Bitcoin
Bitcoin has declined ~13.7% in the last week. Over the weekend, Bitcoin failed to keep the $42k resistance level, and headed towards the $39k territory. The digital currency started the week in red territory, dragging the overall crypto market down overall. Market participants braced for the U.S. inflation report. In February, inflation reached 7.9% and was expected to rise to 8.3% year-over-year in March. Actual inflation came in at 8.5%, released Tuesday morning.
The equity markets started the week in selling territory. Investors have noticed the high correlation between equity markets and Bitcoin. The S&P 500 and NASDAQ have the largest correlations to Bitcoin with 0.88 and 0.91, respectively. A correlation of one means that they move equally one to the other.
As investors started the week in anticipation of March inflation numbers, risk-on assets and growth tech equities were sold amasse, dragging equity markets and Bitcoin along due to its close correlation. With market volatility, risk-on assets and indexes have continued to show that investors are worried about aggressive rate hikes from the Fed. On a volatility spectrum, Bitcoin (29.61 volatility) has fared better than Ethereum (35.68% volatility) and about double of the volatility of the well-established Dow Jones Index (13.92%).
Crypto funds seem to have offloaded some risk ahead of the CPI release. Managers of crypto funds might feel a strong hawkish reaction from the Fed in reaction to higher inflation.
S&P 500
Since the invasion of Ukraine by the Kremlin, equity markets have been disrupted. The major U.S. equity indexes have suffered from ongoing volatility and investor wariness. The invasion created additional price pressures on commodities and energy. These pressures can be seen in the consumer price index that has increased ~3% since the War in Ukraine began.
Core inflation, a leading indicator that takes out food and energy from the equation, hit 6.4% in February and increased to 0.3% for the month of March. Core inflation will be a key metric investors will pay attention to as it will give the Fed the green light to continue with aggressive policy as it attempts to curve high inflation. Equities rallied on Tuesday and government-bond yields fell after inflation data showed consumer prices rose at the fastest rate in over 40 years for the month of March.
Charles Evan, president of the Chicago Federal Reserve Bank, mentioned that the Fed would not oppose interest rates moving higher to more of a neutral stance between 2.25% and 2.5% by the end of the year. To accomplish this, the Federal Reserve would need to raise interest rates by 50bps at two of the remaining FOMC meetings this year.
Gold
The trifecta that has affected gold prices i) inflation ii) war in Ukraine iii)actions and statements from the Fed. Investors are focused on the effects of staggering inflation which came in at 8.5% for March and the global effects of the war in Ukraine as supply-chains have been disrupted and energy costs have surged due to the war. Brent has regained territory and is trading around $105 per barrel. The Fed's actions and statements have curved any sustained upside movement in equity markets. All these factors have made investors shed risk-on assets and move to safe-haven assets like gold. Gold has been actively bought by investors this year. As of April 12th, gold spot prices reached $1,970 per ounce.
DeFi
The Luna Foundation Gard (LFG) has purchased $100 million worth of Avalanche ($AVAX) as it looks to add additional blue-chip uncorrelated digital assets to its stablecoins reserves. The first-of-a-kind deal will grant avalanche users to directly trade UST for AVAX on-chain. Additionally, native applications on the Terra blockchain will be able to launch native versions on the avalanche network. The partnership will connect the ecosystems and builders to usher in an immersive cross-chain experience, while providing deployment of ideas across both chains.
The decentralized yield aggregator platform, Yearn Finance ($YEARN) will be the first major protocol to publicly support the adoption of ERC-4626 tokens. ERC-4626 is a new Ethereum token standard that looks at streamlining the different design types of tokens that print money, aka yield-bearing tokens. ERC-4626 standardizes yield-bearing tokens to give builders ease and develops a shared interface for tokens held in vaults, or smart contracts that draw liquidity from deposits of asset tokens for yield farming strategies.
This move is a major milestone for the DeFi industry as it will give a high level of legitimacy. The move could encourage other protocols to start exploring the usage and integration of ERC-4626 tokens.
Mining
Despite the ~13.7% in Bitcoin price decrease, the Bitcoin mining difficulty rate continues to increase, having reached a new all-time-high. The hash rate is just below an all-time high, and there is a possibility that a downward difficulty adjustment can happen in the following weeks. In the last three days, F2pool has become the top miner currently with 18.91% of the global hashrate (38.12 EH/s, having found 76 blocks. Foundry follows with 18.65% of the global hashrate (36.82 EH/s) with 76 blocks. Mining difficulty's lifetime high of 28.6T has made it harder for miners to find block rewards. There are 11 well-known Bitcoin mining pools with computational power solely dedicated to the network. 2% of the global hashpower is owned by unknown mining pools.
What's Ahead
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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.
