrencies, i.e. the altcoins. In that sense, Bitcoin should not be on a downtrend for the Ethereum price to climb higher.

1. Still Following the Rising Channel 

Ethereum is still respecting its rising channel that was initiated from summer lows (please see the below chart). However, it has been testing the bottom support line of the channel too many times since the December 3 low. In practice, it is actually grinding against it right now.

Testing a support line twice could act as a double bottom, which is a trend reversal pattern (so, it is bullish) and testing it three times can act as a triple bottom, which is also bullish.

However, testing a support line this many times is often not a good thing. If Bitcoin makes another flush downwards, Ethereum may end up breaking down this rising channel. It is worth noting that Ethereum’s daily momentum indicators in its USD currency pair are almost identical to those of Bitcoin. So, Ethereum’s next big move may be highly correlated to that of Bitcoin. 

2. Ethereum vs. Bitcoin

If Ethereum wants to distinguish itself from Bitcoin’s price action, the Ethereum/Bitcoin parity’s monthly RSI should better close this month above the 70 overbought threshold (see the below chart).

Failing to do that may reverse Ethereum’ year-long strong uptrend against Bitcoin and couple Ethereum tightly with Bitcoin’s price action over the coming months.

CRYPTO INDUSTRY UPDATES

• Regulatory Developments:

India’s Largest Bank Calls for Complete Crypto Ban

Cryptocurrency is a hot subject of debate in India, where any authority is hesitant to take the first step towards regulating the industry. However, the Reserve Bank of India (the country’s central bank) is the most outspoken one, which keeps its hostile stance against this asset class.

According to the Economic Times, the RBI insists that the country needs to ban cryptocurrencies entirely in an effort to protect its economy. Although the government authorities in India are still unsure about how to approach cryptocurrency regulations, the central bank wants to take the lead by following China’s path in regulating cryptocurrencies.

The RBI maintains this position in light of its claims that the unregulated nature of cryptos pose serious threats to any financial system in the world. An earlier attempt by the bank to ban cryptocurrencies for two years was declined by India’s Supreme Court.

• Funding Developments:

Crypto Analytics Startup Nansen Valued At $750 Million

Crypto analytics startup Nansen secured its new round of fundraise, which values the company at a total of $750 million. This is an unseen amount just for a small on-chain analytics company in the crypto space. In that sense, it represents a showcase of how valuable chain analytics are for cryptocurrencies.

In the fundraise, Nansen had secured $75 million backed by Accel, Tiger Global, and a16z.

Accel is one of the largest venture capital firms in the world, which backed a number of many prominent blockchain businesses such as the monitoring startup Tenderly, gaming firm Sky Mavis, and the trading platform, FalconX.

Besides Tiger Global and a16z, other early backers of Nansen include Skyfall Ventures, Coinbase Ventures, imToken Ventures, Mechanism Capital and QCP Capital.

CRYPTOCURRENCY PRODUCT UPDATES

• Layer 1 Blockchains:

1. Canada-based Ether Capital Stakes 10,240 ETH

Ether Capital, a Canadian technology group, announced that it has staked 10,240 ETH, worth $40 million, to Ethereum’s Beacon Chain. The Beacon Chain will introduce proof-of-stake (PoS) to Ethereum; thus Ether Capital’s allocation makes them a validator and security provider to the network as it transitions away from proof-of-work (PoW). The move comes in accordance with its vision of being a leading supporter of the Ethereum and Web3 ecosystems.

The company currently holds 43,512 ETH, including the balance it just staked, and intends to allocate at least 30,000 ETH (~69% of the company’s ETH) to the Beacon Chain prior to the merger. Ethereum’s migration is expected to be completed in the second quarter of 2022, upon which Ether Capital will receive transaction fee revenue in addition to the bottom line staking yield. In the meantime, the group will earn an adjusted floating yield of 5.22% on its staked ETH balance.

Ether Capital’s motion makes it among the only publicly traded companies staking an ETH balance of this magnitude according to a Tweet from the company. Adding to this achievement, Ether Capital leverages self-custody to stake and hold its Ethereum and will open source its processes to some extent in the near future.

2. Polkadot Parachains Launch Officially 

As of this week, five parachains have officially launched on the Polkadot blockchain. These chains are Acala, Astar, Clover, Moonbeam, and Parallel Finance.

A total of $2.4 billion was raised for these parachains during their auction periods. Parachains are selected on the Polkadot network with an auction process, in an effort to lease network space. Winning projects lease parachain slots for a period of 96 weeks.

These projects focus on a number of different cryptocurrency products ranging from lending and borrowing to NFTs.

The idea of parachains is that each individual parachain can accommodate different user profiles, but all of them are ultimately run by a single chain, which is Polkadot’s Relay Chain.

According to The Block, there are currently over 200 projects focused on 19 different use cases that are waiting to participate in the Polkadot auctions.

 

3. The Tron Foundation to Dissolve Next Summer

Justin Sun, the crypto “wunderkind” and probably the most controversial figure in the space, made a new “announcement”, but this time it is about him quitting the cryptocurrency space.

A day later, the Tron Foundation, the organization behind the TRON cryptocurrency, announced that it will dissolve itself by next summer. With this move, the foundation leaves the development and governance of the blockchain entirely in the hands of its community.

How much development and governance Tron had to date by its community is a subject of debate and whether it will exist in the hands of its community remains to be seen.

• NFT

1. Nexo Allows Users Borrow Funds Against CryptoPunks and Bored Apes

According to Decrypt, Nexo is preparing to allow its users to borrow against their CryptoPunk and Bored Ape non-fungible tokens (NFTs). The platform currently offers earning, exchanging, and additional borrowing products in over 200+ jurisdictions worldwide and has issued over $6 billion in credit to date.

NFTs are relatively illiquid by nature; especially collections with high floor prices, such as Punks and Bored Apes. This makes it difficult for holders of such NFTs to realize or deploy the value of their digital assets. However, this is quickly changing as a result of newly emerging products, like the one to be offered by Nexo. Incorporating NFTs into lending products is beginning to allow the vast value locked in NFTs to be deployed alternatively. This makes value that was otherwise illiquid and stagnant to be more dynamic and play additional roles in building up the greater ecosystem.

Nexo’s lending desk already accepts more than 20 cryptocurrencies and 40 fiat currencies that can be borrowed for or against. Incorporating NFTs into its lending desk puts it among the most expansive lending product providers in the ecosystem. The platform intends to add additional NFT collateral options in the future after a successful launch with the initial two collections.

 

2. GigLabs to Enable Shopify Merchants to Create and Sell NFTs

GigLabs is a platform that allows brands to underscore their images using non-fungible tokens (NFTs). In a recent announcement, the group made public the GigLabs NFT App will be available for Shopify Plus merchants to use. Using the GigLabs platform, select Shopify merchants will be able to build and sell NFTs straight from their pre-existing storefronts. GigLabs products are known for their ease of use which will enable Shopify merchants with little NFT or crypto experience to leverage the integration.

Shopify is a multinational e-commerce company based in Canada. It offers a platform for online marketplaces and retail point of sale systems. The platform saw gross merchandise volume of $120 billion in 2020 with over 2.6 million open storefronts in the United States alone. GigLabs integration with Shopify brings NFTs to a large audience of prospective users and merchants. The merger between the two groups introduces a unique concept that allows digital assets to be sold alongside physical items on a centralized marketplace.

3. Adidas Enters the Metaverse with $23 Million Sales 

Sportswear brand Adidas officially entered the world of metaverse by making an NFT collection sale.

There was tremendous demand for the sale, which lasted for only 24 hours and generated a turnover of $23.4 million, according to Decrypt.

The NFT Collection rankings website, Crypto Slam ranks Adidas as the third largest collection in terms of the total sales volume during the last 7 days.

The collection was a collaborative effort with the Bored Ape Yacht Club (the fourth largest volume NFT collection of all time) and PUNKS Comic NFT.

Adidas first unveiled its plans to launch an NFT collection at the beginning of this month, when it bought a Bored Ape NFT from OpenSea and dressed it with Adidas apparel.

A total of 30,000 Adidas Originals NFTs were minted on the Ethereum blockchain. The first 20,000 NFTs were offered to the Pixel Vault, Bored Ape, and Mutant Ape NFT holders.

Of the remaining 10,000 NFTs, Adidas holds 380 of them for future events and it sold the remaining 9,620 to the public. Each customer was able to buy two, which sold out in less than a second.

This sale constitutes Adidas’ first foothold in the metaverse. In addition to that, the Sandbox, the leading metaverse game after Axie Infinity, announced last month that Adidas had bought a parcel of virtual land on the Sandbox’s metaverse.

 

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