Market Update: Q1 2022
Positive adoption and regulatory development overshadowed by war and inflation, creating uncertainty.
Crypto market reacts to macroeconomics
The first quarter of the year saw the crypto market cap size contract, consolidate, then rise during the last week of the quarter. Here are a few of the can’t-miss narratives from the quarter about the crypto market, regulation, new products, and performance.
The Q4 Market Update read: “Keep your seatbelt on as we continue into 2022!” While there was usual volatility, the market largely remained in a tight range during a tenuous macroeconomic landscape. Bitcoin’s price was flat but saw mid-quarter declines of as much as 28%.
Bitcoin’s market dominance rose slightly through the quarter, typical during periods of uncertainty, as seen below.
Regulation
After multiple Congressional hearings, President Biden passed an Executive Order that called on various government agencies to look into key risks, benefits, and possibilities of digital assets. It was well-received by the crypto community, and we expect to see the results of the order sometime in the latter half of 2022.
There have been multiple bipartisan pushes for crypto this quarter. Two examples: an op-ed from NY Congressman Ritchie Torres titled A Liberal Case for Cryptocurrency and a group of four Republicans and four Democrats implored the SEC not to stifle innovation through “onerous reporting requirements” within crypto. (source.) Increasingly, some of the government’s outspoken critics are preaching a different tune than in the past: Treasury Secretary Janet Yellen last week went so far as to describe bitcoin as “transformative.”
Ukraine received more than $100 million worth of cryptocurrency donations from around the world. The country made all crypto exchanges legal and mandated banks open accounts for them. Their adoption of crypto during adversity demonstrated how quickly and transparently digital assets can be sent around the world.
Japan is trying to make it easier to list tokens. Currently, Coinbase only supports five tokens in Japan, compared to 100 in other countries. Regulators are trying to streamline listing requirements while maintaining high standards.
U.S. Federal officials seized $3.6 billion worth of bitcoin that was hacked from the Bitfinex exchange. It’s the largest financial seizure ever by U.S. authorities.
More Corporations Get Involved
Goldman Sachs performed an over-the-counter crypto trade, a first for any major U.S. bank. This is significant because it “represents the first step that banks have taken to offer direct, customizable exposures to the crypto market on behalf of their clients.” (source.)
Shop at Walmart in the metaverse? Recent patent filings reveal plans to develop the Walmart brand’s own digital assets and sell virtual goods. (source.) We’re consistently hearing about rising interest for brands to get involved in digital assets, and things don’t seem to be slowing down.
KPMG in Canada added bitcoin and ethereum to its corporate treasury. Part of the inspiration, according to KPMG, was to experience the process themselves in order to guide clients on how how to navigate the cryptocurrency treasury allocation process.
Intel announced that it is entering the bitcoin mining scene with a new Bonanza Mine chip, described as an “ultra-low-voltage energy-efficient Bitcoin mining ASIC.” (source.) These chips will allegedly help reduce the carbon footprint of bitcoin mining.
The CEO’s of both Uber and Airbnb announced that they plan to accept cryptocurrencies as payment on their respective platforms.
Bain Capital Ventures announced the launch of Bain Capital Crypto, which is being run by managing partner Stefan Cohen, who said, “we have high conviction we are at the beginning of a multi-decade technology shift…We really needed a dedicated team and a dedicated fund structure.” (source.)
Macro Environment
Inflation numbers continued upward to reach 30-year highs. The Consumer Price Index was 8.5% year-over-year for March, which represents “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” (source.) In other words, the purchasing power of your dollars has gone down by 8.5%. The Fed has plans to raise interest rates into 2023 to fight inflation. It’s reasonable to assume higher rates could lead to lower crypto prices in the short term.
The 90-day correlation between bitcoin and the S&P 500 hit 17-month highs this quarter. (source.) This can be attributed to the increased participation from institutional investors, among other factors.
Regarding the war in Ukraine, we are only just beginning to see the economic and political consequences, but the long-term effects are largely unknowable at this stage. We will leave you with this: “One can’t help but wonder whether we are on the cusp of an economic singularity in which the laws and bedrock beliefs that formed the foundation of international economic order for decades break down.” (source.)
Asset & Funding News
Ren Protocol, a cross-chain blockchain protocol, captured $10 billion of volume in under 2 years.
Bitcoin mining looks dramatically different compared to a year ago. Earlier this quarter we checked in on the state of mining, examining how miners are spread geographically based on access to cheap power, land, and renewable energy.
Skale announced a $100M ecosystem fund to incentivize platform development. Skale is a decentralized network of blockchains built on Ethereum, with a focus on running decentralized applications with speed and low cost. (source.)
Polygon, a blockchain that serves as a support to Ethereum, raised $450 million from investors, led by Sequoia Capital.
Katie Huan, formerly of a16z, raised $1.5 billion in the largest initial fund ever raised by a solo female founding partner, according to Pitchbook. (source.)
Sequoia Capital raised a $600 million fund focused on liquid token investments. (source.)
The world’s largest hedge fund is taking crypto seriously: it is reported that Bridgewater is looking to get involved.
Terra, a blockchain payment network, plans to purchase USD$10 billion worth of bitcoin to back its stablecoin, adding 30,728 bitcoin in Q1 2022.
Performance Spotlight: 2022 Q1
Looking at monthly returns, bitcoin underperformed historical performance in January and February, but broke the trend in March, outperforming the median -5%.
➡️ About FirstWatch Crypto ⬅️
FirstWatch Crypto was started by Dan McGlinn (@DigitalDanMcG) and John "Blaize" Hrabrick (@blaizebitcoin) who have been investing in the space for a combined 8 years. FirstWatch Crypto is on a mission to simplify the crypto investment landscape.