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Crypto Quarterly Report: Q1 2022

2022-04-15

Key Takeaways:

  • Institutional demand for cryptocurrencies increased in Q1 2022, with more multinational corporations exploring the adoption of blockchain and cryptocurrencies.  

  • Many nations drafted new regulatory frameworks to catch up with the digital economy.  

  • Despite improving fundamentals, Bitcoin closed the first quarter of 2022 at $45,506, while Ethereum closed at $3,281.42. 

Capital continues pouring into digital assets despite the geopolitical and macroeconomic uncertainties. Institutions appear to have accelerated their buying spree, adding to the drive for lawmakers to provide regulatory clarity. 

Governments around the world are starting to recognize the significant role that cryptocurrencies are playing in investors’ decisions. The U.S. appears to have taken a new approach to regulating digital assets as the blockchain industry grows by “leaps and bounds.” 

Even though volatility may have kept retail investors on the sidelines during the first quarter of 2022, institutions continue to accumulate as the long-term picture looks brighter than ever before.

Cryptos in High Demand

Institutional interest in cryptocurrencies continued increasing during the first quarter of 2022, regardless of market volatility. 

Wall Street banks such as Jefferies, Canaccord Genuity, and Credit Suisse decided to build research teams dedicated to exploring new technological developments in the blockchain space. Meanwhile, some of the most prominent tech companies in America, including Google, Uber, and PayPal, are said to be considering accepting cryptocurrencies as users’ and merchants’ demand evolves. 

A survey conducted by Goldman Sachs suggests that, sooner rather than later, these companies will be obligated to accept cryptocurrencies. The multinational investment bank revealed that over 60% of its clients expect to increase their exposure to digital assets, which could set Bitcoin to take further market share from gold. The firm anticipated that a break of the $100,000 mark could position BTC to command 50% of the so-called "store of value" market.

As expectations grew bigger, financial institutions adapted their offerings to meet the market demand. The Chicago Mercantile Exchange launched micro-sized Bitcoin and Ethereum futures options, while South Korea's largest bank, Kookmin Bank, developed a plan to introduce a crypto exchange-traded fund and crypto derivative products. These instruments aim to allow “market participants to hedge market-moving events with greater precision and flexibility.”

Still, investors appeared to have recognized the importance of holding the actual cryptocurrency assets, which led to a significant increase in buying pressure in Q1 2022. 

MicroStrategy bought 660 BTC for around $25 million in cash, the Luna Foundation Guard purchased 42,410 BTC, El Salvador acquired 410 BTC, and even American senator Ted Cruz made a Bitcoin purchase valued at around $50,000. 

Moreover, the professional services firm KPMG in Canada allocated Bitcoin and Ethereum to its corporate treasury. Rio de Janeiro’s mayor, Eduardo Paes, also revealed plans to invest 1% of the city's treasury reserves in cryptocurrency. Another politician who made headlines was Eric Adams, the mayor of New York City, who received his first paycheck in cryptocurrency.

Boosting Benefits and Curbing Threats

Cryptocurrencies' significant role in investors’ decisions was no longer ignored in Q1 2022. US Treasury Secretary Janet Yellen recognized that cryptocurrencies have “grown by leaps and bounds.” As a result, many nations, including the U.S., made strides to regulate this new asset class to support the continuous growth of the blockchain industry. 

U.S. President Joe Biden issued the “Executive Order on Ensuring Responsible Development of Digital Assets.” He called for a broad review of digital assets, setting forth six main objectives. These include consumer and investor protection, financial stability, mitigation of illicit finance and national security risks, leadership in the global financial system and economic competitiveness, financial inclusion, and responsible innovation.

The Bank of England also began sketching out a regulatory framework for cryptoassets while the Advertising Standards Council of India issued guidelines for cryptocurrency-related ads. Likewise, lawmakers in Panama started exploring regulating cryptocurrencies to bring the country up to speed with the digital economy, and Georgia drafted legislative changes that include registration, licensing, compliance testing, and Anti Money Laundering rules for cryptocurrency firms.  

Even though geopolitical and macroeconomic uncertainties could impact the cryptocurrency markets over the months to come, Q1 2022 marked the beginning of what could be a worldwide adoption of blockchain technology. 

Bitcoin Q1 2022 Recap

Bitcoin opened Q1 2022 at $46,210.60 and spent most of the quarter consolidating within a ~$10,000 range, defined by the 200- and 100-day moving average on the 3-day chart. 

Each time BTC dropped to the 200-day moving average, it found enough buying pressure to rebound toward the 100-day moving average. From this resistance point, Bitcoin usually got rejected and dropped back to support.

During the last week of Q1 2022, the pioneer cryptocurrency was able to break the 100-day moving average but failed to overcome the 50-day moving average on the 3-day chart. The rejection resulted in a pullback that pushed BTC down to close Q1 2022 at $45,506. 

Support and Resistance 

Transaction history from the spot markets shows that throughout Q1 2022, Bitcoin built a strong support floor at around $41,095.40, where roughly 6 million addresses purchased over 3.21 million BTC. On the other hand, more than 6.15 million addresses remain underwater after purchasing 3.43 million BTC at an average price of $47,486.73 in Q4 2021.

The $41,095.40 demand zone and the $47,486.73 supply wall could play a vital role over the coming quarters to help determine the direction of Bitcoin’s trend. 

A decisive quarterly close below the support could trigger panic selling among investors, leading to a correction to $30,000 or lower. But if BTC slices through resistance, sidelined investors could be encouraged to get back into the market, sending prices to $60,000 or even new all-time highs.  

Network Growth

The number of new addresses created on the Bitcoin network every day provides insights into the behavior of retail investors. A steady increase in network growth usually results in rising price action as fresh capital enters the market. But a lack of newly-created addresses can affect the network's liquidity, leading to lower prices. 

During the first two months of Q1 2022, retail interest appears to have faded as the number of new daily addresses trended downwards. It wasn’t until late February that the Bitcoin network began to expand, reaching a quarterly high of more than 480,000 new BTC addresses on Mar. 27.  

Supply and Demand

A similar trend can be spotted in institutional interest as the number of large transactions with a value greater than $100,000 can serve as a proxy for big players’ and whales’ activity. 

After trending down for more than two months, this on-chain metric bottomed out at 13,652 large transactions on Mar. 13. Since then, there was an uptick in institutional interest as the number of large transactions on the network has been making a series of higher highs and higher lows, reaching a quarterly high of 23,544 large transactions on Mar. 28. 

The rising demand from retail and institutional investors coincides with a significant decline in the number of BTC sitting on exchanges. Roughly 93,378.18 BTC were withdrawn from known cryptocurrency exchange wallets, representing a 3.63% decline between Mar. 4 and Mar. 31.

Ethereum Q1 2022 Recap

Ethereum opened Q1 2022 at $3,671.01 and saw its price decline by more than 40% during the first 24 days of the year to hit a quarterly low of $2,151.00. 

Despite having a rough start, ETH managed to keep the 200-day moving average as support while the 100-day moving average served as resistance on the 3-day chart. 

During the last week of Q1 2022, Ethereum was able to break through the 100-day moving average, but the 50-day moving average on the 3-day chart kept rising prices at bay. As a result, ETH closed Q1 2022 at $3,281.42. 

Support and Resistance 

Transaction history shows that in Q1 2022, the most significant number of ETH tokens were acquired at an average price of $2,948.31. Roughly 4.54 million addresses purchased over 17.49 million ETH around this price level, making it one of the most crucial support levels. 

As long as Ethereum continues to trade above $2,948.31 over the coming quarters, it has great potential to advance further as it faces little to no significant resistance ahead. 

Failing to hold above the $2,948.31 demand zone could spell trouble for Ethereum since the next substantial support wall sits at $1,656.46, where 8.87 million addresses hold more than 28.67 million ETH. 

Network Growth

Retail investors appear to have stayed away from ETH during the first two months of Q1 2022. The number of new addresses created on the Ethereum network every day dropped by 41.80%, from a high of 121,358 addresses on Jan. 5 to a low of 70,629 addresses on Feb. 24.

The Ethereum network started expanding again after such a steep decline, recording an average of 85,132 new addresses per day throughout March. The steady recovery in this on-chain metric suggests increased user adoption over time, which is favorable for future price growth.    

Supply and Demand

The spike in demand from retail investors that Ethereum experienced during the last month of Q1 2022 coincides with a considerable decline in exchanges balance. Approximately 1,397,800.53 ETH flowed out of known cryptocurrency exchange wallets, representing a 6.30% drop between February and March 31.

Additionally, roughly 2,134,448.00 ETH were deposited into the Eth2 Deposit Contract, and 721,302.05 ETH were burned in Q1 2022, for a total of 2,855,750.05 ETH taken out of circulation. The high number of ETH tokens flowing out of exchanges combined with those being put out of circulation appears to create a supply shock.

Top Gainers and Losers in Q1

Best Performing Sector in Q1 2022: Layer 1 

Binance Platform Developments

API Landing Page

Binance released an API landing page, providing institutional and VIP clients with a comprehensive overview of API services available and quick access to all Binance tech interfaces. The new page gathers API trading documentation for High-Frequency, Social, and Strategy traders. 

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Categorization of Futures Trading Symbols

Binance Futures has a new trading interface that categorizes trading symbols into 12 different protocol types: CEX, DAO, DeFi, etc. The categorization is designed to help users select the symbol they would like to trade more quickly and improve the user experience.

Time-Weighted Average Price (TWAP)

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