Crypto Ecosystem Update #8: January 31, 2022

Markets were expecting at least a minimal interest rate hike from the Fed meeting on January 26 but no change was made. This caused a sell-off in the markets including cryptocurrencies because large investors got doubtful about the Fed’s commitment and capability to tackle the surging inflation. Due to this, risk-on assets are now left with overwhelming uncertainty until the next Federal Open Market Committee (FOMC) meeting on March 15. 

On the other hand, markets do not like aggressive interest rate hikes either. The biggest concern right now is whether the Fed will eventually have to raise interest rates at an unseen pace and size after not taking any action for a long time. In that sense, markets may remain shaky until the Fed draws a clearer picture about its 2022 plans at the March meeting.  

Developments in March will determine whether cryptocurrencies will have an extended bear market in 2022. Amid this uncertainty, Bitcoin made a new low at $33,000 on January 24 and dragged Ethereum to a low of $2,200. These prices correspond to the summer 2021 bottom prices for the two flagship cryptocurrencies. Going forward, $29,000 is a very critical level for Bitcoin because it constitutes yearly support. A monthly close below $29,000 is dangerous because the next major monthly support for Bitcoin sits all the way down at $14,000.

In this week’s crypto ecosystem update, we try to understand whether Bitcoin and Ethereum are capitulating right now in terms of their on-chain activity and technical analysis. We also review news and developments across the spectrum of cryptocurrency products that could act as positive catalysts in the coming months as the ongoing uncertainty in markets comes to an end.


A. On-Chain Activity:

Both Bitcoin and greater crypto markets are in limbo. The catalysts are largely dependent on global economic factors that have impacted all asset classes to varying degrees. Observing the on-chain behavior of long-term and short-term Bitcoin holders can allow us to evaluate what BTC holders are thinking. This can in return help us get an understanding of Bitcoin’s future price action. 

I. Long-term and short-term holder supply

Measuring the supply held by long-term (LTH) and short-term (STH) holders offers insight into the accumulation (buying) and distribution (selling) behavior of these holders. LTHs and STHs typically act in opposite directions. 

For example, LTHs sell from their Bitcoin holdings when price surges, which is marked by a decline in LTH supply, while the supply held by STHs exceeds that of LTHs. On the contrary, LTHs increase their holdings as price declines, while STHs typically reduce their supply during market crashes. 

The long-term trend in the correlation between LTH and STH supply shows that LTHs are accumulating BTC as prices fall. This correlation rhymes with historical trends when price weakens and indicates that LTHs are not capitulating despite the large sell-offs by STHs. 

On the other hand, STHs have recently begun to accumulate supply which suggests that STH capitulation may be weakening and coming to an end. The current outlook in terms of LTH and STH supply is indicative of a nearing market bottom, where prices start to accumulate.

Source: GlassNode

II. Short-term holder supply in profit

The profitability of short-term holders offers additional insight on where the Bitcoin price may be heading in the near and middle terms. Historically, STH-supply in profit has brought the market bottoms after dropping below 115,000 BTC. On January 28, Bitcoin was trading at $36,250 when the STH-supply in profit fell to 98,700 BTC.

Over the last 32 months, STH-supply in profit has crossed the 115,000 BTC threshold six times. Each of these crosses marked a bottom which was followed by a new uptrend for Bitcoin.

Additional examples of crashing STH-supply in profit can be observed as early as 2011. In November 2011, the STH-supply in profit dropped to 7,000 BTC, which was preceded by a 241% price surge in the next two months. In August 2015, the STH-supply in profit hit an all-time low of 282 BTC before a 100% run over the next four months.

Source: GlassNode

III. Net Unrealised Profit/Loss (NUPL)

Net Unrealised Profit/Loss (NUPL) represents the market’s overall profitability against Bitcoin’s market capitalization. NUPL is currently at 32.5%, which means the total value of unrealized profits constitutes 32.5% of Bitcoin’s current market cap.

Source: GlassNode

32.5% is a low profitability figure compared to 75% and 68% achieved during Bitcoin’s market tops in April and November 2021. However, it is still a positive figure. You can observe in the above chart that during the capitulation phases of Bitcoin (2015 and 2018), NUPL has turned negative. Based on that, one can reasonably argue that we are only in the early stage of a bear market as of yet, which started in May 2021.

An alternative argument would be that profitability is diminishing as Bitcoin becomes a more mature asset. The NUPL declined for the first time in Bitcoin’s history between the two all-time high prices set in April and November (75% vs. 68%). This is a result of more coins being distributed at the November high compared to that of April, which lifts the overall market cost basis and creates a bearish divergence for this indicator.

IV. Realized price

Realized price uses unspent transaction outputs (UTXOs), or coins that are waiting to be spent to estimate the cost basis for Bitcoin. Applying LTH and STH filters can calculate the cost basis for each holder type. UTXOs older than 155 days are considered long-term.

The Bitcoin price has ranged around the STH Realized Price line for about eight months (see the below chart). However, it lost this STH-realized price support as of December 2021. You should also note in the chart that during capitulation events, the price of Bitcoin dropped to BTC Realized Price and LTH Realized Price levels. This may suggest that Bitcoin has not entirely capitulated yet. If that is the case, the spot price may fall all the way down to $17,500 in case of a stronger capitulation event.

Source: GlassNode

B. Bitcoin Technical Analysis:

Bitcoin lost its bull-market support of $42,000 and made a new low at $33,000 on January 21. The critical question that investors have in mind now is whether we are at the end of a major correction or the beginning of an extended bear market.

I. Critical $29K Support

$29,000 is a very critical level for Bitcoin in order not to enter an extended bear market. Although it can temporarily drop below $29,000, Bitcoin should never close a month with a price less than $29,000. This is because the next major monthly support lies at around $14,000, as you can observe in the below chart.

Bitcoin/U.S. Dollar price chart. Each candle in the chart represents two months. Source: Tradingview

Although such a low bottom price is quite an unpopular scenario right now, Bitcoin is known to shock its investors many times in the past. In that sense, Bitcoin will enter a very dangerous territory if it ever makes a monthly close below $29,000. 

II. Cycle Duration

There is an ongoing debate among analysts about the duration of this current growth cycle. Bitcoin managed to increase by around 2000% from its previous bear market low of $3,000 to its all-time high of $68,000. There have been 156 weeks so far in this growth cycle, which constitutes the 4th growth cycle in Bitcoin history. 

Below are the returns and durations of each Bitcoin growth cycle from bottom to peak: 

  • 1st cycle – 64,468% in 46 weeks
  • 2nd cycle – 58,457% in 106 weeks
  • 3rd cycle – 11,951% in 152 weeks
  • 4th cycle – 2,091% in 156 weeks (so far)

As you can observe in the above figures, Bitcoin’s return on investment (ROI) is diminishing while the duration is increasing with every new growth cycle. However, looking at the current fourth cycle, we see that the decline in total ROI is too high and there has been only the same number of weeks passed so far as in the entire 2017 bull cycle. 

If statistics are any indication, the current growth cycle should last for about 30-40% longer than the previous growth cycle. This would correspond to a total of 200-212 weeks. In that case, the ultimate market top for Bitcoin would arrive by the end of 2022 or early 2023 (approximately 44 to 56 weeks later) with a significantly larger ROI than 2000%.       

III. Bitcoin Logarithmic Growth Band

Logarithmic growth curve chart for Bitcoin/U.S. Dollar 

The price of Bitcoin has been moving inside a logarithmic growth curve since its inception over ten years ago. All three growth cycles in the past ended with touching the top of the red band, which is located at the top of the logarithmic curve in the above chart. As you can see in the chart, we have not yet climbed to the red band in the current growth cycle. 

In addition, the median level (the yellow band) has acted as strong resistance during every cycle, which also acted as resistance twice in this growth cycle. If history is to repeat, the current cycle should end with touching the top of the red band. You will also see in the chart that bands rise with time so the longer this cycle takes, the higher the top price will likely be for Bitcoin. 

IV.  A-B-C Wave Correction

As a positive scenario, Bitcoin may have completed a large Elliott A-B-C corrective wave inside an ascending parallel channel (see the below chart). In this correction, waves A and C had identical lengths in line with the Elliott correction wave principles, which would suggest that the bottom for Bitcoin was reached on January 24.

Daily Bitcoin/U.S. Dollar price chart

V. Extremely Oversold Stochastic RSI

Bitcoin’s weekly stochastic RSI is extremely oversold for the last couple of weeks and it just made a bullish cross this week (the red circle at the bottom of the below chart). Last week’s closing price candle also looks good (the green candle above the letter C) with a large lower wick, which suggests strong buying power at the $33,000 bottom level.


A. On-Chain Activity:

I. Miner fee revenue reclaims recent highs

Daily Ethereum miner fee revenue is pushing towards the recent highs. This comes at a time when the on-chain transaction count is sinking to low levels not seen since October 2021. Rising fee revenue is a healthy sign which indicates miners have adequate incentive to continue operating. It also incentivizes new miners to join and secure the network. The current daily fee revenue of ~14,800 ETH is in the 97th percentile of historical daily fee revenue, but it is still approximately 42% off from the all-time high of 25,686 ETH recorded in September 2020.

B. Ethereum Technical Analysis:

Ethereum’s price action has historically been correlated to that of Bitcoin. Throughout the history of cryptocurrencies, Bitcoin managed to drag Ethereum and other altcoins along with itself, either to the upside or to the downside. The reason for this synchronized price action was that funds entering and exiting the cryptocurrency market initially flowed into Bitcoin, which then moved in and out of Ethereum and other altcoins. Due to that, Bitcoin should not be on a downtrend for the Ethereum price to have an uptrend.

Although Ethereum was less affected by Bitcoin’s downfall in early December, it eventually lost its edge over Bitcoin in the second half of the month and nowadays it drops at least as much as Bitcoin when the price of the alpha cryptocurrency drops. The ETH/BTC parity fell sharply during January sell-offs, from 0.09 to 0.065. 

After bottoming out at $2,200 on January 24, Ethereum bounced to $2,800 on February 1. The current outlook for Ethereum is that its price action is almost entirely coupled with that of Bitcoin. In that sense, Bitcoin needs to bottom first and start a new uptrend for Ethereum to climb back to its all-time high prices. 

Ethereum has been bouncing since January 24 but the price is rising on declining volume as you can observe in the below chart. This means there are no strong buyers at these dip levels, which indicates a weakness in the bounce and may be followed by another sell-off in the coming days.

4-hour price chart for Ethereum/U.S. Dollar


A. Product Developments

Block Integrates Lightning Payments

Block (formerly known as Square) integrated Lightning payments for Cash App. This move allows Block customers to benefit from the fast and free payments of the Lightning network by directly using their BTC wallet in the app. The integration was made possible by Spiral’s Lightning Development Kit (LDK). LDK is a universal tool that integrates Lightning into BTC wallets which eliminates the need to have separate wallets for Bitcoin and Lightning payments. Jack Dorsey, the CEO of Block and a Lightning Labs investor, had expressed interest in bringing Lightning to Cash App as early as 2019. 

B. Regulatory Developments

SEC Rejects Fidelity’s Wise Origin Bitcoin ETF

The US Securities and Exchange Commission (SEC) rejected another spot bitcoin ETF this time from Fidelity on January 27. Citing fraud, manipulation, and investor protection in its filing, the SEC continues to use the same precedent to reject another spot ETF. This rejection, and the rationale behind the decision, make it clear that the SEC prefers futures-based ETFs instead of spot ETFs. Some other rejected spot ETFs are Kryptoin’s, VanEck’s, and WisdomTree’s proposals. The SEC also delayed its decision for ETF products from ARK21 Shares and Teucrium just a few days before it rejected Fidelity’s proposal. 

U.S. Politicians Compete Over BTC Adoption

Congressman, senators, and governors, in addition to state legislators, started to roll out their cryptocurrency agendas in the wake of the midterm election season in the USA. Senators across Arizona and Mississippi, competing governors in Texas, and the governor of Colorado have all included Bitcoin in their future legislation plans. Bitcoin and crypto are fast becoming a major topic on which politicians are building their campaigns. This trend should grow as blockchain technology becomes increasingly integral to the lives of all Americans.

Arizona Senator, Wendy Rogers, introduced a bill outlining a path to making Bitcoin legal tender in the south-western state. The bill aims to add Bitcoin to the list of valid tenders in the state, which would enable citizens to use the digital currency to pay debts, public charges, taxes, and other fees. 

Mississippi State Senator, and chairman of the Mississippi Senate Finance Committee, Josh Harkins proposed a series of bills that would bring Bitcoin into state code as a viable means of transacting. There are a total of 3 bills proposed by Senator Harkins – SB 2631, SB 2632, and SB 2633

  • SB 2631 – This bill would exempt virtual currencies from the Mississippi Money Transmitter Act, and for related purposes. Under Mississippi law, “a money transmitter license is required for engaging in the sale or issuance of checks or receiving money or monetary value for transmission to a location outside the U.S. or within it by any means, including wire, facsimile or electronic transfer”. Bitcoin, and those who handle it, would be exempt from this language. 
  • SB 2632 – This bill would create a Digital Assets Act that defines digital assets as property within the Uniform Commercial Code (UCC). SB 2632 would permit security interests in digital assets and initiate an opt-in framework for banks to provide custodial services for digital asset property.
  • SB 2633 – This bill would exempt open blockchain tokens from securities laws. Developers or sellers of open blockchain tokens wouldn’t be considered issuers of security and would not be subject to the Mississippi Securities Act of 2010.

On the other hand, competition for the governor elections in Texas is centered around Bitcoin adoption and mining. Texas has the cheapest energy prices in the country, which makes it a haven for Bitcoin mining, and subsequently digital asset ownership. Both the current governor, Greg Abbott, and 2022 candidate, Allen West, look forward to capitalizing on this. 

Colorado Governor, Jared Polis, also noted that the state’s plans to move forward with Bitcoin and other cryptocurrencies have not changed. Governor Polis stated, “our plans to allow people to pay taxes in Bitcoin and crypto haven’t changed.” This statement comes despite a near 50% sell-off in the cryptocurrency market. 


A. NFT/Metaverse

Microsoft Enters the Metaverse with a Record-breaking Deal

Microsoft has announced that it purchased Activision Blizzard, a game publishing enterprise, for a total of $69 billion. This is by far the highest acquisition in the metaverse world and shows the tech giant’s interest and commitment to this new ecosystem. This acquisition comes only a few months after Microsoft acquired Bethesda for $7.5 billion, which is another major video publisher. 

Microsoft’s purchasing Activision Blizzard for $69 billion is not only the largest acquisition in metaverse history but it is also the largest transaction in the entire gaming history. Capturing lucrative gaming IPs will serve Microsoft’s goal to tackle the metaverse as it will now own a rich roster of gaming characters that it can introduce to the metaverse world.

Call of Duty, Candy Crush, World of Warcraft, and Tony Hawk’s Pro-Skater are just a few of the legendary gaming series owned by Activision Blizzard. 

Animoca Brands Raised $359 Million of Funding

Animoca Brands, a leading investor in NFT games and the publisher of the Sandbox, has raised nearly $359 million, which values the company at over $5 billion.  

The funding round was led by Liberty City Ventures. Many other prominent private equity firms also participated in the funding, which includes Winklevoss Capital, billionaire investor George Soros’ Soros Fund Management, Gemini Frontier Fund, and 10T Holdings.

Animoca Brands succeeded in raising a record level of funds throughout 2021 considering the nascent size of the metaverse industry. First, the company raised nearly $140 million in two tranches announced in May and July. Coinbase Ventures, Samsung Venture Investment Corporation, and zVentures were the main investors in these two tranches.

The firm then raised another $65 million at a valuation of $2.2 billion in October. This smaller round brought several strategic investors onboard such as gaming giant Ubisoft. With this partnership, Animoca Brands seeks to co-develop new NFT games with Ubisoft. 

Using the proceeds from the received funds, Animoca Brands has invested in more than 100 NFT startups. Among its investments are Opensea, the largest NFT marketplace (valued at $13.3 billion), Dapper Labs, the developer of NBA Top Shots (valued at $7.6 billion), and Sky Mavis, the publisher of Axie Infinity (valued near $3 billion).

B. DeFi

The Graph Now Supports Moonbeam

Similar to how Google indexes the internet for information related to every search, there are protocols that index blockchains. This improves blockchain data accessibility and makes it easier to obtain data on different blockchains. 

The Graph is a decentralized indexing protocol for querying blockchain networks, like Ethereum, and the protocols built on top of them. It offers different methods of storing and tracking information generated from smart contracts to allow other networks or dapps to monitor them.

Moonbeam offers modules that trace the Ethereum blockchain, which enabled integration between The Graph and Moonbeam to index its blockchain data. Now, Graph developers seek to expand to the Polkadot (DOT) ecosystem to build, publish, and use subgraphs in a Polkadot-based environment. This will enhance the transparency of Moonbeam by allowing developers to display network data in their front-end applications for users.

Wonderland and Abracadabra Propose a Merger

A merger between the decentralized asset protocol Wonderland and the lending protocol Abracadabra was proposed on January 26. Each of the protocols exists under the Frog Nation umbrella, which also includes Popsicle Finance and Sushi Swap.

Strong ties between the two protocols have raised the need for a merger. Most notably, Abracadabra’s cauldrons and building strategies, which are used by Abracadabra’s Degenbox, are consistently leveraged by Wonderland. Other synergies between the protocols include liquidity provision, incentive voting on Curve, and degenbox strategies in yield farming via Abracadabra Collateralized Debt Positions (CDPs).

Both Abracadabra and Wonderland are rapidly growing ecosystems. Abracadabra’s total value locked (TVL) had eclipsed $6 billion in January, and Wonderland has grown by nearly 100x since its inception in September 2021. The merger can help further propel each of the protocols and bring a robust product to DeFi users. Abracadabra’s cross-chain capabilities and isolated lending markets, in conjunction with Wonderland’s unique approach to asset treasuries, would unify two facets of DeFi for outsized protocol performance efficiency.

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Author: Onur Sener