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THE WEEKLY UPDATE
THE WEEKLY UPDATE
Free subscriber edition
Week 7, 2022
Feb 22, 2022
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THE NEWSROOM
USDC Stablecoin Backer Circle Federal Reserve Officials Banned Sequoia Capital Is Looking to Invest
Doubles in Value to $9B in New Deal From Owning Cryptocurrencies, Up to $600 Million in Crypto Startup
With SPAC Stocks After Public Outcry Tokens
Silicon Valley venture capital firm Sequoia Capital
Circle, the backer of the USDC stablecoin, said it As US regulators hone in on digital assets, senior has launched a new fund to invest exclusively in
plans to go public in a deal that values it at $9 Federal Reserve officials will no longer be allowed cryptocurrency—with up to $600 million to play
billion, twice the level it originally agreed to in July. to trade individual cryptocurrencies. On the heels of with. Sequoia Capital announced Thursday that the
The company negotiated a new deal with special public pressure to reign in trading practices, the fund, Sequoia Crypto Fund, would be used
purpose acquisition company (SPAC) Concord new Fed rules — first broached in October — ban specifically on its liquid tokens and digital assets,
Acquisition Corp., reflecting improvements in its senior officials from purchasing individual stocks or and it has set aside between $500-$600 million.
financial outlook and competitive position, Circle sector funds, as well as from holding
said in an announcement Thursday. cryptocurrencies, commodities and foreign
currencies.
Feb 22, 2022 2
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Push and pull? Bitcoin’s monthly cyclicality
Since the beginning of 2021, bitcoin has seen remarkable
differences in performance in the first half of the month versus the Bitcoin returns: Comparing mid-month* to end-month performance
second half.
60%
From Previous Expiration Date to Middle of Month From Middle of Month to Next Expiration Date
The bitcoin price has behaved in a very interesting pattern over the 47%
43%
last year, with more or less all BTC gains since 2021 occurring in the
first half of the month, as highlighted in the chart. 40%
The chart illustrates bitcoin’s returns from the date of last months 23% 24% 25%
22%
CME future expiry to mid-month* and bitcoin’s returns from mid-
month to the next expiry date. 20% 17%
11%
8% 7%
5%
Since January 2021, 8 out of 14 months have seen positive mid-
month returns, whereas only 3 months saw positive mid-month to
0%
end-month returns.
-2% -2% -1%
-6% -3% -6%
-7% -5% -9%
A trader using $100 to buy bitcoin at expiry and selling mid-month -11% -6% -12%
since Dec 24th, 2020, would’ve seen her funds grow to $350 today, -20% -16% -10% -13%
whereas a trader using the opposite strategy would see her funds -15%
decline to $47 today. See charts here. This is particularly -22%
remarkable when you account for bitcoin appreciating by 87% in
the period examined.
-40%
We cannot give any firm explanations as to why this is happening,
although several effects could be playing out. In the Q1 2021 bull
market, the BTC price tended to revert to its monthly VWAP price,
-60%
coinciding nearly with the max pain price of monthly options. The
next slide covers another effect that may accelerate the monthly Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Feb 22
cyclicality of bitcoin. Source: Tradingview (Coinbase) *Mid-month defined as second Friday post expiry.
(3rd Wednesday in 5-week expiration periods, i.e, April, July, October, and December 2021)
Feb 22, 2022 3Sponsored by
The futures-based ETFs possible impact on bitcoin’s cyclicality
Could futures-based ETFs enhance the monthly cyclicality seen in bitcoin? The first
four months since the launch of these ETFs suggest that inflows in the ETFs are
ProShares BITO: AUM (BTC denominated)
muted in the weeks where the ETFs roll futures.
₿ 28,000
Futures expiry week
The futures-based bitcoin ETFs are currently in the process of rolling over its front-month
exposure for the fifth time since launching in October. These ETFs have a relatively short-lived ?
₿ 27,000
history, but so far into their existence, inflows have shown signs of being concentrated to the
days and weeks following the rolling weeks. In contrast, inflows have been muted during the
rolling weeks. ₿ 26,000
This pattern makes sense. An investor who seeks to allocate into the fund could be better off by
₿ 25,000
waiting to allocate until the futures have been rolled, thus avoiding the rolling costs. We saw
neutral flows into BITO during the rolling weeks of the Oct-Nov, Nov-Dec, and Jan-Feb rolls,
while inflows accelerated in the weeks that followed. The Dec-Jan roll is the only example of
flows not accelerating in the weeks that followed to this date. ₿ 24,000
The aforementioned fund flow effect might have spillover effects on the bitcoin price. Market ₿ 23,000
makers hedge across markets, and growing BITO inflows directly impact buying pressure on
CME, in turn impacting the spot market. If the trend of inflows post-roll remains, bitcoin’s
cyclical pattern might be sticky. ₿ 22,000
During the rolling week, when we tend to see no noteworthy inflows, BITO sells front-month ₿ 21,000
contracts and buys the next-month contract and two-month contract. This process could cause
a minuscule net exposure reduction caused by a futures contango, benefitting the house and
arbitrageurs. ₿ 20,000
This contango effect will likely have a very minuscule impact on the spot market. The key ₿ 19,000
observation from BITO’s fund is the possible spillover effects caused by inflows following rolls, Nov 1 Nov 12 Nov 29 Dec 8 Dec 20 Dec 29 Jan 7 Jan 20 Feb 4 Feb 15
which could enhance the cyclical dynamics mentioned in the previous slide.
Feb 22, 2022 4Sponsored by
New article: Bitcoin mining in Georgia
Bitcoin miners have an outsized presence in Georgia, considering the country's tiny
geographical size and small population. What makes this former Soviet republic so attractive
to bitcoin miners?
One of our analysts lived in Georgia for six months and wrote an article describing the bitcoin
mining industry in country. The article estimates that the Georgian crypto mining industry draws
125 MW, of which 100 MW is dedicated to Bitcoin - giving Georgia 0.71% of Bitcoin's hashrate.
Georgia's mining industry consists of a couple of industrial-scale facilities, in addition to an
estimated 200,000 Georgians running small home mining facilities. Mountain regions have
subsidized electricity, which has attracted many miners to the despair of local governments.
Georgia has clean and cheap electricity, of which 76% comes from hydro, 23% natural gas and
1% wind. Industrial-scale miners can achieve a price of around $0.04 - $0.06 per kWh - slightly
above the median electricity price in the industry (Bitooda).
Georgia has historically been an electricity exporter but has, from 2017, been a net electricity
importer due to higher domestic demand and insufficient generation buildout.
In addition to the cheap and clean electricity, Georgia's low taxes and relaxed regulatory
environment have attracted bitcoin miners. In 2019, Georgia ranked seventh on the World Bank's
Ease of Doing Business Index.
Although current regulations are favorable, the political risk is high because of the country's
significant and growing electricity deficit, incentivizing the government to crack down on miners.
Since the country has become dependent on electricity imports, there might not be room for
more mining until new generation capacity is developed. Still, opportunities exist for miners to
contribute to building out new electricity generation, especially wind power. Source: Arcane Research
Feb 22, 2022 5Sponsored by
Stablecoin supply growing towards $200 billion
Stablecoins: Circulating Supply
Stablecoins continue growing faster than the rest of the crypto market. USDT USDC BUSD UST DAI Others
$180b
Tether (USDT) is the biggest stablecoin with a 44% market share, followed by
USD Coin (USDC) with 29%, and Binance USD (BUSD) with 20%.
$160b
USDC grew extremely fast in 2021 and has continued its strong growth in
2022 with a 20% growth. $140b
Since the summer of 2021, USDT’s growth has stagnated, and it has only $120b
grown 1% so far in 2022.
$100b
In our end of year report, we projected that USDC will overtake USDT’s
position as the biggest stablecoin in 2022. If USDC and USDT continue
$80b
growing at similar rates as so far in 2022, USDC will become the largest
stablecoin by market cap at the end of June.
$60b
Other fast-growing stablecoins are Terra UST (UST) and DAI, seeing 19% and
9% growth in 2022. These are algorithmic stablecoins, backed by other $40b
cryptocurrencies' value, not fiat currencies.
$20b
Trader Byzantine General recently pointed out in a tweet that Tether’s crypto
market dominance had reached levels that have previously signaled peak
fear in the market. $0b
Feb 21 Apr 21 Jun 21 Aug 21 Oct 21 Dec 21 Feb 22
Source: CoinGecko
Feb 22, 2022 6Sponsored by
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Feb 22,
15, 2022
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Disclaimer
• The Weekly Update (the “Report”) by Arcane Research is a report focusing on cryptocurrencies, open blockchains and fintech. Information published in the Report aims to spread knowledge and summarise developments in
the cryptocurrency market.
• The information contained in this Report, and any information linked through the items contained herein, is for informational purposes only and is not intended to provide sufficient information to form the basis for an
investment decision nor the formation of an investment strategy.
• This Report shall not constitute and should not be construed as financial advice, a recommendation for entering into financial transactions/investments, or investment advice, or as a recommendation to engage in investment
transactions. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital asset before deciding to purchase or sell any such instruments.
• Cryptocurrencies and digital assets are speculative and highly volatile, can become illiquid at any time, and are for investors with a high risk tolerance. Investors in digital assets could lose the entire value of their investment.
• Information contained within the Report is based on sources considered to be reliable, but is not guaranteed to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of the date of
publication and are subject to change without notice.
• The information contained in this Report may include or incorporate by reference forward-looking statements, which would include any statements that are not statements of historical fact. No representations or warranties
are made as to the accuracy of these forward-looking statements. Any data, charts or analysis herein should not be taken as an indication or guarantee of any future performance.
• Neither Arcane Research nor Arcane Crypto AS provides tax, legal, investment, or accounting advice and this report should not be considered as such. This Report is not intended to provide, and should not be relied on for,
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