First Mover Asia: BTC Spikes Over $22.8K; DappRadar’s Complicated Valuation Model and the Difficulties of Assessing NFTs

Good morning. Here’s what’s happening:

Prices: Bitcoin rises over $22.8K; ether soars past $1.6K on Merge optimism.

Insights: DappRadar has a complicated valuation model that does not adequately account for the true value of NFTs, say critics.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Bitcoin (BTC): $22,896 +9.6%

Ether (ETH): $1,618 +19.7%

S&P 500: 3,830 -0.8%

DJIA: 31,072 -0.6%

Nasdaq: 11,360 -0.8%

Gold: $1,709 -.08%

Bitcoin Rises Over $22.8K; Ether Soars Past $1.6K

Bitcoin and other major cryptocurrencies continued their late Sunday rally, soaring past $22,800 at one point in Monday trading amid a mini-revival of investor optimism about the global economy, central bank monetary tightening and the Ethereum Merge later this summer.

The largest cryptocurrency by market capitalization was recently trading at about $22,896, up more than 9% over the past 24 hours. Bitcoin is now perched above the $18,000 to $22,000 range it has held since mid-June roughly when crypto trading platform Celsius Network announced it was halting withdrawals and Coinbase (COIN) and a number of digital asset companies said they were cutting jobs.

Ether, the second-largest crypto by market cap, fared even better, recently climbing more than 19% over the previous day to trade at roughly $1,600. Markets continue to look hopefully at the Ethereum blockchain's Merge transition from a more energy-intensive proof-of-work to a more environmentally friendly proof-of-stake protocol. Other major altcoins assumed various shades of green, mostly on the deeper side, with ETC and SAND up over 13% and 10%, respectively, at one point.

Still, market observers were wary of sounding too upbeat, given the months-long backdrop of rising inflation, central bank uncertainty and the looming prospect of recession.

"I'm bullish in the near term of like a week or two, but after that you have to be cautious because you still have all these macroeconomic headwinds," Hassan Bassiri, vice president, portfolio management for asset management firm Arca, told CoinDesk. "And you still have no new capital flowing into the space. It's just us trading against each other."

Cryptos tracked the general direction of stocks, which rose early before falling in the afternoon, although major equity indexes finished slightly in the red for the day with the tech-focused Nasdaq and S&P 500 dropping 0.8%. The declines came largely after iPhone and computer manufacturer Apple (AAPL) announced it would ratchet back spending and hiring.

"This is a very interesting time in the market now," Bassiri said. "When Apple news came out, the market immediately pulled back, so there's still a strong correlation with traditional markets. But crypto is starting to decouple on a short-term basis. So it's very challenging to say with a lot of competence what's going to happen because the market is very player versus player."

Crypto bad news continues

Troublesome news continued to flow from the crypto industry. Crypto broker Genesis Global Trading, a CoinDesk sister company, has filed a $1.2 billion claim against the now insolvent crypto hedge fund Three Arrows Capital, according to a 1,157-page court filing uploaded by bankruptcy trustee Teneo. The filing indicates that Genesis Asia Pacific Pte. Ltd., a subsidiary of Genesis Global, is seeking relief from Three Arrows regarding assets of $1.14 billion, as well as pledged AVAX and NEAR tokens worth a total of $91.3 million.

And court filings revealed that Celsius Network has a $1.2 billion hole (at minimum) in its balance sheet – the company has $5.5 billion in liabilities ($4.7 billion of which represents customer holdings) and only $4.3 billion in assets, much of which is illiquid. Though the company has already begun to make good on its debt to institutional creditors, retail investors have been left in the dark and will likely bear the brunt of Celsius’ failing.

Bassiri said that the rally over the past day stemmed from an Ethereum short squeeze. "If the market structure is such that people are shorting and you can start a short squeeze against them, that can start triggering momentum algos (algorithms) and additional buyers," he noted. "You're continuing to see that today."

He added: "Ether has a real reason to move because it has a catalyst coming."

DappRadar's Complicated Valuation Model

Non-fungible tokens (NFT) are a tough asset class to value. As we’ve discussed before, there just isn’t a universally accepted way to value NFTs; three different services gave three different results when trying to value Three Arrows’ Starry Night collection.

NFT Twitter wants to see the value of their collective bag of JPGs hit the moon, so they weren’t happy that CoinDesk used DappRadar’s numbers to value Starry Night’s wallet at less than $5 million.

All sorts of accusations flew on Twitter about DappRadar’s methodology, so who better to talk to about how DappRadar actually works than Pedro Herrera, the company’s head of research, and Sarunas Simaitis, a consultant who works with the company in developing Machine Learning initiatives.

“I think the biggest challenge to any modeling of NFT valuations are opinions,” Simaitis said. “People have a lot of opinions about what the valuations should be and what there actually is. They confuse two things: prices and values, a lot.”

The two explained that DappRadar uses a machine learning regression algorithm that goes through all the historic sales as well as metadata and estimates a price of the NFT through interpolation.

While this might be seen as a prediction, it is more an interpolation of market and time with a consistent price retrieved via artificial intelligence (AI), DappRadar said in an email briefing. The result of the price interpolation is used as the valuation.

“[The model] starts to draw a line between metadata price and previous sales to estimate the potential market value of an NFT,” Herrera said. “It also starts to see how different is its estimate from the price from the previous sales, so it starts to adjust.”

Difficulties in estimating prices

And the reality is that estimating the price is difficult because it's a new asset class, and each collection has different characteristics.

“For example, one has the utility; the other one is more like a social exclusive club, so how do you really evaluate that? It's a challenge, but at a high level this is how it works,” Herrera said.

One thing the model looks out for is outlier events that would move the value of the market, such as last year’s record-setting Christie’s auction for a CryptoPunk and a Bored Ape.

“That's a type of sale that our model is, by design, designed to interpret poorly because that's a market-changing event,” Herrera said.

Because of the outlier nature of the sale, it would be weighted at a lower rating of importance to other market data.

But even as the crypto market slowly recovers from last month’s crash, DappRadar is still seeing interest from traders in the asset class – albeit the mentality has changed. Now, there’s a liquidity crunch in the sector, the DappRadar team says, because everyone is buying and holding, not selling, with the belief there are brighter days for valuations.

“I think looking at liquidity can give you a bit of a short-sighted view,” Simaitis said, because so many traders are waiting things out.

So the valuations of the bear market of 2022 just aren’t going to be the same as the good times of 2021. But, at the same time, will these values hold when the speculation dies?

“NFTs now, just like all assets, have two values: They have the fundamental value and the speculative value,” added Simaitis. “People actually don't know what that fundamental value is.”

9:30 a.m. HKT/SGT(1:30 a.m. UTC): Minutes from monetary policy meeting of the Reserve Bank of Australia

10 a.m. HKT/SGT(2 a.m. UTC): Speech by Michele Bullock, assistant governor (Financial System) at the Reserve Bank of Australia

4 p.m. HKT/SGT(8 a.m. UTC): European Central Bank lending survey

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Chris Giancarlo on First Hearing in Celsius Bankruptcy Case; Ethereum Merge Update

Celsius Network revealed how it plans to protect customers as it prepares for its first hearing in New York bankruptcy court. Former Commodity Futures Trading Commission Chairman Chris Giancarlo joined "First Mover" to discuss the Celsius case, the digital dollar project and more. Also, why are bitcoin (BTC) and ether (ETH) prices rising? GlobalBlock CEO Rufus Round joined the markets discussion. Plus, Mahin Gupta, founder of a prominent India-based crypto exchange, shared his perspective on the state of the crypto industry.

Celsius Bankruptcy Filings Hint Retail Customers Will Bear Brunt of its Failure: The New Jersey-based crypto lender has a $1.2 billion hole in its balance sheet and will likely struggle to pay back its customers and creditors.

Genesis Global Issued $2.36B in Undercollateralized Loans to Three Arrows Capital: Three Arrows, the crypto hedge fund, is now insolvent.

‘Crypto and DeFi Won’t Disappear’: Hong Kong Monetary Chief: Hong Kong Monetary Authority CEO Eddie Yue tells a G20 meeting that crypto and decentralized finance will remain significant forces.

The 'Merge Trade' Has Begun, Experts Say, as Ether Surges and stETH Discount Narrows: "ETH has undergone a rapid change in narrative over the past week, with speculators purely focused on the upcoming 'merge' as a catalyst for appreciation," one observer said.

Indian Finance Minister Echoes Central Bank's Crypto Ban Call but Says Global Collaboration Is Required: Finance Minister Nirmala Sitharaman made her comment in answer to a series of written questions from a member of parliament about cryptocurrency legislation.

The Fed Can't Whip Inflation Alone: The source of high U.S. inflation is pretty clear, and it doesn't have much to do with the money supply.

Other Voices: Crypto Is Crashing. Where Were the Regulators?

"Excited to announce Meow's $22m Series A led by Tiger Global, with participation from @QEDInvestors, @FTX_Official, & more. 🐱🐯 @JoinMeow's conservative yield offering for corporates got us here. Earn up to 4% on your corporate treasury." (Meow founder Brandon Arvanaghi/Twitter) ... "The preservation of bank and non-bank dollar digital currency issuance promotes competition, a level playing field, and rules-based upgrades in the financial system." (Payment service provider Circle from its recently released stablecoin policy principles/CoinDesk)