Crypto and the wider risk asset spectrum have been dominated by concerns over the geopolitical situation in Ukraine, which is likely to remain the key focus and a source of volatility, though in recent days, crypto markets seem to have found a footing at around the $37-39k bitcoin level, despite the volatile newsflow. The S&P is down ~5% over the last 2 weeks, but in that time digital assets have significantly underperformed, with correlations between bitcoin and the Nasdaq up to ~60%, with crypto trading like high beta equities.

On chain analytics paint a mixed picture. On the demand side, inflows remain modest, with limited on chain activity (e.g. number of active entities). On the supply side, while short term holders are primarily underwater (~80% in loss), there is limited evidence of selling thus far, though this may well change if the market rallies and these holders are able to exit their positions at more favorable levels. Generally the longer short term holders are holding onto losses, the more likely they are to sell into any recovery, which can act as a powerful resistance to any meaningful price appreciation. For longer term holders, which account for ~80% of the market, there has been little evidence of distribution, both at the October highs and since and in fact this group has been net accumulating on weakness (as short-term holders mature into longer term holders).

On the derivatives side, open interest remains high, though was somewhat reduced in early February and last week saw a fairly heavy long side liquidation. As open interest grew over December as the bitcoin price was falling from $49-40k, it is likely the much of this open interest is short side focused, hence why some of this was reduced by the early February rally to $44k. It is therefore likely that many of these shorts have an entry price in the $44-50k range and we can therefore very roughly estimate a stop loss in the $44-55k range, which may imply the potential for a short squeeze if the market were to recover meaningfully from here.

btc daily liquidations graph

In the L1 space, Solana is currently running a hackathon until mid-March and inviting developers to a number of ‘hacker houses’ worldwide over the next few weeks, as part of a wider effort to focus on developers. Solana is also developing Solana Pay, its point of sale product for merchants, allowing for fast and cheap transactions and leveraging the network’s fast throughput. Terra announced this week a $1bn raise through a private token sale to establish a stability fund for UST, their native stablecoin. Throughout the market weakness, UST has continued to grow and currently has a market cap of $12.3bn. Also among the earlier, emerging L1s, Cronos has started to gain material TVL. Cronos is the EVM compatible chain launched by in November last year and in that time has grown TVL to $2.5bn, with the majority of this coming from VVS Finance, their native DEX.

In DeFi, Uniswap has been gaining material share of late and now has ~45% of the stablecoin market by volume, with the majority belonging to Curve. Similarly, Uniswap has been taking share from Sushiswap in non-stables. Uniswap has been helped by v3 and particularly the introduction of low fee tiers across stablecoins and high-volume pairs.