23 Jan, 23

Weekly Crypto Market Wrap, 23rd January 2023

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Zerocap

Zerocap provides digital asset investment 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

Week in Review

  • US authorities cease operations of crypto exchange Bizlato and arrest founder in alleged $700 million illicit processing of funds – several funds allegedly had Binance as their final destination in the scheme.
  • Crypto-lender Genesis files for bankruptcy, claims $5.1 billion in total liabilities.
  • NAB bank to release AUD stablecoin built on Ethereum, becomes second Australian bank to build a stablecoin after ANZ’s A$DC where Zerocap facilitated the pilot transaction. 
  • World Economic Forum discusses the tokenised economy coming in the near future, self-custody of data and assets to become very relevant moving forward – WEF recently published a 38-page toolkit guide on Decentralised Autonomous Organisations (DAOs).
  • Current FTX CEO states exchange could have a full restart, several options considered – founder Sam Bankman-Fried to forfeit $700 million if found guilty of fraud.
  • Binance’s SWIFT partner set to ban USD transfers below $100k.
  • Bank of International Settlements introduces DeFi reference model of tech and risks.
  • Decentralised Forex may reduce costs by 80%; joint Circle and UniSwap report.
  • Coinbase halts operations in Japan, cites market conditions.
  • China records second-lowest yearly growth rate in 46 years.
  • Losing momentum, US economy shows lowest retail sales report in 12 months.
  • Bank of Japan maintains “ultra-dovish” policy on inflation, despite shift in expectations.

Winners & Losers

Data source: Tradingview

Macro Environment

  • This past week was one of celebration, with the United States (US) commemorating Martin Luther King Jr. Day on Monday, and the start of the lunar new year on Sunday. Coinciding with this celebratory period, was the release of notable consumer sentiment data from Australia and Germany, both with significant improvements. The Westpac consumer confidence index, for instance, has exhibited a marked upward trend, with a 5% increase to 84.3 in January 2023 – the second consecutive month of growth and the index’s largest MoM gain since April 2021. This improvement in market confidence has seen a cumulative increase of 8.1% in the index over the past two months, rebounding from November’s low of 78, suggesting that consumer sentiment may be gradually recovering. Westpac attributed the January improvement to recovering 12-month sub-indexes pertaining to family finances, economic conditions, and the housing market, with the exception where “House Price Expectations fell by 10.3% in the January month.”
  • The German ZEW Economic Sentiment index rode a similar wave of optimism, reporting a remarkable 40.2 point rise from December’s -23.3 reading to +16.9 in January. The move far surpassed the market expectations for a pessimistic reading of -15. German market optimism is likely tied to an improving economic outlook for Germany with the recent government energy price caps. Unfortunately, United Kingdom (UK) consumers did not partake in overseas hopefulness, with the GfK Consumer Confidence reading for January falling to -45.
  • The National Bureau of Statistics – China reported on Tuesday that the world’s second-largest economy missed the government’s +5.5% YoY growth target for 2022, with an annual growth rate of +3% – representing the slowest pace of yearly growth since 1976 (excluding the 2020 COVID pandemic year). In spite of this, the Recently Released Q4 numbers (+2.9% YoY) beat market expectations for a +1.8% rise. China’s industrial production mimicked GDP stats with a lesser expansion of +1.3% YoY in December – a far cry from the forecasted +0.2%. The World Bank now predicts that in light of China’s easing of its Zero COVID policy,  Chinese GDP could hasten to approximately +4.3% this year.
  • Midweek saw mixed performance across Asian markets, following the unanimous decision by the Bank of Japan (BoJ) to maintain its ultra-dovish interest rates (-0.1% for the short term), and its 0% (±50 bps) target for 10 Year bond yields. Traders seemed to speculate on the possibility that the BoJ would adjust its Yield Curve Control – seeing 10Y Japanese Government bonds breach the newly established ±0.5% yield cap on bond buying in four successive sessions. The Nikkei 225 closed the week up 1.67%, with the XJO and HSI also riding the move, appreciated +1.69% and +1.47% respectively. The Japanese Yen(¥), having spent much of the week hovering around ¥128 (USD/JPY), closed the week relatively flat at ¥129.

Market Analysis

BTC/USD

Data source: Tradingview
  • Bitcoin calmly rolled into last week’s action after the breakout rally from the week prior, remaining range bound with buyers showing an appetite below 20,700 and sellers favouring pricing above 21,300. However, on Friday, alongside positive momentum, bids pushed prices higher, breaking intra-week resistance above 21,300 and toward weekly highs of 23,362, a level not seen since August 2022. BTC returned +8.80% WoW, with support forming below 22,700 and targets set on forming resistance at the 23,000 level. A break higher here and we’ll likely see BTC challenge resistance below 26,000.

ETH/USD

Data source: Tradingview
  • Early in the week, ETH edged higher with action being rejected off weekly resistance at 1,610. A mid-week sell-off respected downside support at 1,500 and was quickly followed by a reversion higher. As ETH entered the weekend session, prior resistance at 1,610 flipped and formed as support. November 2022’s high of 1,677 acts as short-term topside resistance with the next zone of resistance placed between 1,750-1,800 – beyond this, there are clear skies until 2,000.
  • While diminishing counterparty risk concerns and a less hawkish macroeconomic outlook have bolstered sentiment, participants remain on edge. Following news of the U.S. Justice Department charging Bitzlato with money laundering on Wednesday, ETH and BTC’s early week gains were quickly wiped out. 
  • However, macro expectations continue to dictate price action. The implications of U.S. PPI data coming in better than expected suggest cost increases are cooling off faster than expected. This was reflected during Friday’s session and into the weekend with BTC and ETH ascending higher. 
  • Notably, BTC spot volumes more than doubled during the last week, reaching $10.8 billion which represents a 114% increase over the prior week. This increase in spot volumes is indicative of improving sentiment and fairs well for the overall health of the ecosystem. 

ETH/BTC

Data source: Tradingview
  • Last week, we saw a rare breakdown in ETH/BTC’s historical behaviour and a diminishment of price in the presence of risk-on attitudes. Last week, participants witnessed a continuation of this pattern. Notably, the pair broke through the previously respected ascending triangle pattern drawn from June’s lows and continued lower before finding support below 0.0710. Given the overshadowing presence of ETH’s Shanghai upgrade, scheduled for March, and the recent accumulation of ETH by larger holders into the later parts of 2022, we may be seeing some wider buyer exhaustion for ETH relative to BTC. 
  • Providing further sustenance on the above narrative, is the number of addresses with holdings >100 ETH. While we saw a notable increase toward the end of 2022, we’re now seeing this metric decrease. Such behaviour may be indicative of whales selling into strength, a common characteristic of early bull markets but also commonplace in the lead-up to events that are expected to drive prices such as ETH’s Shanghai upgrade. A continuation or exaggeration of this trend may result in a continued outperformance of BTC relative to ETH in the medium term.
Data source: Glassnode
  • For the most part of 2022 and in tandem with shifts in macroeconomic expectations, BTC behaved in line with the S&P500 and Nasdaq. Recently, this relationship has softened. A continuation of this characteristic places BTC as an attractive hedge against adverse moves in equity markets. 
Data source: Glassnode
  • Miner capitulation was placed at the centre of 2022. BTC’s recent turnaround has provided a much-needed period of relief for miners with revenues (USD) increasing since the start of 2023. Notably, revenues have trended higher in the face of BTC’s increasing hash rate. Moreover, in the face of potentially higher costs, we may see selling pressure from miners in the short term who wish to solidify revenues off the back of a previous year of poor performance.
Data source: Glassnode

Derivatives

  • As Bitcoin continues to lead the market higher, we are witnessing the potential return of higher volatility after experiencing multi-year lows in 30-day realised volatility. The consolidation of implied volatility (IV) has led to a more elevated term structure, with a kink evident for the February 3rd expiry, indicating an expectation of increased volatility around next week’s FOMC meeting. Longer-dated volatility remains relatively cheap compared to historical averages, with Ethereum being a focus for traders during the week as they bet on increased volatility around the Shanghai fork. This is particularly evident in the June 23 expiry, with the March 23 expiry being sold to lower the cost of these types of combined structures.
Data source: Deribit
  • The liquidation of short positions continues to be a significant factor in the rapid movement of Bitcoin’s price as it breaks through resistance levels. The market’s positioning and overall sentiment have been heavily bearish since November, and we are still seeing aggressive short covering and liquidations, even after last week’s initial rise. Additionally, the liquidity in the market is still fractured, which also continues to contribute to the volatile movements in both upward and downward directions.
Data source: Glassnode –  Exchange data from Bitmex, Okx & Binance
  • As a result of a strong start to the year, the cryptocurrency market finds itself in a unique position. Having reclaimed key levels not seen for months, many speculate that a potential price bottom has been formed. Despite this, consistent selling amongst ETH’s largest holders as well as 3-month high marketwide profitability both suggest that the market’s “up only” price action is due for a retracement. Nonetheless, participants look to last week’s U.S. GDP QoQ growth rate and Friday’s U.S. Expenditure figures for affirmation. 

Ecosystem Highlights

  • Polkadot has released an update, version 3 of its cross-chain messaging format called Cross-Consensus Messaging (XCM) which aims to improve interoperability between different blockchains within its ecosystem. This allows for enhanced ability to move assets across different blockchains within Polkadot, including both regular tokens and NFTs. The main goal of this update is to increase programmability, opening up new possibilities for interacting with tokens across multiple blockchains, including the ability to lock tokens on one chain and unlock them on another.
  • National Australia Bank (NAB) has developed a stablecoin named AUDN, which aims to facilitate settlements in Australian dollars for its business customers. The stablecoin, which will be launched on the Ethereum and Algorand blockchain networks, will be fully collateralized with Australian fiat held by the bank. The launch is planned for mid-year and will be used for transactions such as carbon credit trading, remittances and repurchase agreements. The stablecoin, AUDN, will leverage the concept of atomic settlement, which enables the simultaneous exchange of assets between transacting parties. The launch of AUDN is expected to significantly enhance the efficiency and speed of cross-border transactions while reducing the associated costs.
  • Ethereum infrastructure provider, Flashbots, is in talks to raise $50 million in a fundraising round with a billion-dollar valuation, through a reverse-pitching process. Crypto venture firm, Paradigm, is committed to leading the investment. Flashbots’ service is a dominant player in the Ethereum ecosystem, accounting for 60% of all Ethereum blocks, an increase from 16% in September of last year.
  • Ethereum-based Layer 2 scaling protocols, Optimism and Arbitrum, have seen a significant divergence in transaction activity over the past month, with Optimism surpassing Arbitrum since December 2022. Both protocols had been on a steady upward trend, but Optimism’s OP token outperformance has been a key indicator of ecosystem adoption. Additionally, the decentralised perpetual futures exchange GMX, built on Arbitrum, has seen a 30% drop in usage since December 10, while Synthetix, a separate perpetual exchange built on Optimism, has seen an increase in volume starting around December 20. Other tokens in the Optimism ecosystem, such as Velo and Sonne, have seen gains of over 200% since the beginning of the year.

What to Watch 

  • UK Flash Manufacturing PMI, on Tuesday.
  • US Advance GDP, on Thursday.
  • US Core PCE Price Index, on Friday.

Insights

Join Zerocap Innovation Lead Nathan Lenga as he delves into the topic of True Institutional Crypto Custody. Learn how effective hardware, cryptographic security, governance protocols, institutional counterparties and segregation of funds play a crucial role in safeguarding your investments.

* Index used:

  Bitcoin    EthereumGoldEquities        High Yield Corporate Bonds      CommoditiesTreasuryYields
BTCETHPAXG        S&P 500, ASX 200, VT      HYG  SPGSCIU.S. 10Y
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