Weekly Crypto Market Wrap, 5th February 2024

Download the PDF

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

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

Week in review

• Hong Kong Securities and Futures Commission accepts first spot Bitcoin ETF application.
• BlackRock Bitcoin ETF surpasses $2 billion in holdings.
• Ethereum nears “Dencun” network upgrade, introducing proto-danksharding to reduce Layer 2 transaction costs and improve scalability.
• Visa enables crypto withdrawals on debit cards across 145 countries, following Transak partnership.
• Tether (USDT) registers record $2.85 billion profits in Q4 2023.
• China set to introduce revised crypto regulations by 2025.
• FOMC: rate cut in March is “unlikely”, needs more signs of easing inflation.

Technicals

BTCUSD

Technically we are at an interesting juncture. The false break of the inner trendline is holding, and the price is compressing between the 42,000 and 44,000 level. Combine this with crypto options volatility continuing to drop and risk-on across equities and bond yields, it begins to feel like we are on the verge of a breakout one way or the other. Fundamentally we are strong, BTC halving in a few months, some major upgrades for Ethereum, with Venture Capital liquidity breathing some fresh air back into the crypto space. It has the trimmings of a short-term rally. Powell is not so sure though – in his 60 Minutes interview last night he made it clear that “the job’s not quite done”. 

Either way, the market is taking recent economic data and bidding risk, which plays well into a potential topside break here as the price moves further into the ascending triangle. A topside break would likely make a run at 46,000, the breaking point lower after the SEC’s ETF announcement. From there, a run at 50,000 does not look that far-fetched. A downside break would see the price want to test 40,000 or down to 38,000, the breaking point from the ascending triangle in Nov 2023. 

Key levels
38,000 / 40,000 / 44,000 / 46,000 / 50,000

---

Spot desk 

Stablecoin off-ramping continues to dominate flows

The desk saw a significant skew towards stablecoin and fiat offramping this week. 

The Australian Dollar (AUD) dipped to a low of 0.65023 (AUD/USD), bringing a significant increase in off-ramping activities into the weekend. Savvy traders capitalised on the broader sell-offs witnessed on Thursday and Friday.

The desk remains strategically positioned to offer competitively priced stablecoin/AUD and USD pairs, Corporates, exchanges and other desks are encouraged to reach out with any interest. 

Net Positive Bitcoin (BTC) ETF Inflows

Opportunistic investors steadily bid up BTC – climbing 1.3% WoW as net positive BTC ETF inflows continued for 4 consecutive days on Wednesday. Sell-side pressure from Grayscale’s Bitcoin Trust (GBTC) appears to be subsiding, despite the trust recording 14 days of consecutive net outflows.

Blockchain Oracles emerge amidst the tea leaves on the desk

Oracle governance tokens Chainlink (LINK) and Pyth Network (PYTH) rode the winds of fortune this week, returning +25.53%, and  +27.42% respectively. These gains come after a recent upgrade leading to a 20% improvement in latency across Pythnet price feeds, and announcements from PYTH partners, ZeroLend and DogeLon. 

Portfolio Diversification Idea: Encompass the Fundamental Pillars of Web3

Blockchains require oracles to bridge the gap between the digital world of smart contracts and the real world of external data, enabling decentralised applications to access and interact with information beyond the blockchain. 

As smart contract adoption and its real-world applications continue to expand, the need for fast and accurate information flow is paramount. 

Blockchain oracle governance tokens are vital for ensuring the maintenance, integrity, and security of oracle networks by incentivizing stakeholders to actively participate in governance, thus enhancing the accuracy and reliability of external data utilised in blockchain applications.

Consider researching the long-term bull case for Oracle networks – hit up our spot desk for flows, and any views.

Expected Impact: Long-term Bullish

---

Derivatives desk
WHOLESALE INVESTORS ONLY

Volatility Trending Lower

With a relatively flat week across the whole space, implied volatility is still coming off in the options market. In particular, ETH at-the-money implied volatility continues to dribble down to levels seen before the rally in October.

We see two likely possibilities over the next few months

1. Implied volatility drifting lower until we get to a level comparable to the 2023 lows.

2. Another ETF-based rally in ETH and high-beta alts, leading to a pickup in vol across the board

In both scenarios here we see Altcoin Discount Notes as an interesting opportunity.

Trade idea

Investors in Discount Notes can take advantage of the yield at current levels to either:

 (i) enter a long position in the underlying token for less than its current price or, 

(ii) Earn a high fixed return for the investment (currently 39%) if the underlying expires above a predetermined price (Cap Price). 

The below payoff graph shows the payoff for a sample Discount Note priced on Solana (SOL). 

Solana currently has the crypto-native yield degens chasing airdrops, and a bunch of real-world use-cases launching right on its protocol. Everything from decentralised Uber to tokenised real estate. The future right now looks promising, and the short-term sentiment is positive. There is a risk that SOL is overshadowed by the ETH ETF, and a moderation in the risk-on environment, which makes Structured Products a natural choice to control the risk.

Get in touch with the derivatives team at [email protected] for more information.

* Index used:

Bitcoin	Ethereum	Gold	Equities	High Yield Corporate Bonds	Commodities	Treasury Yields
BTC	ETH	PAXG	S&P 500, ASX 200, VT	HYG	SPGSCI	U.S. 10Y

DISCLAIMER

Zerocap Pty Ltd carries out regulated and unregulated activities.

Spot crypto-asset services and products offered by Zerocap are not regulated by ASIC. Zerocap Pty Ltd is registered with AUSTRAC as a DCE (digital currency exchange) service provider (DCE100635539-001).

Regulated services and products include structured products (derivatives) and funds (managed investment schemes) are available to Wholesale Clients only as per Sections 761GA and 708(10) of the Corporations Act 2001 (Cth) (Sophisticated/Wholesale Client). To serve these products, Zerocap Pty Ltd is a Corporate Authorised Representative (CAR: 001289130) of AFSL 340799

This material is intended solely for the information of the particular person to whom it was provided by Zerocap and should not be relied upon by any other person. The information contained in this material is general in nature and does not constitute advice, take into account financial objectives or situation of an investor; nor a recommendation to deal. . Any recipients of this material acknowledge and agree that they must conduct and have conducted their own due diligence investigation and have not relied upon any representations of Zerocap, its officers, employees, representatives or associates. Zerocap has not independently verified the information contained in this material. Zerocap assumes no responsibility for updating any information, views or opinions contained in this material or for correcting any error or omission which may become apparent after the material has been issued. Zerocap does not give any warranty as to the accuracy, reliability or completeness of advice or information which is contained in this material. Except insofar as liability under any statute cannot be excluded, Zerocap and its officers, employees, representatives or associates do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this material or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this material or any other person. This is a private communication and was not intended for public circulation or publication or for the use of any third party. This material must not be distributed or released in the United States. It may only be provided to persons who are outside the United States and are not acting for the account or benefit of, “US Persons” in connection with transactions that would be “offshore transactions” (as such terms are defined in Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”)). This material does not, and is not intended to, constitute an offer or invitation in the United States, or in any other place or jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer or invitation. If you are not the intended recipient of this material, please notify Zerocap immediately and destroy all copies of this material, whether held in electronic or printed form or otherwise.

Disclosure of Interest: Zerocap, its officers, employees, representatives and associates within the meaning of Chapter 7 of the Corporations Act may receive commissions and management fees from transactions involving securities referred to in this material (which its representatives may directly share) and may from time to time hold interests in the assets referred to in this material.  Investors should consider this material as only a single factor in making their investment decision.

Past performance is not indicative of future performance.