This week was no short of small drops of volatility that turned into a big drop that took place across the board on Thursday. This was majorly due to volatility preceding the CPI data released on Thursday at 6 PM IST.
A similar movement was seen across the board with some lag across markets. In Crypto, altcoins started losing strength with BTC holding strong till the afternoon. The same plunged along similar lines following a sharp drop after the CPI came in at 8.2%. Expectations of a lower number when unmeet caused the broad market indices to fall in unison. While S&P 500 was down by 2.7%, Nasdaq saw a sharp drop of 3.6% with BTC plunging by more than 4% within a span of 4 hours. While the drops were sharp, the recoveries followed a similar path, and all drops were recovered within hours.
This week was no short of structural and legislative blows to individual crypto projects. BNB smart chain, which went under a major cross-chain exploit causing $70-$80 million to be drained from the platform. $7 million of the total stolen crypto has already been frozen. While all major chains have suffered multiple hacks across the years, what irked the community most were the decisions of the management. Following the incident, the chain operations were halted for some time. post coming online, the chain announced a hard fork as a patch for the vulnerability that drained the platform. This is not the first time a major blockchain has hard-forked to reverse a hack that happened on the chain. Ethereum hard forked in 2016 reversing a hack that happened on the network resulting in two chains with tokens named ETH and ETH Classic. While ETH hard fork happened in a very nascent state of the asset class, a similar move to reset to a point before the hack was seen as a major red flag by a lot of participants in the community. While a drop was seen in BNB price, the same has recovered by the week.BNB chain wasn’t alone in being hacked this week. Solana-based DeFi Platform Mango Markets was hit by a $100 Million Exploit as well. On a broader view, the current year has been one of the worst for cryptos with total hacking exploits causing theft of almost $ 3 billion. While the infrastructure in development provides a lot of investment and trading opportunities, a loss of this magnitude has a lot of cascading effects
The blows for the industry weren’t restricted to the financial and technical levels. BAYC(top NFT project) creator Yuga Labs is facing an SEC probe over unregistered offerings across various token launches. This is just an addition to the constant tussle between the SEC and crypto companies. The major issue in each case regarding asset classification(being security or not) and regulatory breach judgments around the same. While SEC’s recent tussle with Ripple (XRP) was bullish for the space, a long overdue cleanup of unclear security laws being broken/challenged was imminent.
Amidst the hacks and regulatory heat, a few bullish developments can be seen to continue on the institutional and macro levels. America’s one of the oldest banks, BNY Mellon launched a crypto custody service. While this use case has been discussed within the crypto community for a long time, the same was just a matter of one institution upping its game in digital assets. This is likely to be followed by other banks’ suites. The move represents a significant turning point in traditional institutions’ adoption of digital assets. The first of the eight U.S. banks of systemic importance to hold and transfer digital currency. RBI announced its plans to launch a digital Rupee pilot with an initial whitepaper. The same while being exhaustive seemed more like a missed opportunity or mishit. The same censorship and centralization concerns regarding CBDCs being issued by other leading central banks should be kept in mind while assessing the digital rupee as a viable part of the economic system.
In recent months, BTC has shown more independent behavior as compared to the broader crypto market and US equities as well. While the same does merge in effects with the broader market, strong decoupling signs can be seen regularly. Since last year, Bitcoin dominance has made a few brief falls to the previously highlighted support level (green line), which is at around 40%.
While the altcoin perpetual index has been steadily declining, Bitcoin’s Dominance has been increasing. The graph shows that the BTC Dominance has risen by 5% while the perpetual altcoin index has decreased by almost 5% during the past month. It is not a perfect metric, but it helps in macroeconomic analysis because many people use it. The figure above shows that in most cases, you’ll want to be in Bitcoin when Bitcoin Dominance is rising and in alt when Bitcoin Dominance is falling. That is happening right now. Bitcoin’s price has been range-bound or flat for the past few weeks, while some of the top market-cap coins have been slowly bleeding.
Additionally, the historical volatility index (BVOL) for bitcoin has fallen to a two-year low (2020), indicating that volatility is currently being squeezed for bitcoin. Shortly, the price of bitcoin might see a significant change.
Bitcoin returns were -5.72% for this week. The Alpha Blue Chip Focused Strategy returns were -11.11% during the same period (06 OCT-13 OCT). The Top Cap Digital Assets Strategy and Arbitrage & Balanced Opportunities Strategy returns were -10.82% and -2.51% respectively.