As Bitcoin Dips, Inflation 'Breakevens' Offer Hope to Bulls

The latest moves in crypto markets, in context

February 21, 2022

Supported by

Was this newsletter forwarded to you? Sign up here.

Good morning, and welcome to First Mover. Here's what's happening this morning:

Market Moves: Bitcoin reverses early gains as Kremlin dashes hopes for Ukraine peace summit.
Featured stories: U.S. inflation breakevens suggest Fed's tightening cycle may be shallow, support bitcoin's long-term bull prospects.

CoinDesk TV show "First Mover," is on a break due to President's Day holiday in the U.S. and will return on Tuesday.

Today's newsletter was edited by Omkar Godbole and produced by Parikshit Mishra.

Market Moves

By Omkar Godbole

Bitcoin's daily chart with relative strength index and MACD histogram. (TradingView)

Bitcoin is back on the defensive, with Kremlin calling the idea of a dialogue between Russian President Vladimir Putin and his U.S. counterpart Joe Biden premature and dashing hopes of a potential Ukraine peace summit.

The cryptocurrency was last seen trading near $37,600, representing a 2% drop on the day. Prices hit a high of $39,500 during the European hours after France championed the idea of a Biden-Putin dialogue over Ukraine. Rest of the cryptocurrencies have come off daily highs, tracking bitcoin with ether funds seeing renewed outflows, according to ByteTree data.

With the U.S. markets closed on account of the Presidents' day holiday, bitcoin appears to be the only macro asset available for trading in the spot and derivatives market. As such, escalation of tensions between Russia-Ukraine may lead to sharp losses in the cryptocurrency.

The daily chart paints a bearish picture, with a rising trendline convincingly violated alongside a below-50 or bearish reading on the relative strength index and a negative MACD indicator.

The double whammy of Fed fears and lingering geopolitical tensions are likely to keep bitcoin under pressure in the short term. Calls for a 50 basis point rate hike in March have grown in the wake of the hotter-than-expected January inflation data released early this month.

Also read: Making Sense of India's New Crypto Rules

The future of finance is inherently digital.

As digital assets, technology, and finance continue to merge, we believe the resulting digital economy offers a more equitable, accessible, and inclusive financial future.

Grayscale^® Future of Finance (symbol: GFOF) is an ETF that seeks to invest in the companies and technologies that are integral in evolving the financial system.

Backed by an index that combines the expertise of Grayscale, a leader in the digital asset ecosystem, and Bloomberg, a trusted authority in finance, GFOF seeks to define the "future of finance" in one thematic fund.

What better way to plan for tomorrow than by investing in the future?

Search symbol: GFOF in your brokerage account to start investing. Learn more here.

Investing involves risks and the possible loss of principal. GFOF is distributed by Foreside Fund Services, LLC and Grayscale Advisors, LLC is the adviser. For a copy of the latest prospectus, head to the GFOF landing page. Risks: Future of Finance companies rely heavily on the success of the digital currency industry, and other developing technologies that seek to disrupt or displace established financial institutions.

Crypto Prices

Bitcoin (BTC)

See the latest price here

Ether (ETH)

See the latest price here

The following are the biggest movers in the CoinDesk 20 digital assets over the past 24 hours:

Biggest Gainers:

Asset	Ticker	Returns	Sector
Solana	SOL	+4.3%	Smart Contract Platform
Ethereum	ETH	+2.3%	Smart Contract Platform
Litecoin	LTC	+1.7%	Currency

Biggest Losers:

Asset	Ticker	Returns	Sector
Stellar	XLM	−1.3%	Smart Contract Platform
Internet Computer	ICP	−1.1%	Computing
Ethereum Classic	ETC	−1.0%	Smart Contract Platform

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

It's never been easier to earn interest on Bitcoin and Tether with BitMEX EARN. Enjoy up to 10% APR on Tether and 4% on Bitcoin, fully backed by the BitMEX Insurance Fund.

With new products, reliable security, and responsive customer service, there's never been a better time to join BitMEX. Start earning interest today by subscribing to EARN here.

BitMEX products and services are not available to US Persons and in other specified jurisdictions.

Latest Headlines

Breakevens Support Bitcoin's Long-Term Bull Case

By Omkar Godbole

Despite the recent crash, bitcoin bulls remain convinced of the cryptocurrency's long-term prospects, with many anticipating a shallow Federal Reserve (Fed) rate hike cycle.

Data on U.S. inflation breakevens, which signal the expected path of price pressures over different timeframes, suggests they may be right.

The spread between the 10- and two-year breakeven inflation rates fell to a record low of -1.2% last week. That's perhaps a sign of market players expecting inflation to drop back in the long term, weakening the case for aggressive and prolonged stimulus withdrawal by the Fed.

"It's another way of telling us that inflation will drop back in the longer term, thereby possibly cutting the life of any Fed tightening campaign. An inflation level that is high enough to eliminate deflation fears, but low enough to keep Fed hawks at bay," Ashraf Laidi, strategist and trader, founder of Intermarket Strategy and author of Currency Trading & Intermarket Analysis, said in a blogpost.

Inflation breakevens are calculated by subtracting the yield of an inflation-protected bond from the yield of a nominal bond during the same period.

The record low spread between the 10- and two-year breakeven rates suggest the Fed tightening fears may be overdone and bitcoin could survive the impending liquidity withdrawal.

According to Laidi, the narrowing spread probably helped gold chalk out gains in recent weeks. Meanwhile, bitcoin, often touted as digital gold, failed, perhaps due to its tight correlation with growth stocks.

Crypto financial services provider Babel Finance foresees bitcoin picking a strong bid along with growth stocks in the second half of 2022.

Breakeven inflation differential and gold's price. (Chart by Ashraf Laidi)

Axie Sales Surpass $4 Billion

By Omkar Godbole

Axie Infinity, a play-to-earn (P2E) game launched in 2018, has surpassed $4 billion in lifetime non-fungible tokens sales, according to data tracked by DappRadar.

"Nearly two million individual traders participated in the market palace, with the average Axie price at just under $200," Ilan Solot, a partner at the Tagus Capital Multi-Strategy Fund, said in an email. " Axie is now the third-largest in the space."

The supposedly-recession-proof game has been a big hit in Philipines and other emerging economies, including India.

"I tried out Axie by sheer intrigue. I was curious to know how a relatively new game could amass 300K daily active users, which was in October 2021, post which I have played and studied a few other P2E models, namely - Skyweaver and Neon District," Adwait Rangnekar, a Mumbai-based developer and former Axie player told CoinDesk in a WhatsApp chat.

"Online player communities thrive on an active and contributing user base. The Axie Comunity has a very strong online presence and averages more than 2 million daily active users, which attracts players. These numbers are similar to DOTA2, League of Legends (LoL), and MMORPG. Traders, like gamers, also seek a community that can offer avenues where they can get more done as a group," Rangnekar added.

NFT rankings by DappRadar

The OGs of NFTs get animated with the biggest stars from around the world in this entertaining new series from CoinDesk TV. Tune in Tuesdays in February at 4 p.m. ET.

ICYMI

In case you missed it, here are the most recent episodes of "First Mover" on CoinDesk TV:

Bitstamp USA on Crypto Markets, Exchange Hacks and eSports, ETHDenver Highlights

Live from ETHDenver, "First Mover" host Christine Lee has highlights from the big Ethereum conference, including an interview with Polkadot lead developer Shawn Tabrizi. Also, Bitstamp USA CEO Bobby Zagotta joins Christine and co-host Lawrence Lewitinn to discuss crypto markets and lessons learned from major exchange hacks. Zagotta is also joined by Immortals CEO Jordan Sherman to discuss their new esports partnership. Plus, Sergey Gorbunov of Axelar on the new funding round that gives them unicorn status.

Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.