According to the report, technical indicators bode well for Bitcoin. More “digital gold” is being removed from exchanges and locked in offline cold wallets leading to its scarcity. In march 2022, 122,000 BTC were moved from liquid to illiquid crypto wallets, accelerating its pace from the previous 4-month average of 26,000 BTC. The report also cites data from Glassnode, which indicates that the majority of investors who bought Bitcoin when it was above $50,000 have already given up and sold their coins. That means that a substantial part of the price drop has already been realized, and Bitcoin has strong support from long-term holders.
Ethereum’s transition to proof-of-stake consensus will likely make it a deflationary asset and increase ETH staking yields. Coinbase Institutional anticipates that late Q3 2022 will be the date of the long-awaited merge, although a “high level of uncertainty remains due to engineering and coordination challenges.”
Stablecoins and institutional investors are likely to continue purchasing Bitcoin and other tokens. For instance, Luna Foundation Guard accumulated $1.6b worth of Bitcoin as part of the backing for its TerraUSD (UST) stablecoin. MacroStrategy, a recently formed subsidiary of the software maker MicroStrategy, holds over 110,000 BTC. Additionally, Tron announced that it plans to build $10b reserves for the stablecoin it plans to launch on May 5. Such broad accumulation can provide solid technical support for the selected cryptocurrencies.
Following the recent Optimism airdrop, other Ethereum L2 protocols may opt to introduce their tokens. The commoditization of such networks can create a potentially new category for crypto investments, the report reads.
The outlook by Coinbase Institutional also projects that more countries will somehow adopt crypto, following El Salvador and Central African Republic's decisions to accept it as a legal tender or UK aspirations to become a global crypto hub. The potential de-dollarization of the economy triggered by the sanctions imposed on Russia combined with wider adoption will make cryptocurrencies more correlated to the equity market. “In our view, all of this means that idiosyncratic drivers for the asset class may be eclipsed by broader macro related factors through 2Q22,” the report states.
In the second half of 2022, Coinbase experts expect more regulatory clarity from the US Treasury, citing President Biden’s executive order on “Ensuring Responsible Development of Digital Assets.” The heating inflation is likely to showcase the benefits of some crypto as a store of value. The overall tone of the report voices cautious optimism. “The plethora of intersecting macroeconomic factors is putting pressure on nearly all risk assets, although we could soon be entering a consolidation phase that would open up more opportunities for crypto in 2H22,” the report concludes.