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Nov 2022

Genesis Capital freezes withdrawals and PPI confirms US inflation is waning

by Hashdex Research
3 min read
Nov 21, 2022

Genesis Capital freezes withdrawals and PPI confirms US inflation is waning

The Nasdaq Crypto Index (NCI) closed Sunday (11/20/22) 1.1% below last week’s closing. The index’s neutral performance was influenced by ether (ETH), down 3.8%, while bitcoin (BTC) rose by 0.2%.

Coming out of a week of precipitous price drops caused by the imposition of one of the largest centralized exchanges in the world, investors braced for the possibility that FTX’s frozen accounts and beleaguered token (FTT) could contaminate other counterparties in the crypto industry. 

After a customary Sunday night dip, BTC registered its weekly low of $15,932 two hours into the start of the new work week. Prices began recovering as markets opened in Asia and maintained their upward momentum until trading got under way in North America, at which point BTC and ETH traded just under $17,000 and $1,300, respectively.

On Tuesday, the Labor Department’s release of the US producer price index (PPI), used to measure changes in input costs for domestic producers, echoed the results of the previous week’s CPI. 

October’s PPI reading showed prices rose 0.2% in October (forecasted: 0.4%), the smallest monthly increase registered by the index in over a year. Core PPI results, which exclude volatile food and energy prices, showed input prices remained unchanged for the month.

Both traditional and crypto markets reacted positively to the added confirmation that the Fed’s steep rate increases finally seemed to be reigning in the US’s runaway inflation. Briefly after the release of the inflation reading, BTC and ETH reached their weekly highs of $17,044 and $1,277, respectively. All major US stock indices closed with modest gains on the day. 

Crypto prices had already begun trending down in the early hours of Wednesday, when Genesis Global Capital, one of crypto’s largest lenders to institutional clients, announced the suspension of customer redemptions and the origination of new loans due to “extreme market dislocation”. Genesis Capital is part of the Digital Currency Group, parent company of the asset manager Grayscale, one of the largest institutional owners of BTCs with over 600,000 tokens. 

The apathetic state of the battered crypto market—and the recent exodus of BTC reserves withdrawn from centralized exchanges by weary investors—ensured the negative headline would have a limited impact on prices, with BTC and ETH briefly dipping under the $16,500 and $1,200, respectively. 

BTC continued to move sideways all the way through Saturday, within a range of $16,500 and $16,750, only briefly bucking the trend to reach towards $17,000 when Thursday gave way to Friday. ETH traded within an even tighter range ($1,200-$1,225) until Sunday afternoon.

In the final hours of the week, ETH prices sank to their weekly low of $1,124 as the smart contract platform token shed 5% of its value. BTC registered a slightly smaller drop (3.4%) during the same time frame on its way to $16,031.

 

Looking ahead

 

This week's calendar will be abridged by the Thanksgiving holiday. Crypto investors will continue to monitor the fallout from the implosion of FTX and the developing woes of Genesis Capital. US stock markets close on Thursday and will have reduced trading activity on Friday. The US macro calendar will be headlined by Wednesday’s release of jobless claims and Purchasing Managers’ Index (PMI), both of which could help gauge the state of the US economy ahead of the FOMC’s final monetary policy announcement in 2022. On Wednesday, the release of eurozone and Great Britain manufacturing PMIs should shed light on the perceived strength of their respective economies as Europe enters into a recession.

 

Self-custody methods thrive as customer become weary of centralized exchanges 

 

When the outflow of BTCs from exchanges swells, it usually means investors are looking to hold their tokens and reduced sell pressure is likely to result in higher prices. However, last week’s exchange withdrawals signaled a different phenomenon.

Data from Glassnode showed that FTX’s disastrous collapse caused a mass exodus of tokens from centralized exchanges as investors looked to safeguard their tokens in self-custody. According to the on-chain analysis research company, exchanges experienced the “the largest net declines in aggregate BTC balance in history”, falling by 72.9k BTC in 7-days.

Ledger, one of the most popular self-custody cold storage products, was also benefited by the growing skepticism surrounding the ability of exchanges to keep user funds secure. Ledger CEO Pascal Gauthier revealed that the cold wallet sales reached an all-time high last week. “Sunday was our single highest day of sales ever. Until Monday, when we beat our all-time high again,” said Pascal via an email to Decrypt.

Decentralized Exchanges (DEXs) also benefited from investors looking to move away from traditional exchanges. Uniswap, leader in market share amongst DEXs, saw its trading volume triple after news got out that Binance signed a letter of intent to purchase FTX.

 

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