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Hi Jibin Mathew,
Despite prices continuing to head lower, crypto generally had a positive week in terms of news and developments. Particularly, the NFT space has gotten a boost from big tech just as it takes in record amounts of volume.
This week we dive into the continued growth in NFTs and key trends that anyone involved in the space should know. Here we discuss some of the risks and opportunities likely to unfold throughout 2022.
Moreover, we carry on the macro discussion as correlations between tech stocks and crypto reach yearly highs. By doing so, we reopen the thesis of crypto not acting as a safe haven or inflation hedge but rather as a high sentiment beta asset.
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.
For the second straight week, Ethereum processed over 100x more in fees than Bitcoin as NFT activity continues to grow
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.
Bitcoin recorded a net inflow of $68M into centralized exchanges after seeing nearly $1B leave them each of the past two weeks
Half a billion worth of Ether left centralized exchanges over the past week after a slight inflow of $19M the prior week
NFTs Continue Setting Records
Although speculation in ERC-20 tokens might be taking a break given the recent price action, volumes for NFTs continue to boom. With still 10 days left in the month, NFT volumes have already reached a monthly high of over $5 billion traded.
Behind the Surge - Interest in NFTs continue to rise as large companies and celebrities continue to embrace them
Twitter released the verification of NFT profile pictures after months teasing the feature
Social media rival Meta is moving forward with NFTs for Facebook and Instagram, reportedly helping users display and mint NFTs for their profiles
Celebrities such as Snoop Dogg, Justin Bieber, Reese Witherspoon have recently shown support for NFT collections; meanwhile Tom Brady raised $170M for an NFT platform
The flood of attention has led to a quickly evolving ecosystem. Here we see a dynamic split between new projects capturing attention and older ones attempting to stay relevant.
Attention is Feeble - recently launched NFT collections are dominating investors' interests
6 out of the top 10 NFT collections this week launched within 2022
Projects like Bored Apes and Sandbox that have been around for longer have relied on their teams and communities continuing to bring value. In the latter's case they launched the alpha version of their metaverse, two years after their initial NFT release
Many other older NFT collections have not been doing as well...
First mover advantage debate - Many people used to see CryptoPunks' launch as the first renown NFT as sustainable differentiator; is that still the case?
CryptoPunks have dropped 57% in dollar terms and 52% in Ether terms since their peak in August 2021
The "OG status" appears to be overlooked amidst the flood of new entrants, similar to what happened with SHIB and DOGE in October
Bored Ape Yacht Club has surpassed CryptoPunks as the most expensive 10,000 piece collection with the latter falling off of the top 10 most traded in the past week
Overall, the NFT market is seeing a sharp increase in activity to kick off 2022. While the sudden interest may be indicative of excessive speculation in the space, recent developments from some of the World's largest social media platforms suggest broader adoption may be a matter of time.
High Sentiment Beta
Back in the middle of the Covid-induced recession, IntoTheBlock's CEO wrote a piece proposing the idea of Bitcoin being a high sentiment beta asset. The concept comes from a research paper arguing a subset of assets considered as high sentiment beta based on the premise of “stocks of low capitalization, younger, unprofitable, high-volatility, non–dividend paying, growth companies … are likely to be disproportionately sensitive to broad waves of investor sentiment.”
Although this concept was initially thought out for stocks, a similar rationale appears to apply for crypto, specially during times of macro headwinds.
Fears exacerbate correlations - As macro concerns regarding liquidity have emerged, crypto has began trading like a leveraged Nasdaq ETF
Correlations between Bitcoin and the tech-heavy index reached yearly highs of 0.86, indicating a very strong relationship between the two
On Thursday morning US time both Nasdaq and crypto recovered some losses as jobless claims were higher than expected (which the market likely interpreted as a factor decreasing the likelihood of an interest rate hike as the economy appears to be cooling down)
However, as Netflix's earnings disappointed and crashed the stock 18% after-hours, Nasdaq futures dropped significantly, dragging crypto markets along
Meanwhile, gold and silver have rallied 3% and 8% over the past month.
Safe haven debate - The never-ending debate on Bitcoin's value proposition reemerges as short-term volatility takes over
Bitcoin and crypto markets broadly have not been an effective safe haven in the recent crash as they have moved in tandem and crashed further than stocks
This has led to negative correlations vs traditional safe haven commodities such as gold and silver
My personal thoughts - Having studied the history of markets and technological paradigms, I believe crypto is still too early to provide investors refuge in times of uncertainty. Both Bitcoin and Ethereum have scarcity mechanisms granting them the potential to eventually be less correlated and more independent from traditional finance. Given the growth in crypto use cases this may very well be the case once crypto is more engrained in society. However, at the current point in time it appears that the market is treating crypto more like a leveraged Nasdaq ETF than a separate asset class.
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