Crypto Market Weekly Report: Where is the market heading on the eve of the Bitcoin Halving?

Key Points

• In light of the Federal Reserve's cautious stance regarding inflation risks, the crypto market is showing a downward trend, similar to stocks and other risk assets.
• In this market environment, gold has shown remarkable performance, driven by factors such as central banks increasing their holdings, escalating geopolitical risks, and inflation concerns, leading to a new high in gold prices.
• The Endgame plan of the Maker protocol and recent governance changes aimed at increasing revenue have attracted widespread attention in the market, although these rapid changes are also viewed as high-risk measures by other protocols like Aave.

Market Analysis

Recently, Federal Reserve Chairman Powell has maintained a cautious stance on interest rate cuts in multiple speeches, leading to a significant decline in the cryptocurrency market. This uncertainty is not limited to the crypto sector; over the past week, stocks and other risk assets have also performed lackluster. Coupled with rising inflation concerns, the market now expects the magnitude of rate cuts (based on federal funds futures) to exceed even the Federal Reserve's expectations for the first time before the end of the year, becoming more hawkish. As of April 4, the market expects an end-of-year interest rate of 4.631%, well above the January forecast of 3.825% and also higher than the median target of 4.625% in the Federal Reserve's dot plot.

In this environment, gold has become the biggest winner. Central banks increasing their holdings, escalating geopolitical risks, and inflation concerns have driven gold prices to new highs. It is worth noting that the appreciation of gold is usually related to the Fed's interest rate cuts and rising inflation rates. Considering the market's recent hawkish stance on rate cuts, we believe that gold's performance conveys a message: compared to the changes in the Fed's interest rates, gold price fluctuations are more influenced by inflation rates, and it also reflects the overall market expectation that rising inflation may be more problematic than anticipated.

We believe that the recognition of Bitcoin as "digital gold" may attract a new group of investors. Therefore, compared to previous cycles, even during the price discovery phase, volatility still exists, and there may be more aggressive buying behavior when the market declines. We also believe that the launch of the U.S. spot Bitcoin ETF provides a broader funding channel for Bitcoin, which may help to suppress volatility (compared to previous cycles).

The impact of these ETFs and the influx of larger institutional demand can be seen from the open interest in Bitcoin futures, which can be used as hedging tools. The open interest in CME Bitcoin futures reached $9.9 billion, surpassing any single centralized exchange, accounting for more than one-third of the total Bitcoin futures market (including perpetual and fixed-term contracts). We believe that the capital released by the ETFs may represent the most fundamental change in market structure since the 2020-2021 cycle. The release of this capital, along with the upcoming Bitcoin Halving (expected to occur between April 20 and 21, depending on network hash rate changes) and other positive factors, keeps us optimistic about the overall market performance in the second quarter.

On-chain Dynamics: The Final Battle of Maker

The Maker protocol has recently shown impressive performance, thanks to the Endgame announcement released on March 13. This announcement details a series of transformations in four main phases. The first phase revolves around the rebranding of the DAI and MKR tokens (including the repricing of MKR to a new governance token at a ratio of 1:24,000), updating governance protocol incentives, establishing new asset bridges, and launching the Spark subDAO. The second phase involves expanding subDAOs, asset bridges, and governance responsibilities. The third phase outlines plans to migrate Maker to an independent chain in the coming years. The fourth phase sets all fundamental governance contracts as immutable.

As more details emerge, particularly regarding future subDAO governance tokens, speculation around airdrops for MKR holders and DAI stakers is increasing. Given the widespread industry attention on airdrops, we believe that part of the increase in token valuation is driven by the anticipated value of future airdrop tokens (in addition to other governance proposals that have recently increased protocol revenue). In our view, the transformation of Maker is a continuation of its DeFi protocol movement, aimed at more specifically implementing plans that have been mentioned for years. We believe that these long-running DeFi protocols may currently be seen as somewhat stagnant, but due to the network effects of their protocol liquidity, their brand and market share can drive innovation more powerfully.

Despite the attention surrounding Maker's Endgame plan, its recent governance changes have sparked some controversy within the DeFi community. Maker has swiftly passed several reform proposals, including integration with Morpho and USDe, and is considering significantly expanding these operations by increasing collateral limits. While these changes will notably boost Maker's revenue, some believe the pace of reform is too fast, significantly raising the risk level. In light of this, the Aave community has been seriously discussing the possibility of removing DAI as collateral. These discussions have received support from key leaders in Aave, including its founder Stani Kulechov, who "fully supports the removal of DAI from all Aave markets."

We believe that this conflict may herald a shift in the decentralized stablecoin market. Compared to DAI, Ethena's USDe has quickly gained market share due to higher yields and airdrop incentives. Both assets have inherent limitations on their issuance capacity (compared to centralized stablecoins). The supply of DAI requires over-collateralization, thus constrained by the collateral of lenders. Meanwhile, USDe is limited by the futures open interest market, and if its short interest rate becomes too high, the rates will become unbearable.

Due to the network effects of liquidity, creating and expanding new decentralized stablecoins remains challenging. DefiLlama tracks over 160 stablecoins, most of which have very limited use outside their original protocols. Despite the increasing number and market value of decentralized stablecoins, their growth rate does not match that of centralized stablecoins. The market share of certain major centralized stablecoins has grown to 90%. With the advantages of cross-chain native stablecoin issuance, as well as improvements in user experience for asset bridges supported by certain cross-chain transmission protocols, we believe that the adoption of decentralized stablecoins may continue to face challenges compared to centralized stablecoins.

Crypto Market and Traditional Financial Market Data

| Asset | Price | Market Cap | 24h Change | 7d Change | Correlation with BTC | |------------|---------|--------|--------------|-----------|-------------| | BTC | $68,765 | $1.35T | +4.79% | -2.38% | 100% | | ETH | $3,375 | $405B | +1.68% | -4.90% | 91% | | Gold ( spot ) | $2,286 | - | -0.58% | 2.55% | 30% | | S&P 500 | $5,151 | - | -1.15% | -1.96% | 6% | | USDT | $1.00 | $105B | - | - | - | | USDC | $1.00 | $32.9B | - | - | - |

| Assets | Monthly Inflows ( Billion ) | Year-to-Date Inflows ( Billion ) | Managed Assets Size ( Billion ) | Bitcoin Holdings ( Million ) | |--------------------|---------------------|------------------------|------------------------|----------------------| | US Spot Bitcoin ETF | $4.7 | $12.2 | $54.9 | 0.83 |

Exchange Insights

In the past week, the market has tended to be calm. BTC has fluctuated within a narrow range of $2000, and while the inflow of funds into the U.S. spot Bitcoin ETF has been positive, it has slowed down. Overall, as the market seeks the next narrative to drive prices up, cryptocurrency trading volume continues to decrease. Bullish traders have gained some confidence as the risk of their long positions has eased. The funding rates for BTC, ETH, and various altcoins are currently close to their lowest levels this year. The BTC Halving expected to occur on April 20 or 21 may serve as a catalyst for price increases, but it will have to contend with the weak period that the crypto market and other risk assets have been facing.

Important Crypto Market News

Institutional Dynamics

• The monthly trading volume of spot Bitcoin ETFs nearly doubled in March, reaching $111 billion.

Regulatory Progress

• The TRON Foundation and Justin Sun request the U.S. court to dismiss the SEC's lawsuit.

Industry Trends

• Ethena's token is listed on the exchange today and the airdrop claim has started.
• Vitalik Buterin and Arthur Hayes express their views on the frenzy of Meme coins.

Global Perspective

Europe:

• Russia discusses testing the digital ruble for budget payments
• A certain asset management company launched a Toncoin staking ETP on the Swiss Stock Exchange.
• The United States and the United Kingdom are investigating whether a $20 billion cryptocurrency transaction violates Russian sanctions.

Asia:

• Hong Kong financial company VSFG plans to launch a spot Bitcoin ETF as early as May.
• A large bank has launched tokenized gold for retail investors in Hong Kong.
• Singapore expands cryptocurrency regulation, introducing enhanced user protection requirements.
• Indonesia implements a sandbox for crypto companies before OJK supervision
• The Taiwan encryption industry has been approved by the government to establish an industry association.

Important Events in the Coming Week

| Date | Event | |---------|-------------------------------------------| | April 8th | ECB Interest Rate Decision | | April 10 | US CPI Data | | April 12 | Release of financial report by a large bank | | | Other banks' financial reports released | | | US PPI Data | | | University of Michigan Consumer Sentiment Index |