6 Feb, 23
Weekly Crypto Market Wrap, 6th February 2023
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
- Digital asset investment products see highest inflows since July 2022; CoinShares report.
- UK Treasury and Australian Treasury publish crypto framework consultation papers – Bank of England likely to create a “digital pound” CBDC by 2030.
- Berkshire Hathaway’s Charlie Munger says US should follow China in banning crypto.
- Bitcoin mining revenue spikes 50% in one month.
- London leads world ranking as main crypto adoption city hub; Recap research.
- Montenegro Central Bank teams up with Ripple (XRP) for a currency pilot project.
- Guarantors behind Sam Bankman-Fried’s $250 million bail payment to be made public – FTX’s sister company Alameda Research sues also-bankrupt Voyager Digital for $446 million, alleges company “knowingly or recklessly” sent customer funds to Alameda.
- Crypto losses from exploits register 93% year-on-year decline compared to 2022.
- Meta CEO Mark Zuckerberg set on continued investments towards metaverse-focused Reality Labs, despite $13.7 billion reported losses from the venture in 2023.
- Google invests $300 million in AI startup firm Anthropic, created by OpenAI lead developers – deal is criticised as Anthropic’s biggest investor is FTX’s Alameda Research.
- FOMC Minutes: FED raises rates by 25 bps points, continues optimist “disinflation” outlook – “I don’t see us cutting rates this year,” FED Chair Jerome Powell stated.
- Bank of England and European Central Bank raise rates by 50 bps, see inflation easing.
Winners & Losers
- The United States Dollar (USD: DXY) endured a tempestuous week falling to a low of 101.036 on Wednesday before rebounding to 103.006 on Friday to close the week up 1.054%. Bond yields creeped upwards as markets braced for central bank interest rate updates – 10Y US Treasuries stuttered before vaulting upwards into the green +0.8bps WoW (+3.526%).
- The US Federal Reserve hiked interest rates by an expected 25 bps, elevating its Fed Funds rate to 4.5%-4.75% – borrowing costs sitting at their highest point since 2007. Commentary following the hike by Fed Chair Jerome Powell maintained that interest rates were not at a “sufficiently restrictive level,” and that the pace of future rate hikes will be determined by the cumulative lagged effect of previous rate hikes in returning inflation to the Fed’s target inflation rate of 2%. A rotation out of industrials and into high growth/tech stocks appeared post-hike – META notably reported a jump of +23.28% on Thursday. Tech earnings continued to disappoint, Apple missed its expected revenue for the first time since 2019 ($117.15 billion vs expected $121.10 billion) in December. AAPL stock was quick to sell off -4% on the day before recovering some of the losses in Friday’s tech rally (+2.5% on the day).
- In the wake of a Federal Reserve press conference that favoured a more cautious monetary policy approach, the Bank of England (BOE) implemented a substantial 50 basis point increase, bringing the “Official Bank Rate” to 4% – a level comparable to that observed in 2008. However, in contrast to the US FED, the BOE refrained from offering a definitive commitment to further hikes. The European Central Bank (ECB), which also raised its rates by 50 basis points, appeared to waver in its earlier commitment to an additional half-point hike in March.
- Australian mining and insurance companies led an inauspicious start to the week for Australian equities seeing the S&P ASX 200 contract to a daily low of 7,474.3 (-0.235%). Insurance firms fell as a result of a large uptick in the number of flood damage-related claims, the ongoing floods in Auckland realising millions of dollars in damage (Approx 470 Million NZD). The Insurance Australia Group and Suncorp Group have announced in excess of 9,000 combined claims; an updated figure by the Insurance council puts estimates at over +15,000 new claims.
- Australian Retail consumers appear to be coming to terms with increased borrowing costs and surging inflation, evident in the ABS release of December Retail Sales numbers – plummeting to -3.9% since November. The contraction in sales was far below expectations for a fall of -0.3%, the print represents the first decline in retail sales for 2022 and a near 2-year low for AUS retail sales. The AUD continued to sell off, plummeting below $0.693 (-2.634% WoW), analysts appear to be considering the 25% off chance for a jumbo 40 bps hike in next week’s RBA meeting.
- Following a re-test of the 23,800 short-term resistance, BTC entered the week alongside some sell-side pressure. Negative momentum took BTC lower until the 22,700 support. We saw BTC continue to range between these levels with moves higher continuing to respect 23,800 and moves lower finding bids below 22,700. BTC closed -3.42% WoW, putting an end to its 4 consecutive weeks of positive gains. As positive momentum tapers, we’ll likely see BTC continue to consolidate within the 21,000 to 25,000 range, with any shifts in macroeconomic expectations being a cause for short-term volatility.
- Alongside wider market moves, ETH sold off during the early week. ETH broke below forming support at the 1,560 level before halting at the 1,535 level. We’ve been seeing ETH strongly bid below 1,540 suggesting its relevance as growing short-term support. A swing in momentum sent ETH above 1,700, its highest level since early Sep 2021. However, the growing relevance of resistance above 1,680 proved true as the price was quick to revert lower closing the week -0.91% WoW.
- As markets rolled over into February, and despite marking notable monthly gains of 43% in January, BTC and other risk assets pulled back as investors de-risked in advance of Wednesday’s FOMC and rate decision out of the U.S. Risk assets were given room to ascend higher following the Fed’s hike of 25bps meeting expectations. However, off the back of substantially stronger-than-expected NFP data and the lowest U.S. unemployment rate since 1969, investors reassessed the possibility of an extended hawkish monetary stance from the Fed. Risk assets, such as BTC and ETH suffered into the weekend.
- ETH/BTC moved with strength over the course of the week as capital rotated into higher beta assets. The relative outperformance by ETH is indicative of moves across the entire alt space as risk-on behaviour persisted. The pair successfully reclaimed the 0.07 handle which acted as resistance towards the end of January. A successful retest of the prior resistance level would pave the way for a reclaim of the 0.075 level although weakness across some pairs may indicate a short-term pullback is due.
- Bitcoin’s MoM performance in January was accompanied by a market-wide rally. As a result, a significant portion of participants are now back in profit and bullish undertones are clearly depicted in the behaviour of futures market participants. Perpetual futures are trading in contango, which is due to an overweighting of long positions relative to shorts, illustrating growing sentiment.
- In the aftermath of FTX, centralised exchanges experienced the greatest outflow of BTC in history. More recently, while still negative, net flows have diminished and have converged to neutral. This behaviour re-affirms the narrative of improved market sentiment.
- Approximately 14% of Ethereum’s circulating supply is staked. The cumulative amount of staked Ethereum has been trending higher for an extended period of time. Notably, leading liquid staking provider Lido DAO (LDO), who leads TVL on the Ethereum network, has benefited greatly since the start of 2023. Ethereum’s Shanghai upgrade, scheduled for March 2023, marks an important event for both wider market dynamics and the short-term price action of ETH and LDO.
- As expected, strong volatility was noted post-FOMC, with Powell’s speech driving up the prices of both Bitcoin (BTC) and Ethereum (ETH). In the days following the FOMC, we’ve seen the term structure return to contango, with spot prices of BTC halting around the 24k resistance level and compressing short-term volatility. Ethereum’s term structure show’s clear elevation in March to account for the expected volatility surrounding the Shanghai fork. Since near-term risks, such as those posed by Genesis/FTX, have abated since the start of the year, we may see later maturities steepen along the curve, supporting the contango structure moving forward.
- New layer-1 primitive, Aptos, has experienced some relatively stable on-chain growth since the collapse of FTX in November, with its TVL increasing three-fold and some NFT apps gaining impressive traction. Whilst this is the case, on-chain transactions on APT remain relatively flat and TVL is largely concentrated in one DEX (being PancakeSwap). Aptos pairs on major exchanges have experienced resilient derivative flows, with total open interest on Aptos perpetuals reaching 15% of its total market cap earlier last week. This has resulted in some volatile moves and short squeezes higher in recent weeks and we expect order flow in these futures markets to determine its price action in the near term.
- Last quarter, Zerocap launched the DeFi Discount Note which was made available to wholesale investors. The product formed a strategy surrounding the anticipation that DeFi protocols would see heavy user growth, as a result of a breakdown in trust in centralised parties following FTX’s collapse. This growth would in turn lead to higher revenue and potentially price appreciation in the underlying token. The DeFi Discount Note allowed investors to enter a long position in DeFi tokens at a discount to their current market price. The maximum return for these instruments is limited to a predetermined price (Cap Price). Zerocap launched DeFi Discount Notes for 3 different DeFi tokens (AAVE, GMX and UNI). As it stands, these products have performed exceptionally well. If the Notes expired today, based on current prices all 3 discount notes would have paid the return cap of 39%.
- We saw markets chop back and forth around last week’s FOMC and rate hike decision out of the U.S. While we can expect short-term moves to be impacted by any negative adjustments in expectations for January’s U.S. inflation print on February 14, crypto specific sentiment is seemingly shifting and BTC and ETH have entered zones of consolidation. We can expect Ethereum’s fast-approaching Shanghai upgrade to have volatility implications over price action for both ETH and its staking counterparts.
- Presently, Uniswap is conducting a vote between two bridges intended to connect the dex with Binance’s blockchain platform, BNB Chain. Between Wormhole and LayerZero, the former appears to be the most popular cross-chain bridge. However, the outcome has not been finalised and behind the scenes two venture capital firms, a16z and Jump may potentially sway the outcome with a16z in favour of LayerZero and Jump in favour of Wormhole. With a16z holding the greatest supply of UNI tokens, 4.5% of the circulating supply, Wormhole proponents remain hopeful that a16z will vote in alignment with the community.
- Leading private markets investment firm, Hamilton Lane, is opening its $2.1 billion Equity Opportunities Fund to individual investors by tokenizing the fund on the Securitize platform. This change has allowed Hamilton Lane to reduce the minimum required investment from $5 million to $20k. The fund will be tokenized on the Polygon blockchain and accessible to qualified purchasers who pass KYC requirements.
- Recently, the hack of decentralised autonomous organisation (DAO), BonqDAO resulted in a loss of $120 million due to an oracle breach. The attacker manipulated the price of AllianceBlock (ALBT) token by altering the “update price” function of the oracle in one of BonqDAO’s smart contracts. They then traded roughly $500k worth of tokens for USDC and ETH, causing the value of BEUR and ALBT tokens to drop significantly. BonqDAO has paused the protocol and is working on a recovery solution, while AllianceBlock has suspended exchange trading and is issuing new ALBT tokens for those affected by the exploit.
- Optimism, a layer 2 scaling solution for Ethereum, will launch its first major upgrade, Bedrock, on March 16th, aimed at improving network performance. The upgrade will increase transaction speeds, reduce costs and make the network compatible with the Ethereum Virtual Machine (EVM). The team behind Optimism estimates that the upgrade will take less than 4 hours and will not cause any loss of data. The upgrade will also provide a foundation for future improvements, such as decentralised sequencing, integrating zero-knowledge proving technology and increased on-chain security.
- Starkware, another layer 2 scaling solution for Ethereum, has announced plans to make the Starknet Prover open source. The Prover is StarkWare’s proprietary technology, used at the centre of the zero-knowledge-based rollup solution to compress transactions into a single cryptographic proof that is posted on the Ethereum blockchain. The Prover is crucial to Starkware’s ability to achieve faster and more efficient transactions while maintaining the security of the Ethereum network. Having faced criticism for holding onto the intellectual property behind the Prover, Starkware has announced plans to open source it under the Apache 2.0 licence allowing other projects and networks to make use of the technology and customise it as needed.
What to Watch
- Reserve Bank of Australia’s rate statement and FED Chair Powell speaks to the Economic Club of Washington DC, on Tuesday.
- UK’s month-on-month GDP and US preliminary Consumer Sentiment report, on Friday.
- Zerocap CEO Ryan McCall and ASX Advisor Ryan McCall at ACS’ Blockchain event next Thursday “Unlocking a Tokenised Future”
Learn market-leading insights on how tokenisation is helping build a multi-trillion-dollar industry with Zerocap CEO Ryan McCall and ASX’s Dennis Hoenig – Register above to join them at ACS’ event next Thursday, with online and in-person attendance options available.
* Index used:
|Bitcoin||Ethereum||Gold||Equities||High Yield Corporate Bonds||Commodities||TreasuryYields|
|BTC||ETH||PAXG||S&P 500, ASX 200, VT||HYG||SPGSCI||U.S. 10Y|
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