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Markets Tumble, Sentiment Sours, Polygon Gas Spikes

Jan 6, 2022 · 3 min read

By Genevieve Yeoh, and Joo Kian

Risk Assets Pullback on Hawkish Fed Minutes

  • December’s Fed meeting minutes released yesterday pointed towards quicker and more aggressive rate hikes than expected. Members of FOMC also expressed interest in reducing the size of  the Fed’s $8.7T balance sheet sooner than anticipated, the combination of which sparked a spike in market volatility.
  • Risk assets like equities and crypto assets reacted swiftly to the news, tumbling after the minutes were released. The S&P 500 fell ~1.9% yesterday, its largest one day % decline since Thanksgiving; BTC and other major crypto assets fell anywhere from 5-15% over the last 24 hours as price declines triggered large liquidations (more on this below).
  • Long-dated U.S. Treasuries also saw yields rise across the entire curve, leaving investors with few places to hide. Bond yields have been moving higher for much of the last month in anticipation, pushing the 10-year yield to its highest level since the end of March 2021.
$850M Liquidated During Yesterday’s Price Drop
  • The risk-off sentiment was present as well in crypto markets, and leveraged long traders were liquidated on downward price movements; $850M of positions got liquidated in the past 18 hours (15 hours post minutes release at the time of writing).
  • The FOMC minutes were released at 2pm EST yesterday, which triggered the initial sell-off. As the day progressed and prices declined, larger sell-offs and liquidations ensued, exacerbating the drawdown.
  • BTC trended down further after the Asia open, though not as sharply. Based on liquidation data, it seems like a few leverage traders tried to speculate on a rebound and got burned in the process.
Fear & Greed Index: Extreme Fear
  • The Bitcoin Fear & Greed Index is now at its lowest level since July last year when Bitcoin was trading around $30k.
  • The F&G Index is one proxy for market sentiment, though it is not a perfect gauge as it includes momentum as a core factor (which one would expect to be rather pessimistic after big market corrections).
  • Bitcoin is currently down nearly 40% from its all time high of ~$69k in November.
Polygon Congestion 

  • Gas costs on Polygon Network have spiked more than 10 fold to over 500 gwei. The main culprit of the congestion is an NFT game called Sunflower Farmers, which is now the largest “gas guzzler” on the network, consuming over 30% of the gas on Polygon in the past hour.
  • The flurry of activity has attracted validators trying to extract value from the situation. Block validators have been passing empty blocks which increases networking activity and results in higher gas fees paid to them by users. As seen in the graph above, the percentage of empty blocks has increased significantly to over 10%.
Notable Tweets

A Thread on the 1st Edition of Delphi’s NFT Newsletter

How an Emission Based Token Can Balance Ecosystem Participants

A Thread on DAOs

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