22 Jan, 24

Weekly Crypto Market Wrap, 22nd January 2024

Zerocap

Zerocap

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Zerocap provides digital asset liquidity and digital asset custodial services to forward-thinking investors and institutions globally. For frictionless access to digital assets with industry-leading security, contact our team at [email protected] or visit our website www.zerocap.com

We are trialling a new, punchier weekly on the back of customer feedback. Keep the feedback coming! It’s always great to hear what you love and what you don’t. This format is going to be insights-driven, faster, and give you more views on how participants are trading the current market. 

This is not financial advice. As always, do your own research.

Week in review

Technicals

BTCUSD

The run from October 2023 has been a spectacle. Not much held BTCUSD back all the way from 27,000 to 44,000 as we ran into December, before seeing the price consolidate awaiting further news on the Bitcoin ETF approval. The SEC got its ‘welcome to crypto moment’ when its Twitter (now “X”) account was hacked, releasing the news early and flushing out some leverage, leading to a false break above 46,000. We are now sitting around 41,000 looking like we’ll break lower. The next level down would fill the gap to 38,000, finding support on the topside triangle break from Dec 02, 2023. 

Key levels

38,000 / 41,000 / 44,000 / 49,000

Tough not to see the fundamental case for BTC higher despite the technicals looking for a break lower. We expect strong buying activity at 38,000 in the absence of any outlier negative growth figures out of the US. We (along with Ilan from Marex) feel that current price moves back into the range are a function of futures basis trades lightening up. The ETF market makers (APs) would build spot BTC positions prior to the ETF announcement, and be delta-neutral by shorting the futures. They earn a funding rate while they wait for their ETF orders. When these orders arrive, we think they have been lightening their futures shorts buying rather than buying spot – which could be an interesting structural arb as CME futures OI dips. 

Spot desk 

Opportunistic Moves in BTC and ETH

Directional traders seizing opportunities amid recent BTC and ETH price dips, with fairly consistent buying into the range as the price moves lower.

Stablecoins dominate flows

The desk has seen a skew towards off-ramping stablecoins into G10 fiat currencies, primarily dominated by AUD, USD and CHF. USDC consistently traded at a premium to USDT over the past week. It’s not only the centralised coins we are seeing action from – decentralised stablecoin alternative FRAX Shares’ (FXS) governance token surged above $9, gaining +7.4% WoW.

Growing Interest in AUDD

Steady growth observed in AUDD transactions, Novatti’s AUD stablecoin, as the ecosystem continues to expand.

Trade Idea: ETH Layer-2 upgrade

Ethereum Improvement Protocol 4844 (EIP4844) presents a compelling opportunity. Protodank sharding update is anticipated to significantly decrease ETH’s layer 2 blockchain fees, and increase transaction speeds. This brings transaction speeds that are comparable with centralised computer systems. Alongside this, we have a high beta Layer 2 narrative-driven play.

Potential impact: Bullish for the price of ETH, particularly combined with ETH ETF expectations in 2024, and bullish for its more volatile Layer 2 tokens (Optimism, Arbitrum etc..). Potentially bearish for other Layer 1 competitors – SUI, SEI, NEAR, APT, who are already falling from grace. Relative value plays are worth looking at.

Derivatives desk
WHOLESALE INVESTORS ONLY

IV and funding rates go downtown

We have seen a constant sell-off in Implied volatility and funding rates since the ETF announcements, and although we think ETF market makers (APs) have been lightening shorts, those shorts seem to be being absorbed by the rest of the derivatives market fairly well.


Trade idea: BTC calls have cheapened considerably given the crash in funding rates and IV, and with the BTC halving coming up in April it could be a good time to start building some cheap long positions via call options. We love simplicity when volatility is low, and the following trade is one of those. 

You can buy a 90-day 110% BTC Call for 6.8%. 

It’s a great way to manage the downside and keep capital efficient up to the halving.

Good luck trading out there! 

Jon de Wet, CIO.

What to watch

  • Bank of Japan’s monetary policy statement and outlook report, on Tuesday.
  • Bank of Canada’s monetary policy report and rate statement, on Wednesday.
  • EU’s monetary policy statement and US’ advanced quarter GDP, on Thursday.
  • US’ monthly core PCE price index, on Friday.

* Index used:

  Bitcoin    EthereumGoldEquities        High Yield Corporate Bonds      CommoditiesTreasury Yields
BTCETHPAXG        S&P 500, ASX 200, VT      HYG  SPGSCIU.S. 10Y
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Past performance is not indicative of future performance.

FAQs

  1. What are the Key Highlights from the Weekly Crypto Market Wrap of January 22nd, 2024? The key highlights include the SEC’s approval of Spot Bitcoin ETFs with a record trading volume, the rise in Bitcoin mining using sustainable energy to 54.5%, the confidential filing for an IPO by USDC issuer Circle, challenges to the classification of CBDCs as “money” by US Senate bills, and the Bitcoin greed index shifting to “neutral”. Additionally, US inflation surpassed forecasts with a rise to 3.4% in December.
  2. How Did Bitcoin and Ethereum Perform in the Latest Crypto Market Analysis? Bitcoin (BTCUSD) experienced a significant run from October 2023, reaching highs of 44,000 before consolidating around 41,000. Ethereum (ETH) presented a compelling opportunity with the upcoming Ethereum Improvement Protocol 4844 (EIP4844), expected to significantly decrease Layer 2 blockchain fees and increase transaction speeds. This development is anticipated to positively impact ETH’s price.
  3. What Role are Stablecoins Playing in the Current Cryptocurrency Market? Stablecoins, particularly USDC and USDT, have dominated flows, with a noticeable trend towards off-ramping these stablecoins into fiat currencies like AUD, USD, and CHF. This trend highlights the growing importance and utilization of stablecoins in the cryptocurrency ecosystem.
  4. What are the Expectations for Ethereum’s Layer-2 Upgrade and Its Market Impact? The anticipated Protodank sharding update in Ethereum’s Layer-2 upgrade is expected to bring transaction speeds comparable to centralized systems while significantly reducing costs. This upgrade is likely to be bullish for ETH’s price and its Layer 2 tokens like Optimism and Arbitrum, but potentially bearish for Layer 1 competitors such as SUI, SEI, NEAR, and APT.
  5. What is the Outlook for Bitcoin in the Upcoming Period, Especially With the Halving Event? Despite a challenging technical outlook, strong buying activity is expected around the 38,000 level. With the Bitcoin halving event approaching in April 2024, there is anticipation of a positive impact on Bitcoin’s price. The report suggests that this could be an opportune time for investors to build long positions in Bitcoin, particularly through call options.
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