Blockstream Markets Weekly — Feb 25, 2022

Blockstream Markets Weekly — Feb 25, 2022

Thai Stock Exchange looks to BTC, Cash App post $2B in BTC revenue, Kazakhstan shuts down some miners, El-Erian: aggressive rate hikes are off the table, Senators in Mexico and the US push for BTC, Canada doesn’t like self-custody and the EU worries POW is a waste of energy.

By Jesse Knutson

Russia

Bitcoin looks set to end a volatile week with a green candle — rebounding from a drop to $34,000 after Russian forces punctuated several weeks of tensions in the areas around Ukraine with what looks like a full-scale invasion.

Markets reacted with a flight to perceived safety and a rotation out of risk assets. The USD gained to a two-year high, gold spiked to just shy of the $2,000 level while futures and Bitcoin were hammered.

After analyzing the news and as global markets came online, Bitcoin was able to regain its feet and recover to just shy of the $40,000 level. The big spike in volume yesterday, and Bitcoin’s ability to stage a ~ 15% rally off of intraday lows is a positive signal. Russia probably also makes a convenient scapegoat for inflation and may allow the Fed to be more backfoot on rate hikes than originally anticipated.

Higher, longer Inflation

Aggressive selling in Bitcoin yesterday was probably driven by a combination of Bitcoin being one of the only global markets open when the invasion kicked off and algos dumping on the expected impact to global stonks.

This is probably the downside of Bitcoin’s relatively high current correlation with equity markets and an influx of institutional money over the past 18 months.

Given power prices in Europe, the impact to varying degrees of trucker protests, and commodities hitting multi-year highs, higher, longer inflation seems likely.

Sanctions

With Western governments announcing a new wave of sanctions targeted at Russian individuals and assets, CNN and Bloomberg were quick to point out that Bitcoin could be a possible tool employed by Russian oligarchs to evade Western controls.

This follows authorities in Canada sanctioning 34 wallet addresses tied to funding trucker-led protests and Canada’s securities regulator reporting tweets from Coinbase and Kraken advocating Bitcoin ‘self custody’ as potentially encouraging sanction violations.

I worry that this could become a new attack vector for US policymakers, especially in the context of what looks like a more accommodative regulatory stance on Bitcoin from Russia.

Catalyst

Despite yesterday’s volatility, Bitcoin is set to end the week roughly where we left off last week — just shy of $40,000.

After that, the $46,000-$50,000 level is also a major area of resistance given how much volume has accumulated there over the last 12 or 13 months.

There’s obviously a lot going on in the world and I think Bitcoin will probably be subject to the whims of global macro developments and geopolitics for the foreseeable future.

That said, it’s encouraging to see Bitcoin bounce back so quickly, decent volume on the rebound, pretty broad-based buying across wallet sizes, positive Bitcoin ETF inflows, and a record amount of dry powder on the sidelines.

Lyn Alden summed up the current market really well.

Given the increase of institutional participation in Bitcoin and a higher correlation across assets as the Fed pushed everything higher, central bank tightening is a real headwind for Bitcoin.

Bitcoin pullbacks have a tendency to wash out weak hands, though, and concentrate ownership in very, very reluctant sellers. This has made the supply dynamic very bullish, but we still need a driver on the demand side.

The Bitcoin spring is tightly coiled, but I agree with Alden that we probably need a catalyst to bring in new money, trigger the spring and push us higher.

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Bitcoin markets news

Thai Stock Exchange looks to integrate with Bitcoin markets

• Last year the SET announced plans to launch a Digital Asset trading platform sometime in 2022
• During a Bloomberg interview this week, a SET official revealed that the new platform will integrate with a crypto exchange to facilitate the conversion of Bitcoin and other digital assets to fiat in order to support trading on SET platforms
• It will be interesting to see if crypto funding and withdrawals are both supported and if trading on both the SET’s main board and the new Digital Asset platform will be allowed

Kazakhstan is said to have shut down > 200 MWs of Bitcoin mining

• Facing severe electricity shortages over the past few months, Kazakhstan has been trying to track down improperly licensed mines in order to reduce the load on the national grid
• Authorities in Kazakhstan shut down 13 illegal crypto mines — overwhelmingly bitcoin — that together 202 megawatts of capacity
• In August, Kazakhstan accounted for 18% of computing power on the Bitcoin network, second only to the U.S., according to the Cambridge Bitcoin Electricity Consumption Index
• Seven-day average hashrate was down about 7% this week after hitting a high of ~ 215 EH last week

Cash App earned ~ $2B in Bitcoin revenues 4Q21

• Jack Dorsey’s Block (the company formerly known as Square) saw almost half of total revenue contributed from Bitcoin trading
• Bitcoin trading saw a total profit of $218M +126% YoY

El-Erain: Aggressive rate hikes are ‘off the table’

• War in Ukraine means the Federal Reserve won’t be able to hike interest rates as aggressively
• That also means the Fed will have to accept historically high inflation

BTC donations to Ukrainian military soar as Russia offensive begins

• Data from blockchain analytics firm Elliptic shows that over a 12-hour window, nearly $400,000 in bitcoin was donated to Come Back Alive, a Ukrainian NGO providing support to Ukraine’s armed forces

Mexican Senator pushes for Bitcoin integration

• Senator Indira Kempis is pushing for the adoption of Bitcoin as legal tender

“We need Bitcoin to be legal tender in Mexico because if it is not so, if we do not make that decision as El Salvador did, it is very difficult to take action.”

• She cites Bitcoin’s positive impact on El Salvador’s economy and her comments follow reports that tourism in El Salvador has gained 30% since making Bitcoin legal tender

“It is clear to me that financial exclusion is one of the public problems that few of us have addressed with feasible alternatives, and that this type of technology is allowing us to generate an alternative so that millions of people can be included in the financial system”

US Senator Ted Cruz is bullish on Bitcoin for all the right reasons

• In a recent speech, Cruz said he likes Bitcoin because it is decentralized and uncontrollable
• During the speech, Cruz read from Bitcoin wallet Nunchuk.io’s response to an order from the Ontario Superior Court demanding the platform freeze and disclose information on digital assets sent to anti-vaccine mandate protesters

“We do not collect any user identification information beyond email addresses. We also do not hold any keys. Therefore: We cannot ‘freeze’ our users’ assets; We cannot ‘prevent’ them from being moved; We do not have knowledge of ‘the existence, nature, value, and location’ of our users’ assets. This is by design.”

• Follows filings that show Cruz bought the dip last month

European Parliament rumored to be moving towards Bitcoin ban

• The article cites reporting out of Germany saying that the European Parliament is moving to ban Bitcoin and other digital assets that employ “environmentally unsustainable” consensus mechanisms
• The report suggests that Bitcoin could become illegal within the European Union starting from Jan. 1, 2025

Canadian regulators don’t like ‘self-custodial’ wallets

• The Royal Canadian Mounted Police (RCMP) are investigating whether tweets by the CEOs of cryptocurrency exchanges Coinbase and Kraken that pushed for self-custody of digital assets violated the sanctions put in place to quell trucker protests against Covid-19 restrictions in Canada
• The Canadian securities regulator allegedly reported the tweets to the federal police on the grounds that it felt the crypto executives were providing advice on how to circumvent the restrictions put on the funds

Charts

Bitcoin Market Cap / Stable Coin Market Cap

• Obviously, yesterday’s selling would have seen a lot of money rotate into stable coins, but there looks to be a record amount of dry powder on the sidelines
• Long term, I think this is probably a positive chart for Bitcoin

Chart credit: Glassnode

ETF Inflows

• The Purpose BTC ETF saw Bitcoin under management increase by ~ 111 BTC to a new all-time high of 32,330 BTC

Chart credit: Glassnode

Broad-Based Buying

• Ecoinometrics reports buying across wallet sizes into yesterday’s dip

Chart credit: Ecoinometrcs

The most concise roundup of Bitcoin market action in the industry.

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Blockstream Markets Weekly — Feb 25, 2022 was originally published in Blockstream Markets Weekly on Medium, where people are continuing the conversation by highlighting and responding to this story.