Week of Jan 11, 2022

All Eyes on CPI Data This Week

Over $800M In Crypto Derivatives Liquidations. FED Prepares Itself To Hike Four Times in 2022.

đź’¬ Market Commentary



It's a rough start of the year for Bitcoin as volatility persisted into the second week of January. Bitcoin fell ~12% below $40,000 for the first time since September; yesterday. Most major asset classes have been selling off as markets continue to digest the FOMC’s last meeting minutes. 

In addition, over $800M crypto liquidations were realized last week. Using futures contracts, traders can bet on price actions by going long or short the underlying asset with leverage, in this case Bitcoin and altcoins. This is why, as we’ve previously discussed, leveraged-long cryptocurrency traders can add selling pressure to markets when prices drop.

As measured by Glassnode data, last week, long liquidations dominance hit 69%, meaning that more than two thirds of liquidated trades were long Bitcoin.

Last time this occurred was back in May of last year, after the China-mining-ban selloff that caused Bitcoin to trade sideways for over two months. Bitcoin now remains ~41% below its all-time-highs, levels at which margin calls can be triggered across the board; causing volatility to spike. 

On Jan 5th the 1-week implied volatility gringed higher as liquidations began to increase on derivatives markets like Deribit, for example.

It’s interesting to note that Deribit’s funding rates didn’t enter negative territory during this drawdown, and FTX barely did so.

Moreover, lots of put selling and call buying took place in the options market, showing that at current price levels some happy buyers are stepping in.

The futures curves remain in contango, only Kraken is showing a minor backwardation. 

Lastly, if we take a look at Bitcoin’s current correlation to equities, there’s been a positive correlation since the second half of 2021. If this remains the same, then we may continue to see volatility in crypto markets coming from equity markets over the short term as all eyes remain on the FED, and this week’s CPI report. We’ll keep an eye on the psychological level of $29,534 - Microstrategy’s average Bitcoin buying price.

S&P 500

Equities dropped into further negative territory for the year as market participants prepare for a potential rate hike in March, instead of the second half of FY22, after the FOMC’s minutes release of last week. For one, Goldman Sach is now predicting the Fed will raise rates four times this year, instead of just three as previously projected.

Equities got kicked after the news, Cathy Wood's fund, $ARK Invest, suffered its worst drawdown since inception. Shares have now dropped over 44%, after having topped in Q1 of last year. 

The broader tech carnage followed by last week’s risk-off sentiment, brought short interest as a percentage of shares outstanding on the $14.3 billion exchange-traded fund to 6.86%, according to data from IHS Markit Ltd. This means that Investors are betting that more pain is coming for the fund.

Along with tech stocks, bonds sold off as well. BlackRock's $17.5 billion long-term Treasury ETF $TLT recorded a $1.4 billion outflow last week, the biggest withdrawal going back to March 2020. 

In fact, the value of the world's negative-yielding debt fell below $10 trillion for the first time since early 2020. After having reached $18.5 trillion worldwide, one thing is now clear: cost of capital is rising, especially among developed economies.

This is the most accommodative environment of the last 75 years in the U.S. Inflation is running rampant, globally, forcing central banks to discuss hiking rates as they begin to express their fears of overheating the economy by leaving rates too low for too long. 

Real rates in the U.S. are now -6.72%, so cash may continue to lose value over the medium term due to inflation, even if the Fed raises interest rates by a few basis points.

The question remains the same: Are investors just having a quick panic that will be followed by a deep breath and a spot of bargain hunting or are investors really rattled by what the next twelve months are set to bring? Bill Miller, at least, has 50% of his personal wealth sitting on Bitcoin:


Gold futures dipped briefly below the $1,800 mark. We've got inflation working in gold's favor, but yields are pushing prices lower leading to a tug-of-war between these two factors. 

Gold investors are left hoping for a sharp drop in inflation to deter the Fed from tightening too fast. If that doesn't happen, then we may well see further struggles for the yellow metal. A stronger greenback has not helped either, as the U.S. dollar and gold prices are generally inversely correlated. 

Zooming out and looking at the chart below, courtesy of Charlie Bilello, gold’s ROI over the last 20 years is ~550%, exactly the same as Berkshire Hattaway’s stock as it traded to all-time-highs last week. Another reason that adds up to the existing criticism around gold not being a proper safe haven. Right now the sentiment on gold is buy-and-hold.


It’s a lackluster kick-off for the DeFi Index too, which dropped ~18% last week and dipped even more in tandem with the rest of asset classes. It is now back below the $10,000 price tag. 

It was another week in which Vitalik Butterin, Ethereum’s creator, shed some light on the much-awaited ETH 2.0 update, which has now been pushed back for later this year in H2. 

In one of JP Morgan’s latest reports about the DeFi space, the bank mentions the increasingly competing environment among DeFi protocols, as other chains continue to offer lower-fee scaling solutions to build using smart contracts.


On the flip side, after the launch of the Beacon Chain last year, over $33.5 billion of ETH has been locked in Ethereum’s main smart contract.

The Beacon Chain is the first key step in Ethereum’s move from a proof-of-work mining consensus to a proof-of-stake (PoS) one. In order to become a validator in Eth2, one must stake a minimum of 32 ETH. Thus, showing there’s a high demand and trust in the pending Eth2 upgrade.

Finally, we wanted to share that mergers and acquisitions in the DeFi space may be a factor that will continue to develop this year. Last week we saw WonderFi purchase Bitbuy, Canada’s first approved crypto marketplace, for $162M in Cash.


Bitcoin's network fees have continued to remain low. The number of active addresses in the network topped back in spring of 2021. As less people broadcast a transaction to include it in the blockchain, network fees drop.

On the same note, the mempool has not experienced any major congestions since the second half of last year. Over the past week, fees remained below the $1 threshold. Being able to move $40,000+ in value, from anywhere to everywhere in a little over 10 min, for less than a buck is still something that distinguishes Bitcoin from other protocols. 


Related to the mining-side of things, Bitcoin’s hashrate touched an all-time-high of 181 EH/s, and the next difficulty adjustment is expected to range between a slight drop of -1.8% to 23.92 TH or an increase of 0.33% bringing us to 24.45 TH. 

Note that although we’ve recovered from the China-mining-ban exodus, there’s currently a noticeable divergence between hashing power and price. 

What's Ahead

We hope you enjoyed reading and as always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:

The main event to keep an eye on will be the CPI temperature check that we’ll get on Wednesday, and the producer price index on Thursday. If the reported CPI comes in above 7%, expect markets to react negatively as it would potentially signal that the FED will in fact hike rates in March. However, a measure below such a level could spark some risk-on sentiment for both traditional and crypto markets.


1.30 PM EST - Consumer Price Index (CPI) (YoY Dec), consensus is at 7%.


1.30 AM EST - Initial Jobless Claims (Jan 7), expected to come in at 200K.

1.30 AM EST - Producer Price Index (PPI) (YoY Dec), consensus is at 9.8%.

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account.

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About the author

Mauricio Di Bartolomeo

Mauricio is the co-founder and Chief Strategy Officer of Ledn.io. He grew up in Venezuela where he and his family learned about Bitcoin. Now based in Canada, Mauricio holds HBA and MBA degrees from the Richard Ivey School of Business in London, Ontario in Canada.