Dampened Start into the Week, Equities Rallying, Positive News from FTX & A Crypto Recovery?

What Happened This Week

Last Friday, right around the time we sent out last week’s wrap, Bitcoin started rallying into the evening, and was able to sustain its rather positive price action for the weekend, trading slightly to the upside and closing the week in the green, up 1.45%. A quite impressive weekly close, considering BTC was down more than 10% during the course of last week. Last week was the first positive week for Bitcoin since the end of March. The positive sentiment in the U.S. equity market likely played a role in Bitcoin’s recovery at the end of the week and into the weekend. The S&P 500 closed the last week positive as well. The positive sentiment manifested itself in $378 million of inflows into the U.S. spot ETFs last Friday, adding fuel to the rally into the weekend.

Dampened Start into the Week

While the weekend price action looked promising, the current weekly high was reached on Monday, with BTC at $65’523. Bitcoin traded to the downside on Monday, finding a temporary low at around $62’700. The subdued price action for crypto was accompanied by the news that the U.S. Securities and Exchange Commission (SEC) issued Robinhood Crypto with a Wells Notice, citing alleged securities violations. This is the third prominent case of a Wells Notice in the last two months, after Uniswap Labs and Consensys both received a Wells Notice from the SEC in April.

While being busy with sending out Wells Notices, the SEC also communicated on Monday evening that they decided to postpone their decision regarding the Invesco Galaxy Ether spot ETF, setting the next deadline for the ETF to July 5, 2024. The crypto market likely did not take this decision as a surprise, since the optimism regarding a positive decision on any of the Ether spot ETFs has declined over the past months, and the probabilities of an approval in May have declined rapidly as well over the last months. Talking about ETFs, the U.S. spot ETFs saw another day with net inflows on Monday, with $217 million flowing into the U.S.-based products. Notably, GBTC saw its second straight day with net inflows on Monday. This is a very interesting development. If you would like to stay up-to-date regarding the spot ETFs, you can read a detailed update from us here.

While the last week ended on a somewhat positive note with net inflows on Friday, over all, the digital asset investment products saw outflows for the fourth consecutive week, totaling $251 million last week. Last week was also the first week since inception with rather high net outflows from the U.S.-based spot ETFs, while the new BTC and ETH spot ETFs in Hong Kong saw a total of $307 million in inflows in their first week of trading; this number includes the seed investments of said products.

Positive News from FTX on Tuesday

Bankrupt cryptocurrency exchange FTX communicated in a proposed reorganization plan that most of its creditors will be paid back in full. For creditors holding claims in an allowed amount of $50’000 or less, the Plan creates a special "convenience class". Because of this classification, if the Plan is approved by the Bankruptcy Court, the Debtors anticipate that 98% of the creditors of FTX by number will receive approximately 118% of the amount of their allowed claims within 60 days after the effective date of the Plan, subject to know-your-client and distribution information requirements. At the heart of the Plan are a series of settlements reached consensually with the key economic stakeholders. FTX forecasts that the total value of property collected, converted to cash and available for distribution will be between $14.5 and $16.3 billion.

In other news, LayerZero Labs addressed sybil activity after its snapshot was completed on May 1st, 2024. LayerZero communicated that it's in the protocol's best interest to distribute the token from the airdrop to “durable” users and not airdrop farmers. They left such airdrop farmers with the option to self-report sybil addresses for 15% of the intended allocation. LayerZero CEO Bryan Pellegrino said that he believes that only 400’000 to 800’000 addresses out of the 6 million total addresses are actually real users; this could mean that only around 6.67 to 13.33% of addresses are eligible for the airdrop. Airdrops, and the farming of such, have been one of the main native crypto narratives over the last few years, with many of the largest launches during the last couple of years airdropping an amount of token to protocol users or stakers at the launch. Some of the most valuable airdrops were the likes of Uniswap, Apecoin, dYdX, Arbitrum, or more recently, Celestia and Dymension.

When it comes to price action, Bitcoin and the crypto market traded to the downside on Tuesday. Coinbase (COIN) corrected alongside with the crypto market, down almost 10% this week, while MicroStrategy is also down, but less so. The Bitcoin dominance has been trading sideways this week, while ETHBTC did not manage to uphold its uptrend from the end of April and is down roughly 8% from its April 28 high, sitting at 0.048 at the time of writing. The chart below showcases this week’s performance of BTC (blue), MSTR (orange) and COIN (black) since the U.S. market open on Monday.

Wednesday: U.S. Equities Green, Bitcoin and Crypto Red

U.S. equities experienced a positive trading session on Wednesday after a sideways day on Tuesday. Bitcoin and the crypto market did not follow through on this positive price action on the equity side; Bitcoin traded to the downside until Thursday morning, reaching a weekly low at $60’600, while Ethereum also briefly traded below $3’000 again on Wednesday evening. The total crypto market cap resembled this price action overall and traded to the downside until Thursday morning. When we look at the total crypto market cap chart from a higher timeframe, we can observe that it has been trading in a rather sideways range since the middle of April. Last week’s correction seemed to have broken this range at first, but then reclaimed the April 13 low in a matter of hours, now up more than 10% from said low on May 1, 2024.

On Wednesday, Vitalik Buterin introduced EIP-7702, proposing enhancements to account abstraction within Ethereum. This EIP introduces a fresh transaction model allowing externally owned accounts (EOAs) – standard Ethereum addresses—to temporarily adopt the functionality of smart contract wallets during transactions, reverting to their original state afterward. EIP-7702 presents an alternative approach to EIP-3074, offering improved alignment with EIP-4337, which initially introduced account abstraction via specialized smart contracts in March 2023. Account abstraction empowers wallets to function as smart contracts, facilitating advanced features such as multifactor authentication, wallet social recovery, and the freedom for users to transact with any token.

Positive Price Action since Thursday

As mentioned earlier, Bitcoin and the broader crypto market have experienced some more positive price action since yesterday afternoon. Bitcoin is currently trading at $63’000 and Ethereum is sitting at $3’000 at the time of writing.

While Bitcoin and most of the crypto assets are still down for the week, there are some exceptions. Focus has shifted back on AI tokens this week, as coins like RNDR or AKT are outperforming the market and are up almost 15% for the week. TON is another outperformer, especially today, after Dan Morehead, founder of Pantera Capital communicated that TON is the largest investment Pantera has ever made.  RUNE is among the weekly top performers as well, likely due to this week’s Mainnet Upgrade. In the chart below, this week’s price action of these four tokens is visible, all of them up more than 15% for the week.

On another note, an interesting development regarding DeFi and regulatory compliance is unfolding in the Swiss crypto space. Polimec, a decentralized community-driven funding protocol for Web3, is trying to enable fundraising in a decentralized, transparent, and regulatory compliant manner. This regulatory compliance is achieved through the Deloitte KYC credentials utilizing the infrastructure capabilities of the KILT blockchain. This Deloitte solution offers a reusable Swiss banking-grade KYC standard that users can obtain after a one-time verification process. This credential is not just a tool for verification; it embodies the principle of self-sovereign identity, allowing users to reuse their validated credentials across various applications without undergoing repetitive KYC verifications. You can register for a Deloitte KYC Credential for CHF 1.00 instead of CHF 50.00 with this promo code: “FundingSeason”. Please mind that this offer operates on a first-come, first-served basis. Find more information here.

How is the Market Feeling?

Same procedures as every week. Let us have a look at the market sentiment: According to the AAII Investor Sentiment Survey, 40.8% of its members feel bullish on the stock market for the coming six months. This number is on the increase again after a low at 32.1% end of April; 35.4% are neutral and 23.8% are on the bearish side. The stock market Fear & Greed Index is back in Neutral territory (45) after spending some time in Fear territory during the last few weeks.

When it comes to crypto, the Fear & Greed Index shows, that the market is already in Greed territory again (66) after spending roughly one day in Fear and some time in the Neutral zone last week. The funding rate heatmap paints a very interesting picture over the last six months. As seen below, the funding rates have been in low or even negative territory for more than a month now. The chart also gives interesting insights regarding the development of funding rates in connection with the Bitcoin price action in general. As we can see, funding rates were already elevated and overheated at the end of February, when Bitcoin was trading around $62’000, especially Memecoins had rather high funding rates at that time. Bitcoin did not instantly correct in price, but rather continued its rally up to $73’000 with elevated funding rates over the course of two weeks before correcting to the downside.

Our Take

This week in crypto saw a mixed bag of events and sentiments. Bitcoin saw a temporary high at the beginning of the week before trading downwards amidst news of the U.S. SEC issuing a Wells Notice to Robinhood Crypto, alleging securities violations. But the market has recovered since and is still slightly down on the week. The optimism for spot BTC ETFs was dampened as the week progressed, with muted inflows.

Once more, the U.S. dollar is edging upwards this week, imposing a limit on risk assets such as crypto. The Swedish National Bank has reduced interest rates from 4.00% to 3.75%, joining the Swiss National Bank (SNB) which made similar cuts in March, with the ECB anticipated to follow suit in June. The surge in the USD comes as the market adjusts its outlook, anticipating that other central banks will act independently of the Fed's decisions on rate cuts. This expectation is fueled by disparities in economic performance and inflation levels between the US and other global economies.

Looking ahead, regulatory updates and market shifts remain focal points, particularly regarding ETH ETF decisions and broader trends. The upcoming release of CPI data on Wednesday is anticipated to maintain the crypto market within its current range until then, with the subsequent ETH ETF decision a week later likely to introduce interest and volatility. The CPI data holds the potential to influence risk assets significantly, depending on whether the figures align with or deviate from expectations.

The Week Ahead

Tuesday, May 14, 2024

• U.S. - Core PPI
• U.S. - Fed Chairman Jerome Powell Speech

Wednesday, May 15, 2024

• U.S. - Core CPI

Thursday, May 16, 2024

• U.S. - SEC Chairman Gary Gensler Speech