8 May, 23

Weekly Crypto Market Wrap, 8th May 2023

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Week in Review

Winners & Losers

Data source: TradingView

Market Highlights

  • In our recent discourse, we have explored BTC’s steadfastness in the face of banking uncertainties within the United States. In the current week, we observed a continuation of this narrative. Participants witnessed strength from Gold and BTC following the Fed’s 25 basis point hike on Wednesday. In contrast, equities exhibited vulnerability, thereby reinforcing BTC’s recent dislocation from conventional risk assets.

Data source: Trading View

  • Later, regional US banking issues worsened with Western Alliance, PacWest and First Horizon equities getting crushed. While somewhat delayed, BTC rallied during the Asian session on Friday, leaning into a method of hedging against banking woes for some market participants. 
  • However, on Sunday, participants witnessed a shift in strength off the back of congested network activity. In prior weeks, we have discussed Ordinals, a protocol that inscribes digital assets on Bitcoin, akin to Ethereum-based NFTs. We have also highlighted its potential to drive innovation within Bitcoin’s ecosystem. However, on Sunday a potential drawback of its growing popularity became apparent as Bitcoin’s network became so congested that Binance temporarily suspended BTC withdrawals.

Data source: Glassnode & DuneAnalytics

  • Following, BTC traded heavily into Asia’s open and USDT traded over. Behaviour that points toward the participant’s moving into USDT and out of BTC, and shifting capital off exchanges. Historically, BTC has primarily been viewed as a store of value and a means of exchange. While the introduction of Ordinals presents new possibilities for the BTC ecosystem, it may be necessary to consider a solution to relieve the strain on its network.
  • While BTC’s mempool has recently become overwhelmed and miners struggle to fulfil transaction demand from the BRC20 ordinals, miner revenue has soared to levels not seen since May 2022. With the potential for concerns to arise regarding the strength of BTC’s network and the growing likelihood of miners taking profits, we may witness heavy price action leading up to this week’s US inflation report, regardless of any shifts in expectations.

Data source: Glassnode

  • The persisting lack of volatility in the cryptocurrency market is clearly reflected in the Bitcoin (BTC) Implied Volatility (IV) term structure. Exhibiting full contango, the curve has significantly flattened after the FOMC failed to generate volatility when the Fed meeting met market expectations. Of note, we’ve seen Bitcoin volatility priced in line with Ethereum at times in the shorter-dated expiries, whilst the longer-dated expiries marginally favour Ethereum vol. This ETH/BTC IV spread has been bid of late, with longer-dated ETH vol over BTC of particular value. The behaviour in recent bull runs and market downturns have positioned Ethereum to rise & fall in greater magnitudes than Bitcoin, and we see this structure continuing in the latter parts of 2023. 

Data source:  Deribit

  • The compressed price action and its impact on IV can be observed by comparing the range of different At-The-Money (ATM) expiries to their historical averages. Current IV levels sit at the lower percentile of the 180-day ATM volatility distribution. As emphasised in previous Weekly Market Wraps, we are increasingly favouring longer-dated BTC (and ETH) volatility, with historical behaviour suggesting that IV does not remain at these levels for extended periods. The absence of catalysts has not helped the broader markets’ low volatility, and we do foresee, as the market builds more liquidity, a gradual maturing of IV to more traditional levels and thus inheriting a more balanced structure over time. However, with the Bitcoin halving a year away, and ongoing disruptions in the banking sector, longer-dated volatility continues to appear undervalued.

Data source:  Amberdata

What to Watch 

  • US’ CPI, on Wednesday.
  • UK’s GDP, Core PPI and monetary policy statement, on Thursday.
  • Preliminary US consumer sentiment, on Friday.

Research Lab

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* Index used:

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

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What were the significant events in the crypto market for the week of 8th May 2023?

The significant events included the acquisition of First Republican Bank by JP Morgan following FDIC seizure, the White House’s push for a 30% crypto mining tax, Binance closing BTC withdrawals due to network congestion, and the launch of Coinbase’s International Exchange venture.

What does the acquisition of First Republican Bank by JP Morgan indicate?

The acquisition of First Republican Bank by JP Morgan, following FDIC seizure, is reportedly the second biggest banking collapse in US history. This event underscores the volatility and risks associated with traditional banking systems and could potentially influence investors to consider digital assets as an alternative.

What is the impact of the White House’s push for a 30% crypto mining tax?

The White House’s push for a 30% crypto mining tax could potentially impact the profitability of crypto mining operations. It also indicates the government’s intent to regulate and derive revenue from the crypto industry.

Why did Binance close BTC withdrawals and what does it mean for the crypto market?

Binance closed BTC withdrawals due to congestion on the Bitcoin network. This event highlights the scalability issues faced by Bitcoin and could potentially impact its usability and adoption.

What is the significance of Coinbase launching an International Exchange venture?

Coinbase’s launch of an International Exchange venture, despite recent SEC crackdown, indicates the company’s commitment to expanding its operations globally. This could potentially lead to increased adoption of digital assets and contribute to the growth of the global crypto market.

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