RESEARCH
BEQUANT Crypto&Coffee
Equities resumed the nose dive and Nasdaq 100 sank 3.6%, which is the biggest drop since October, as bond yields continued to surge higher. The rise in inflation expectations and bond yields came even as various Fed officials continued to downplay the widely expected spike in prices, suggesting that these dynamics are expected to be transitory in nature. However, akin to taper tantrum, logic was near absent and the key component that would tie in with higher rates, is the persistent USD weakness. The USD index remained in doldrums and even as the USTs now trade at 1.5% (which is also SPX dividend yield), thus yet again it appears that market participants will push on the Fed to be more forceful in their language and further reaffirm the easy monetary policy stance. As a reminder, the flight of risk on flow has been such that the darling of tech ETF, Ark Investment Management, saw record amount of cash pulled out. On Monday, investors withdrew $465 million from the product, according to data compiled by Bloomberg. They also took $202 million from the ARK Genomic Revolution ETF (ARKG) and $119 million from the ARK Next Generation Internet ETF (ARKW). However, GameStop and other meme stocks continued to buck the trend. Like it or not, but all of this flow very much matters for Bitcoin and the rest of the digital assets complex, especially given that the CME's Bitcoin open interest is the second largest and thus, when flight to safety mode is on, it is the riskier investments that get pulled first. As evidenced by the aggressive outflows from Ark based funds. Correlations and fundaments matter very little then, it is all about liquidity and who blinks first. The final days into the month-end also have not helped the cause. Still, in spite of the perilous market conditions, the broad-based dip provides an opportunity for dip buyers to re-enter, especially considering the ever-increasing demand for ETPs and other products. In terms of news flow, 1inch, a decentralized finance (DeFi) protocol for routing trades, is now live on Binance Smart Chain (BSC) – hedging its bets on Ethereum's ability to handle more transaction volume. Launched in 2019, 1inch routes trading orders for Ethereum-based tokens (and now BSC tokens) through dozens of integrated decentralized exchanges (DEXs) to get the best prices. It's one of the largest DEX aggregators by trading volumes with some $450 million traded in the past 24 hours, according to Dune Analytics. As a reminder, Ethereum network is again testing the patience and the pockets of active DeFi users, but the eagerly awaited scaling solution Optimism is now expected to go live in March. Furthermore, unlike the already existing L2 solutions, some of which are sidechains of Ethereum, some state channels, either prompting centralization questions or are unable to scale smart contracts, Optimism utilizes rollups, much praised by Ethereum co-founder Vitalik Buterin. He said that "that rollups will be the dominant scaling paradigm for at least a couple of years," proposing "rollups on top of sharding" for ETH 2.0.
