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MARKET UPDATE

  • While many crypto exchanges have seen an up-tick in new customers lately, the markets remain volatile. Bitcoin doesn’t seem decoupled from the stock markets just yet, after pumping on the oil price boost last week.
  • March goes into the history books, but a nice recovery from the lows leaves investors hopeful. However, this is not yet reflected in the market sentiment, which has been in Extreme Fear for over three weeks now.
  • Another interesting aspect to follow is the upcoming halvings of both BSV and BCH, coming up this week. This can lead to drastic implications for the protocols.

VALUATION

  • The bitcoin price is once again trying to break out of a range that has been forming over the past weeks. With the high correlation with stock markets right now, we never know what’s next.
  • The futures market for bitcoin seems to be “back to normal”, after being in backwardation for a couple of weeks. We now see that the premiums are back on the futures contracts for June and September, where CME traders look more bullish than retail investors right now.

BLOCKCHAIN ACTIVITY

  • On-chain metrics tells us that we may already have seen the local price bottom for bitcoin, as the Net Unrealized Profit/Loss bounced quickly of the lows. However, we have stayed low for a while historically when this metric turns red and it will be interesting to see what’s next with the upcoming halving in just a month.
  • The fees as a percentage of miner revenues jumped sharply after the price drop in March and is a good indication of increased network demand on the Bitcoin network.

 

PRICE BOOST GOING INTO APRIL, BUT ARE WE OUT OF THE WOODS?

  • Another volatile week in the crypto market has passed. It didn’t look good after last weekend, but the first few days of April have seen a significant boost in the crypto market.
  • Some cryptos are back to their normal volatility levels, seeing double digit returns over the last week as the market seems to be coming back to life.
  • Yet, it may be too early to celebrate – even with the nice upswing over the last couple of days.
  • Bitcoin still doesn’t look detached from the rest of the financial market, after jumping up with stocks and the oil price last week.
  • With new historically high jobless claims and Covid-19 number increasing in the US, we may face more downside in the markets going forward. This will most likely affect the crypto market as well.
  • On the other hand, more downside in the financial markets will give bitcoin and crypto another chance to decouple as an asset class.

 

BLOODY MARCH:BRUTAL MONTH ENDS WITH HEFTY LOSSES

March must have been one of the most volatile months in crypto history. After the brutal crash mid March, most cryptos recovered nicely over the last weeks.

  • Small caps ends up as the best performing index in March, registering a decrease of “only” 23%.
  • Bitcoin comes second, registering a decrease of almost 25%
  • Mid Caps ended as the worst performer in March, down over 36%.
  • Overall, March ended with a strong recovery as most cryptos were down between 40%-50% just two weeks ago.

 

NO CONFIDENCE IN THE CRYPTO MARKET

The Fear & Greed Index is almost unchanged and stays in the “Extreme Fear” for yet another week. As highlighted last week, we haven’t been this long in this area since the market bottom in December 2018. The market then stayed extremely fearful for a whole month, while we’re now pushing over three weeks in this area, even with the BTC price moving upwards.

 

BITCOIN VOLUME CONTINUES TO DROP –DOWN AT 2020 AVERAGE AGAIN

The 7-day average real trading volume* continued to drop last week. As we highlighted last week, increasing prices on decreasing trading volume is normally a bearish signal. We’re now down at the 2020 average volume, which is still significantly higher than the last part of 2019.

 

ANOTHER TURBULENT WEEK PUSHES VOLATILITY EVEN HIGHER

The 30-day volatility just keeps rising and is now even higher than last week – now at 9.3%. As we warned last week, the global market conditions are extremely unstable these days, which is most definitely affecting the crypto market.

 

COLLAPSE IN DEFI LENDING –CENTRALIZED PLATFORMS DOMINATE

  • The outstanding debt on the DeFi platforms has seen a sharp decline Across all DeFi Platforms this March and now accounts for $133.6 million.
    • The Maker platform still dominates the defi-space, accounting for 75.8% of the volume of the total debt outstanding
  • Each of the major centralized lending platforms now has more loans outstanding than all of DeFi combined (Genesis, Celsius, BlockFi and Nexo)
    • These custodial lending platforms report their numbers more sporadically and is not on-chain verified. Thus, their precise numbers are harder to attain.
    • However, in their Q4 report, Genesis announced that they had $545 million dollar in active loans outstanding. BlockFI issued similar numbers during their series B funding round, stating they held more than $650 million in deposits.
  • Still, comparing the share of the lending market for DeFi platforms to the decentralized exchanges share of the exchange market, we see that defi-lending is the by far the most widespread application of defi so far.

 

EARLY HALVING OF THE BITCOIN FORKS, WHAT ARE THE IMPLICATIONS?

Bitcoin Cash and Bitcoin SV will go through their block reward halvings on Wednesday and Friday this week.

  • The fork halvings happens one month prior to the bitcoin halving, due to very rapid block generation in bitcoin cash in the immediate aftermath of the bitcoin cash fork of August 2017. The block production rate later normalized after an update of the difficulty adjustment algorithm.
  • The early halving might have a dramatic effect on the BCH and BSV hash rate. A temporary almost halving of the hash rate on the BCH and BSV networks can be expected as the miners switch to mining BTC instead.
    • Miners will switch since it will be more profitable to mine BTC than BCH and BSV unless the fees or price of BCH and BSV increases drastically, or the hash rate almost halves. This will last until bitcoin has its halving in the middle of May.
  • This will have various implications for the protocols. Both Bitcoin Cash and Bitcoin SV will be drastically more exposed for potential 51% attacks, following the reduction of the hash rate.
  • The effects on bitcoin however will be miniscule, since bitcoin already accounts for almost 95% of the SHA-256 hash rate.

 

THE BITCOIN PRICE WANTS TO BREAK UPWARDS

  • This week, we’re zooming in again to look at the price action after the brutal crash three weeks ago.
  • After recovering sharply following the crash, the bitcoin price has been stuck in a range between $5,800 and $6,800.
  • After several attempts to close above this range, the BTC price is now pushing above this range.
  • Based on the past weeks, continuation to the downside seems could be on the line, where both $6,200 and $5,800 could act as support.
  • On the other hand, if the bitcoin price holds above the $7,000 area, it will be a strong bull signal as the area flips to support.
  • We can then be looking at $7,400 as the next likely resistance.

 

THE BTC FUTURES MARKET IS RECOVERING –CME MORE BULLISH THAN RETAIL

  • Last week, we presented how the futures market for BTC was in “backwardation” – a situation where the spot price is above futures prices.
  • It now seems that the BTC futures market is recovering, as futures prices are once again seeing a positive premium.
  • The average premium rates for these platforms are now just above zero, with the annualized premium for June contracts being 0.19% on average for retail.
  • On the other hand, CME contracts are trading much higher – with an annualized premium of 7.39% for June contracts.

 

MARKET BOTTOM IN, OR MORE BLOOD TO COME?

  • Data shows that the metric for Net Unrealized Profit/Loss (NUPL) went below zero after the crash three weeks ago.
  • NUPL is simply the profit/loss of a bitcoin calculated by taking the difference between the current price and the price at the time the bitcoin last moved.
  • Yet, it bounced out of the red zone quickly. This red zone has historically signaled a bottom in the market and a shift towards more positive sentiment.
  • In the past, NUPL has stayed in the red zone for several months before retracing. Will this time be any different?
  • This is however the first time it falls into this red zone so close to a halving event, which is coming up in May this year. This may provide hope that this was just a small bump in the road on the way to new highs.

 

INCREASED NETWORK DEMAND DURING THE MARKET CRASH

  • Data shows that fees as % of miner revenue spiked during the recent market adjustment.
  • Miner revenues are made from block rewards and fees on the Bitcoin blockchain.
  • Fees are a good indication of network demand, since they reflect competition for space on the blockchain.
  • Historically, fees as % of total revenues have been increasing during bull markets, when
    activity is at its highest.
  • Fees spiked to 5% of daily revenues in March, last seen in July’19.

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