Market Wrap #1: The Dangerous Flirtation

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In the past week Bitcoin has closed one of its worst quarter in more than a decade. The 59% drawdown in 2Q22 is the largest since the third quarter of 2011, when Bitcoin was still in its infancy. The decade in between those hallmarks has seen several booms and busts, with the crypto market topping to peak at $3 trillion as they gained more widespread adoption and ultra-low interest rate spurred risk appetites of many. However the current bear market stands out given the level of capitulation of crypto leverage that has been unwound and ongoing liquidations of scale, as well as the regulatory security imposed on an asset class that many central banks now consider a threat to financial stability.

Now, not only do we have the looming hawkish Fed who struggles to control inflation, the brutal crypto week continues to send domino effects in the industry with the latest Voyager Digital who announced suspension of trading, deposits and withdrawals, and now with almost $4 billion in Bitcoin miner loans coming under stress, we may continue to see heavy selling pressure on Bitcoin. In addition, Babel Finance has yet to announce any details on their insolvency, but has also suspended withdrawals, citing ‘unusual liquidity pressures’. Some exchanges have also been rumoured to be insolvent — are these institutions reminiscent of the previous too big to fail era or will they emerge stronger?

Chart of the Week

XBT/USD 4th Jul 2018–3rd July 2022, Source: Bloomberg 3rd July 2022

With Bitcoin continuing to flirt closer towards the crucial $18,000 handle, the March 2020 low and November 2021 high seems to be the anchoring points of reference for now. Keep your eyes peeled on the ~$18,000 level, afterwhich there is nearly no near-term support all the way down back to 4 digits BTC.

Stay safe out there!

The information presented is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. As always, please do your own research.

Market Recap

1. Microstrategy’s Bitcoin holdings take a record $3.4bn hit

In 2020, @Michael Saylor said inflation will make cash worthless, concerns were downplayed as he continued to DCA despite BTC’s steep decline.

“We seek to acquire and hold BTC long-term… we do not currently plan to engage in sales of BTC” said its CFO in May 2022. The crypto stash accumulated is worth $2.45B, from $5.9B in Q1 2022–58% drop.

2. Almost $4bn in Bitcoin Miner Loans are coming under stress

Loans backed by mining rigs increasingly underwater amid rout. Mining equipments are seen as major risk to lenders as rigs have more than halved in value along with BTC. S19 mining rig is down 47% from $10k in Q4 2021. Core Scientific sold >2000 BTC to cover operations costs. Bitfarms offloaded $100M worth of tokens and took up machine-backed loans.

If markets continue to slum, miners will have negative IRR. Increased energy prices and limited supply for rack space are also major concerns.

3. Crypto’s brutal week ends with a trading halt and a bailout

Markets slumped, resulting in a $2 trillion wipeout. Voyager Digital suspended trading, deposits, and withdrawals. Lender BlockFi got bailed out by FTX. 3AC was ordered to be liquidated.

4. JP Morgan says crypto’s deleveraging cycle won’t last much longer

Crypto firms with stronger balance sheets have stepped in to ease the contagion. Venture-capital funding which is an important source of capital for the crypto ecosystem is still continuing at a healthy pace in May and June despite market turmoil.

5. North Korean hackers suspected in $100 million Harmony heist on its Horizon Bridge

Elliptic Enterprises tracked the movement of looted tokens and believes it is done by Lazarus Group due to similar patterns in laundering.

The patterns:

  1. Funds moved during Asia Pacific nighttime
  2. Username and passwords of Harmony workers were targeted to break into the bridge.
  3. Funds were sent to a Tornado Cash mixer

Economic Summary/Market Stats

7d Market Update

Crypto

🔻 BTC: -11.08% to $18,997
🔻 ETH: -14.83% to $1,047
🔻 SOL: -20.59% to $32.47
🔻 Overall Crypto Market Cap: -10.3% to $862.7 B
🥴​ Bitcoin Fear & Greed Index: Extreme Fear (12/100)

Equities

🔻 S&P 500: -2.21%
🔻 DJ Industrial Average: -1.28%
🔻 Nasdaq 100: -2.32%
❇️ Hang Seng Index: +0.65%
🔻 Stoxx Europe 50: -1.34%

Rates

💸 USDC Supply APY: 0.48%
💸 ETH Supply APY: 0.73%
💸 BTC Supply APY: 0.02%
💲3-Month US Dollar Libor: 2.25%
💲US Treasuries 2-Year: 2.839%
💲US Treasuries 10-Year: 2.889%

Key Economic Releases

6 July (Wed)
9.45pm SGT: S&P Global US Services PMI (expected 51.6)
10pm SGT: ISM Services Index (expected 54.0)

7 July (Thurs)
2am SGT: FOMC meeting minutes
8.30pm SGT: Initial Jobless Claims

8 July (Fri)
8.30pm SGT: Change in NFP (expected 273k)
8.30pm SGT: Unemployment rate (expected 3.6%)