BANKING TURMOIL UNLEASHES CRYPTO POTENTIAL 

Today we cover the recent fluctuations in Bitcoin and Ethereum prices amidst concerns over interest rate hikes and the ongoing banking turmoil. We also delve into the successful Ethereum Shanghai upgrade, increasing institutional interest in staking, and the passing of the MiCA law in the European Parliament. Let’s dive right in…

Bitcoin Volatility Amid Macroeconomic Pressures

This week, macroeconomic factors weighed on the market as some Federal Reserve officials indicated support for another rate hike next month, halting last week’s rally. BTC tried to maintain support above US$30,000 at the beginning of the week but dipped suddenly, dropping 3% in just an hour. This led to over US$50 million in leveraged long BTC positions being liquidated the same day, and over US$260 million liquidated across the market. However, since, the market has recovered slightly after the market reacted to the news of mid-sized bank First Republic reporting a plunge in deposits.

Banking Woes Continue

First Republic Bank’s stock price dropped by 50% on Tuesday, following the bank’s disclosure of a dramatic decrease in deposits. The San Francisco-based bank reported a staggering $100 billion decline in deposits for the quarter, raising concerns about it potentially becoming the third bank to collapse after Silicon Valley Bank and Signature Bank. The banks share price sits -95% year to date.

The crypto market reacted positively to this news, as investors saw it as an opportunity to shift towards precious metals and decentralised finance alternatives, which offer more greater security and (importantly) self-custody.

What Onchain Data Is Telling Us

The strong start to 2023 has seen the market confidently transition from a regime of unrealised loss to one of unrealised profit. As a result, the probability of profit-taking behaviour from coins acquired at cheaper prices may increase. Recent weeks show a mix of behaviour across all cohorts, which aligns with aggregate consolidation, the brief break above $30k, and the subsequent sell-off back to $27k this week as the market recharges its batteries.

The SOPR metric tracks the magnitude of profit and loss-taking events across the wider market, defining two binary regimes that can help identify market behaviour patterns: Loss Dominant Regime and Profit Dominant Regime. A clear shift between these two regimes was noted in January, with market behaviour starting to exhibit patterns aligned with a profit-dominated regime.

Ethereum Staking Gains Traction Among Institutional Investors Post-Shanghai Upgrade

Demand for Ethereum staking products by institutional investors has surged since the successful Shanghai upgrade went live on April 12. Inflows to top institutional staking providers in April have been three times larger compared to last month’s total. Approximately 80% of April’s total inflows occurred after the Shanghai upgrade, demonstrating strong confidence and approval of the upgrade. While significant, the unlock of 18 million tokens (worth approx. US$35 billion) was largely expected to be staked, as shown by a survey, where 68% of institutional investors stated they intended to start staking or increase their staked amount after Shanghai.

Regulatory Developments – European Parliament Passes MiCA Crypto Law for Enhanced Regulatory Clarity

The European Parliament approved significant cryptocurrency legislation that will establish new regulations for the industry across all 27 member states.

The Markets in Crypto Assets (MiCA) law passed with 517 votes in favour, 38 against, and 18 abstentions during a meeting held in Strasbourg on Thursday, after two and a half years of discussions and adjustments. MiCA primarily concerns crypto-asset providers and their obligations to disclose information regarding transparency and environmental impact. The legislation will also impose substantial requirements for stablecoin issuers, such as maintaining sufficient cash reserves.

Most importantly, MiCA aims to provide clarity in the challenging regulatory environment that currently exists, attracting institutional investors and larger firms to the European crypto market, and leading to increased investment and growth opportunities for the sector.

Revisiting the Fear and Greed Index

The Fear and Greed Index is a widely used metric that aims to gauge the current sentiment of the cryptocurrency market, specifically targeting Bitcoin. It measures emotions and sentiment by analysing various data points, such as market volatility, trading volume, social media activity, and market dominance, among others.

The index assigns a value between 0 and 100, where a low score indicates fear and a high score signifies greed. A high fear level typically suggests that the market is experiencing a potential buying opportunity, as prices may be undervalued due to excessive pessimism. Conversely, a high greed level implies that the market may be overvalued, and a correction could be imminent as investors become overly optimistic.

The decrease in the BTC Fear and Greed Index from a score of 63 last week to its current level highlights a changing market sentiment, potentially driven by factors such as concerns over interest rate hikes and regulatory crackdowns.

In conclusion, the cryptocurrency market has shown remarkable resilience in the face of challenges, with positive developments such as the successful Shanghai upgrade for Ethereum and the passing of the MiCA law in the European Parliament promising a bright future for the industry. As institutional interest in digital assets continues to grow, there are ample opportunities for investors to capitalise on the evolving market dynamics.

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