March 3, 2023
Greg Cipolaro

Research Weekly - Crypto is Not a Monolith


  • Broad and sweeping claims about the digital asset industry are likely to result in incorrect conclusions.
  • Even as correlations have declined, macro is likely still an important factor.
  • Bitcoin narrowly posted a gain for February, but what does the past say about what March may hold?

The Digital Asset Industry is More Nuanced Than Often Portrayed

With a flurry of regulatory activity and changes underfoot with the service providers that support the digital asset industry, we have noticed an increasing trend of industry pundits making sweeping claims about these events without the careful reading or proper context that makes for insightful analysis. We think it is important to understand that the digital asset industry, including the assets, the service providers, the regulators, the legislators, and the practices employed, are not all the same, and interpreting them as such is likely to lead to false conclusions. Below, we highlight a couple of examples.

Banking Moves

This week Bloomberg reported that retail clients at Kraken could no longer rely on Signature Bank to process deposits and withdrawals. Observers in this industry continue to point to events like this as evidence of the blanket de-banking of digital asset service providers. But this week, with issues continuing for embattled bank Silvergate, a host of digital asset companies including LedgerX, Coinbase Prime, Galaxy, Cboe Digital, and Paxos moved banking partners, some of them to Signature Bank. This is clearly at odds with the de-banking narrative shared by many industry observers. As it relates to NYDIG, since inception we have maintained a diverse set of relationships in all our business lines to minimize risk to our client’s and firm’s capital and, critically, to ensure no interruption to our business operations; this continues to be the case.

Securities Enforcement

Another blanket misinterpretation has been the implications of enforcement actions from the SEC, such as the civil charges and settlement with regard to Kraken and their staking service. After the news, observers started to speculate about Coinbase and their staking service, but Coinbase quickly published a blog post outlining its belief that its staking services should not constitute securities-related activity. The reality is that the Howey Test, often the litmus test for what is a security, depends on the “facts and circumstances.” It could be that how Coinbase designed and offered its staking service might be substantially different than Kraken’s service. It is also important to note that the Howey case is not the only important case in determining what constitutes a security.

Securities Classifications

Finally, on the asset classification front, SEC Chairman Gary Gensler has ratcheted up the rhetoric recently that “everything other than bitcoin” is likely a security. While that might be the Chairman’s and even the broader SEC’s view, there are important legal cases going on that may affect that viewpoint. For example, the outcomes of the Ripple litigation and the Wahi insider trading case can set legal precedents with regard to securities definitions for digital assets and are therefore important items to watch going forward.

Correlations with Equities Decline, but Macro Still a Factor

Bitcoin’s correlation with US equities, an often-discussed item, has declined in recent months from the mid-2022 highs. We think part of that has to do with the calamitous events of 2022 that affected crypto markets, but not other financial markets, and also the repeating bitcoin cycles, which appear to be taking hold once again. Even with the declining correlations, it is important for investors to understand that even though correlation with equities has been consistently elevated since the economic response to the Covid-19 crisis kicked in, bitcoin still provides diversification benefits, although not at the same levels as it once did when its correlation with equities meandered about 0.0.

Weekly 5-Mar-03-2023-08-19-01-3331-PM

Even with the lessened correlation, it is unlikely that bitcoin will be able to entirely escape the force withdrawing liquidity from financial markets: increasing interest rates. While it seemed that macro factors like interest rates were receding into the rearview mirror with decelerating inflation trends, unfortunately, that view is proving to be short-lived. Recent inflation data have shown that inflation remains stubbornly difficult to snuff out, something we wrote about when looking at the inflationary period of the 1970s and 1980s.  Our conclusion was that it required a second interest rate hiking campaign before inflation finally eased, something that might likewise be required for the current bout of inflation. Given where forward rates expectations have headed, it seems like the market is concluding something similar.

Weekly 3-Mar-03-2023-05-32-48-4414-PM

Bitcoin Ekes Out a Monthly Gain

The price of bitcoin rose 0.8% in the month of February, bringing its year-to-date return to 40.6%. This slight gain comes during a flurry of regulatory activity and commotion in the crypto banking infrastructure, causing uncertainty for some industry participants and outside observers. In addition, macro conditions and declining equity markets (despite the declining correlations with crypto) added substantial headwinds during the month. The crypto industry was buoyed by renewed optimism for an opening up of China markets led by regulatory clarity in Hong Kong. March has been a very mixed month for performance, often attributed to tax-driven selling in the US ahead of the April 15th deadline for individual filing. Our own analysis of the tax anomaly was very inconclusive, so despite the narrative, we wouldn’t give it too much weight. Plus, it is not clear how the losses sustained over the past year might affect holder behavior this year. The months of March following big drawdown years 2014 and 2018, so March of 2015 and 2019, were mixed for performance, with -3.6% and +7.7% returns.

Weekly 1-Mar-03-2023-05-35-17-1056-PM

Market Update

Weekly 4-Mar-03-2023-05-34-02-9358-PM

The price of bitcoin declined 2.0% this week as the gravity of macroeconomic conditions seemed to weigh on the asset. Bitcoin’s price dropped abruptly after the close price displayed here and the lack of fundamental news left many scratching their heads. With futures liquidations light on a notional basis, our guess is that thin market liquidity and off-side positioning by some levered long traders likely caused the issue. Given the increasingly difficult rate outlook described above, equities fell on the week. The S&P 500 was down 0.7% and the Nasdaq Composite was down 1.1%. Gold rallied 1.2% on the week and oil jumped 3.7%. With the higher rate outlook, bonds slumped on the week with investment grade corporate bonds down 1.2%, high yield corporate bonds down 0.3%, and long-term US treasuries down 2.5%. Real yields and inflation expectations rose on the week.

Important News This Week


Bored Ape Yacht Club Creator Yuga Labs Reveals First Bitcoin NFT Project - Decrypt

Arthur Hayes is Back - New York Magazine

How and Why Assets Move Between Binance Wallets - Binance

Mt. Gox Creditors May Finally Start Seeing Their Bitcoins This Month - The Block

Regulation and Taxation:

FTX's Singh Pleads Guilty to Six U.S. Fraud, Conspiracy Charges - Reuters

Senators Warren, Hollen, and Marshall Letter to Binance - Senator Warren


Goldman’s Digital-Asset Team Open to Hiring as it Rolls Out Blockchain Platform - Bloomberg

Visa, Mastercard Pause Crypto Push in wake of Industry Meltdown - Reuters

Visa Crypto Head Responds to Reuters Article - Twitter

IEX Taps Potential Partner for Regulated Crypto Exchange - Fox Business News

Coinbase Has Acquired One River Digital Asset Management - Coinbase

Circle Partners with Citizens Trust Bank to Hold USDC Reserves and Collaborate on Financial Inclusion and Digital Financial Literacy - Circle

Coinbase is No Longer Accepting or Initiating Payments to or from Silvergate - Twitter

FTX Crypto Derivatives Unit LedgerX to Use Signature Not Silvergate - Bloomberg

Host of Crypto Firms, Including Coinbase, Paxos and Galaxy, Jump Ship from Silvergate Bank - CoinDesk


Jump Crypto Just Counter-Exploited the Wormhole Hacker for $140M - Blockworks

Statement Regarding The Transactions From The Oasis Multisig - Oasis

Upcoming Events

Mar 7 - Opening arguments in Grayscale vs SEC here

Mar 10 - February jobs report

Mar 14 - February CPI release

Mar 22 - FOMC rate decision

Mar 31 - CME expiry

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