Week of Mar 15, 2022

The Bitcoin Bond is Coming

Diving Into The Recent Short-Squeezes in Bitcoin. Fed To Raise Interest Rates in The U.S. This Week.

💬 Market Commentary


Last week saw a continuation of the “risk-off” trade - with safe haven assets like gold, the dollar index rising, while the Nasdaq and the S&P 500 ended lower. 

The Ark Invest Innovation Fund ETF, which can be seen as a barometer for broader risk appetite in the equity markets, dropped by -7.72% and is already down another 3% in this morning’s trading session. 

We have certainly seen bitcoin investors take some risk off the table. The amount of bitcoin futures open interest is at about half of what it was in the previous cycle highs of April and November 2021.

This is positive as leveraged investors are forced to sell when the market turns lower and they cannot meet their collateral requirements. Lower leverage means the chances of cascading liquidations lower are reduced.

Typically, we see investors take on speculative leverage to the upside at the top of a bullish market cycle. Notice the spikes in the above charts during both April 2021 and November 2021. 

Similarly, investors start taking speculative bearish bets with leverage to the downside towards the end of a bearish cycle. Last week we saw the short interest for bitcoin in the BitFinex exchange reach its highest level so far in 2022.

There are many investors that are openly short bitcoin as part of their “risk-off” trades. 

Additionally, we have seen funding rates for bitcoin perpetual future swaps bounce in and out of negative territory over the last 2 weeks, even though bitcoin has been rallying.

When consensus starts building in any particular direction, it is usually not a bad time to start looking the other way. In other words, when enough people seem to be getting short bitcoin, it is not a bad idea to start looking at the argument for being long.

We have seen some glimpses of short squeeze action since Feb 24th, when the Russia-Ukraine war started and investors were surprised that Russians and Ukranians started buying bitcoin - forcing many to close out their shorts.  

Then again last week, when the Executive Order from the White House had a positive overall tone for the industry, and sent shorts running for cover once more. 

With so much interest building around shorts, let’s explore a couple of potential positive catalysts that could be in the cards for the next few weeks, and could send prices higher:

  1. Luna/Terra’s $1B reserve purchase

Over the last 6 months, Terra’s UST stablecoin has doubled in market capitalization from $7 Billion to over $14 Billion. The protocol recently announced that it raised over $1 Billion to purchase bitcoin for its reserves. The purchase could potentially be executed in the coming weeks. More on this in our DeFi section.

  1. El Salvador bond ($500 M)

The government of El Salvador has announced that it plans to launch or issue its bitcoin bond by March 15th. The bond offering is reported to be for $1 Billion and 50% of the proceeds would be used to purchase bitcoin.

If the bond is 100% subscribed, this would imply a $500 Million buy order from the government. This order would be meaningful given the recent thin volumes in the bitcoin spot market.

To be balanced, let’s look at a few wild-card events that could add further selling pressure on bitcoin in the week ahead. 

  1. The Fed overshoots the rate hikes - 50 basis points instead of 25 basis points

Investors are expecting the Fed to raise interest rates by 25 Basis Points this week. If the Fed overshoots and raises interest rates by 50 basis points, markets could react negatively and this could spill over into bitcoin.

  1. China crisis worsens. 

China has 3 big problems right now. Its real estate market is crashing. Its stock market is melting down, and this week it locked down the cities of Hong Kong (its main financial hub), and Shenzhen (one of its main manufacturing and shipping hubs) as a result of the current resurgence in COVID cases. 

This will certainly impact supply chains for consumer goods, along with capital markets globally.

Lot’s of moving pieces this week, and we have the all-important Federal Reserve interest rate decision on Wednesday. More details in our What’s Ahead section. 

S&P 500

Macro economic winds and international turmoil have taken a toll on the equity markets this year. The S&P 500 has dropped 13.2% year-to-date and has entered into death cross territory. 

What is a death cross: A death cross is a technical chart pattern. It occurs when a security's short-term moving average drops below its long-term moving average. 

The S&P 500’s 50-day moving average looks to drop below the 200-day moving average. Why is this important? Market opportunity for investors as valuations look attractive given the current macro environment. The last time the S&P had a death cross was on March 30, 2022, at the height of COVID. 

Based on data from Dow Jones Market Data, the 53 times the S&P 500 has closed in death-cross territory, the averaged out gains in the one year following the death cross close have been 50.7%. Death cross territory can remain for some time, according to Barron’s economic strategist, the average period is 155 trading days. 

Factors contributing to a market sell-off and a death cross: i) intensifying conflict in Eastern Europe, ii) worries of a global economy cool-off iii) commodity prices skyrocketing iv) U.S. Federal Reserve’s rate hikes


Gold climbed to a 19-month high above $2,000 per ounce. Several factors have led the precious metal to climb to new heights: i) mounting concerns over inflation at near 8% and ii) Ongoing geopolitical tension between the Kremlin and Ukraine.

Kinross Goldman suspends operations in Russia. The Kupol mine had an expected production of 35,000 ounces which represents ~13% of total production.

According to a Goldman Sachs report, given all the international sanctions, Russia’s central bank will be unlikely to sell its gold holdings to support the value of the ruble, further putting pressure on the economy of Russia.


The decentralized finance “DeFi” sector has total value locked “TVL” of just over $200 billion as per DefiLlama data. Ethereum dominates with 57% market share in the DeFi space. There are currently 564 protocols that are using Ethereum as their base layer. The next and closest DeFi chain is Terra ($LUNA), with a $20 billion TVL and a total of 24 protocols on its chain.  LUNA’s most popular decentralized exchange is Astroport. Anchor is LUNA’s largest lending protocol with $15.6 billion in TVL.

Last month, the LUNA Foundation Guard raised $1 billion in an over-the-counter “OTC” deal. The $1 billion will help establish a bitcoin-denominated forex reserve for UST, Terra’s biggest stablecoin.

UST is  an algorithmic stablecoin used in DeFi ecosystems. The token is pegged to the price of the US dollar (1:1). UST has a market capitalization of more than $15 billion. 

The importance of having a Bitcoin-denominated fund reserve is that it provides additional support for the LUNA ecosystem. The fund is designed to ensure the 1:1 pegging to that of the dollar during sharp selloffs in crypto markets. Algorithmic tokens like UST do not use collateral to maintain their price, such is the case as Circle USD and Tether. Instead, they use market incentives. Users are incentivized by the protocol to burn and mint in a way that ensures $1 worth of LUNA can always be traded for 1 UST, and vice versa. The reserve will be denominated in Bitcoin and over time, there is a plan to add other non-correlated assets to the reserves. 


Bitcoin mining difficulty has continued to trend up. Currently the network difficulty rate stands at 27.55 THs. With 423 blocks left until the next adjustment, estimated to be in 3 days, the adjusted network difficulty should drop by a 1.30%. The Bitcoin network difficulty rate has doubled since June of 2021 when it stood at 13.6 THs.  

The total hash rate has decreased from an all-time high of 214.2 million to 196.4 million. Pool hashrates can be tracked live here. Despite the ongoing conflict between Russia and Ukraine and the rise of energy prices, hashrate out of Russia seems to be still online as the network has not seen any major disruptions. As of August 2021, Russia had a 13.5% share of global hash rate. 

What's Ahead

The moment is finally here. The Federal Reserve is finally scheduled to announce the first interest rate hike since December 2018. 

Investors had initially priced in a 50 basis point hike - before the war in Europe began. Markets have since recalibrated and are now expecting a 25 basis point hike. 

The Fed will also shine light on its purchase program for U.S. treasury bonds and mortgage backed securities. The purchases should have stopped by now, as they get ready to raise rates. Details should be announced at 2 PM EST on Wednesday - and the markets will certainly react.

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:


2:00 pm EST - FOMC announcement on fed funds rate 

2:30 pm EST - Fed Chair Jerome Powell news conference

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.