A Week of Rotation and Bridging the Gap with TradFi 2.0

• Cardano and AVAX boasted impressive weekly gains of 50.4% and 49%
• DWS joined forces with Flow Traders and Galaxy to launch a euro stablecoin
• El Salvador’s bitcoin bond received regulatory approval; targeting a Q1 launch

A week of rotation, rotation, rotation…

In the crypto asset landscape, bitcoin took a breather while the alts surged. The total market capitalization of the crypto universe remained above $1.5 trillion, with bitcoin's dominance dipping below 53%. Among the blue chips, bitcoin experienced a 2% decline, while ether outperformed with a weekly gain of 1.3%. Monday's trading session witnessed substantial liquidations in crypto futures, resulting in losses exceeding $500 million, with some major cryptocurrencies plummeting by as much as 12%. Bitcoin displayed notable volatility, fluctuating from $43,000 to as low as $40,300.

However, bitcoin prices staged a recovery, rebounding on Wednesday evening in the US to just short of $43K. Some see it as a positive development: the liquidation flushed excessive leverage, fostering a balanced and sustainable market. The subsequent bitcoin price recovery has been viewed as confirmation that the broader upward trend is robust, highlighting market resilience and the potential for sustained growth.

Cardano and AVAX emerged as standout performers among major Layer 1 coins, boasting impressive gains of 50.4% and 49% respectively over the week. Notably, Cardano's total value locked surged past the $400 million mark, a substantial leap from the $50 million recorded at the beginning of the year. The Cardano Foundation marked a milestone with the launch of a self-sovereign "Identity Wallet" on Monday. This W3C-compatible mobile wallet, available on iOS and Android, facilitates the management of self-sovereign identities across Cardano and other blockchain networks. The innovative wallet supports multiple identity and credential standards, ensures secure management of digital assets, enables seamless interactions with DApps on Cardano, reduces entry barriers for new users, and promotes interoperability across diverse ecosystems.

In tandem with the market's price movements, the number of AVAX transactions exceeding $100,000 reached a local peak of nearly 1,000. Although the current level falls below the highs seen in the previous bull market, this uptick is viewed positively, signaling the ongoing bullish trend. A key driver of this upward trajectory is the active participation of major banks in exploring the tokenization of real-world assets (RWA). Leading financial institutions like JP Morgan are presently involved in tokenizing funds to seamlessly integrate with blockchain technology. Citi is conducting blockchain application tests for forex trades, and Bank of America expressed optimism about the potential of asset tokenization. Notably, all these major banks have opted for Avalanche technology and Subnets for their blockchain solutions. The preference for Avalanche is attributed to its high-throughput blockchain, crucial for efficiently processing transactions.

The ongoing convergence of crypto and TradFi

German asset manager DWS has joined forces with Flow Traders and Galaxy to introduce a euro-denominated stablecoin through their collaborative venture, AllUnity. The launch is contingent on regulatory approval from BaFin and aims to introduce a fully collateralized stablecoin into the on-chain economy. The partnership leverages DWS's portfolio management, Flow Traders's liquidity provision, and Galaxy's technical infrastructure. AllUnity's broader objective is to expedite the mass market adoption of digital assets and tokenization. The timing is noteworthy, aligning with increased regulatory clarity in the EU following the adoption of the Markets in Crypto Assets Regulation (MiCAR). DWS, in collaboration with Galaxy, had previously announced plans to unveil a suite of crypto ETPs.

El Salvador's eagerly awaited bitcoin bonds, also known as "Volcano Bonds", have reportedly received regulatory approval for a planned launch in early 2024. The Digital Assets Commission of El Salvador has granted approval for the Volcano Bond which is expected to debut in the first quarter of 2024, per a statement from The National Bitcoin Office (ONBTC) earlier this month on December 11. The groundbreaking legislation for the bitcoin-backed bond was initially passed on January 11 this year, establishing the legal framework for this initiative. The primary purpose of the Volcano Bond is to reduce sovereign debt and finance the development of El Salvador's envisioned "Bitcoin City". The ONBTC has announced that the bond issuance will take place on the Bitfinex Securities Platform, a trading platform for blockchain-based equities and bonds registered in El Salvador.

A month after successfully securing $110 million in financing, cryptocurrency exchange Blockchain.com has announced plans to expand its workforce by 25% in the coming year, as reported by Bloomberg. In contrast to earlier reports of firms downsizing their teams in the first half of the year, there are now indications of increased hiring among well-known market makers. This shift in employment trends aligns with a more optimistic outlook for the cryptocurrency market as a whole. Bloomberg analysts have assigned a 90% probability to a spot-bitcoin ETF approval in January 2024. Additionally, the Federal Reserve has hinted at the possibility of a decline in borrowing costs in the upcoming year. With these factors in play, coupled with the bitcoin halving just a few months away, the overall landscape appears optimistic and promising as we enter 2024.

Macro pulse 

Among TradFi assets, US equities surged 3.5% compared to the previous week, buoyed by the Federal Reserve's adoption of a more accommodating tone for the upcoming year, signaling a potential conclusion to its tightening measures. The Fed acknowledged a reduction in inflationary pressures, suggesting a possible end to the rate-tightening cycle. The dot plot, outlining the expected trajectory of monetary policy, indicated the likelihood of decreased borrowing costs in 2024. This shift in sentiment contributed to a 1.2% decline in the US Dollar index and a 9 bps drop in 10-year US Treasury yields, while the Gold & Silver index climbed 0.9% week on week. In contrast, Oil futures remained unchanged, posting a modest 0.1% weekly gain compared to the previous week.

*Note: Weekly (7 calendar day) performance figures are as of 8am SGT on December 14, 2023 

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