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This week we cover the ripple effects that Elon's Twitter acquisition has had across crypto markets. Specifically, we dive into the increased interest and on-chain activity Dogecoin had as speculators rushed into Elon's favorite meme token.
We then analyze the macro landscape in light of the US's GDP contraction and provide some thoughts on potential catalysts that may decouple crypto and stocks.
Weekly Fees - Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
Bitcoin and Ethereum fees bounced back slightly but remain on a downtrend as blockchain activity has dropped in 2022
Exchanges Netflows - The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
Both Bitcoin and Ethereum saw net outflows from centralized exchanges in the hundreds of millions, suggesting buyers continue to accumulate on their private addresses
Dogecoin's Twitter Moment
Elon's recent acquisition has been giving Dogecoin holders déjà vu from 2021. Just how any Doge-related tweet last year pushed its price upwards, Elon's take over of Twitter has reignited interest in the meme token.
Via TradingView
Double-digit Ups and Downs - Both DOGE and Twitter recorded gains of 10%+ following Elon's purchases
Dogecoin first climbed 16% on April 5th after Elon purchased 9% of Twitter stocks and 20% on April 25 when Elon's full acquisition was seemingly confirmed
In both cases DOGE retraced most of the gains just 24 hours later
Spike in Google Searches - Unsurprisingly, interest in Dogecoin spiked along with the news
The number of Google searches for "Dogecoin" worldwide reached a 90-day high this week, giving it a score of 100 over this period
Zooming out, though, Google trends score for Doge over the past 12 months grew only to a score of 5 this week, showing very small interest in comparison to May 2021 when the score peaked
Through on-chain data we can observe a spike in speculative activity.
Large Speculators - The number of transactions over $100k reached its second and third highest values following Elon's acquisition of Twitter
Big players speculated, with even Digital Currency Group' CEO Barry Silbert tweeting "can't believe buying DOGE actually crossed my mind today" after publicly shorting it last year
Volume, however, did not spike nearly as much as the number of large transactions, suggesting smaller institutions or a few whales may have been behind the speculation as opposed to hedge-fund-sized players
Wen Decoupling?
Since December of last year we have covered how macro conditions have been dominating crypto's outlook. This trend has extended well into 2022, leading to jokes of crypto being closer to a leveraged ETF of the Nasdaq rather than an uncorrelated asset class as many have previously claimed.
So are crypto's uncorrelated days over? If not, what could lead to crypto's performance to decouple from traditional markets?
Speculation & Monetary Policy - When money is abundant, people are more likely to invest in risky assets such as crypto
The fed's response to Covid increased the money supply by over 40%, directly providing stimulus checks and indirectly growing capital reserves through quantitative easing
Now that the "money printer" is expected to slow down, markets have been anticipating a hangover from the excessive stimulus provided, weighing down on valuations of both stocks and crypto
Bad news = good news? On Thursday we saw markets rally following the surprise news of the US's economy contracting 1.4% in the first quarter of 2022
The market's reaction likely points to the anticipation that the fed will not be able to tighten or increase rates as rapidly due to the decreased growth in the economy
Effectively, the market seems to be pricing in the money printer will not stop yet, or will do so at a slower pace despite the high inflation.
In Sharp Contrast - Ethereum is projected to become deflationary later this year
The merge is anticipated to decrease ETH's issuance by 90%, leading to more ETH being burned than "printed"
ETH has already recorded several days of deflation due to high fees resulting in more being burnt
Following the merge ETH's net issuance is likely to range between -1% and -2.5% depending mostly on the network's transaction fees
Previous bull markets have been strongly influenced by Bitcoin's halving, where issuance drops 50% every four years. Will Ether's 90% issuance drop act as the catalyst propelling crypto's next wave decoupled from traditional markets?
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