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Week in Review
- July’s CPI hits 5.4% growth, matching the largest jump since 2008. The S&P 500 and Dow Jones’ Index close with a fourth consecutive record.
- Reuters poll and Dallas Fed President claim tapering announcement set to September.
- The US Senate passed the $1.2 trillion bipartisan infrastructure bill with unclear tax regulations on cryptocurrency which potentially has users, node operators, miners, and even software developers defined as “brokers”. An amendment towards tax clarity and some crypto exemptions failed to secure unanimous approval by a single vote.
- Polygon Network hacked for $600 million, the biggest exploit in crypto history. The hacker has returned almost all of the assets in a deal with Poly, as blockchain address transparency has allegedly traced the stunt back to its perpetrator.
- Ethereum network burned $100 million in ETH tokens during its first week after the London Hard Fork, attesting to the update’s new deflationary structure.
- Crypto and blockchain investments in 2021 have already doubled 2020’s; KPMG report.
- More than half of the world’s top 100 banks have crypto and blockchain exposure.
- Australian crypto users now have access to tax reporting services through Crypto.com.
- SEC filings’ data show institutional managers gain exposure through Bitcoin Trusts.
- SEC Chair Gary Gensler seeks Senator Warren’s help to regulate crypto exchanges.
Winners & Losers
- Bitcoin and Ethereum have continued their rallies this week, despite uncertainty surrounding US crypto regulation. A recent influx of institutional backers has fueled positive sentiment in hand with Ethereum’s successful London hardfork. NFT hype has returned in recent weeks as a potential contributor to ETH network traffic and cash flow within the cryptosphere. Overall, BTC returned 7.28% and ETH returned 9.79% WoW.
- Equities have shown no sign of slowing down, with the S&P 500 and Dow Jones Index both securing new highs this week. Growth was primarily driven by July’s CPI figure which sparked debate amongst the Fed about the tapering of asset purchases. Overall the S&P 500 returned 0.72%, the Dow Jones 0.81% and the NASDAQ -0.22%.
- US consumer confidence fell to its lowest point since 2011 this week influencing a fall in the US10Y. Inflation related market shocks seem to have subsided in recent weeks as Covid and reopening concerns ramp up in the US. The US10Y returned -1.76% WoW.
- Gold saw a recovery after a steep decline early in the week. The swift turnaround mid-week was driven by the weak consumer confidence data mentioned above. A weakening dollar further contributed to the asset’s appreciation this week. Gold closed up 0.94%.
Macro, Technicals & Order Flow
- The run continues with Bitcoin breaking through the 200-day Simple Moving Average (SMA) and holding above the 45,000 level. Last week we mentioned that the foundations for a move higher were strong – this is playing out, and indicators are generally showing positive confluence. We expect higher prices this week, however, the market needs to digest some overbought levels before attempting key 50,000 resistance before month-end.
- Indicators point to this run not being driven by new retail flows. Looking at Google Trends does not present an increase in searches for Bitcoin (or Ethereum).
Bitcoin Net Transfer Volume from/to Exchanges
- On-chain metrics are still showing net outflows from exchanges, indicating that smart-money flows are still on balance, holding.
Bitcoin Net Transfer Volume from/to Exchanges
- Derivatives are on balance long, with perpetual funding rates positive for shorts, indicating continued short term leveraged interest.
BTC Perpetual Swaps Funding
- From the institutional side, options open interest strike prices are clearly aimed at the 50,000 level heading into the end of the month.
- Calendar futures are buoyant, but still fairly compressed when compared to historical rates – indicating that open interest is strong on the short side.
BTC Options Open Interest by Strike Price
BTC Futures Annualised Rolling 1 Mth Basis
BTC Futures – Aggregated Open Interest
- In summary, we got the break of the 200 SMA on flows that indicate longer-term ‘strong’ hands. Although we are extended here, foundations are strong to hold above the 44,000 level in the medium term, with a run at 50,000 looking likely within the month.
- Ethereum also continues breaking into new price levels. 3,120 is holding, and looking to break higher to 3,550 which will close the gap back to the initial breaking point from 17 May. There’s a bit of chop above here, but the London Fork has given ETH some legs, and we expect highs to break before the end of the year.
- On-chain data is still showing strong exchange outflows, with little sign of turning positive this week.
Ethereum Exchange Net Position Change
- Perpetual funding rates are positive, showing that on balance, longs are dominating the leveraged space. However, this flipped at one point during the week. Perhaps some traders trying to pick tops here? The following day, shorts were served a quick blow via liquidations.
ETH Perpetual Swaps Funding
ETH Aggregated Liquidations
- Like Bitcoin, the futures basis remains historically compressed, but we are seeing more volatility in its profile. Aggregated open interest continues to climb.
ETH Futures Annualised Rolling 1 Mth Basis
ETH Futures Aggregate Open Interest
- The amount of ETH in the ETH 2.0 staking contract currently sits at 6,702,876. This represents 5.72% of the total supply estimated to remain locked for ~ one year, continuing to slowly constrict supply.
- In summary, ETH foundations are still looking strong. Equity markets are pumping, liquidity is still abundant. Although the open interest levels and perp rates are clearly giving way to a growing long market, the market structure remains strong for a move up to 3,550 in the medium term.
Ethereum Grayscale Assets Under Management
DeFi & Innovation
- UniSwap has generated more than $1 billion in fees for liquidity providers.
- Lionel Messi’s Paris Saint-Germain contract includes crypto fan tokens.
- Shark Tank’s Kevin O’Leary becomes FTX’s first spokesperson, with a crypto-only salary.
- Global cinema operator AMC plans to accept Bitcoin by 2022.
- Brazilian Bitcoin ETF pledges to invest a portion of AUM into carbon credit and green tech.
What to Watch
- Crypto’s presence in the $1.2 trillion infrastructure bill presents concerns with its confusing definitions. The profiling of those who fit the “broker” label could not have been more broad, and may involve virtually any user or developer in the landscape. However, there’s still time to revise; the approved bill is still in its earliest stage and will certainly go through a series of modifications until it’s properly implemented a year or two from now. Regardless, the debate is on; the massive bill has pushed crypto further into the regulatory spotlight as key politicians question the lack of clear frameworks surrounding cryptocurrencies. This week will undoubtedly bring more news on upcoming political initiatives towards better crypto definitions and how they might effectively fit the infrastructure bill once it’s properly executed.
- Last week we recommended keeping an eye on July CPI figures, with the market looking for Goldilocks inflation numbers – we recorded high growth of 5.4% but within the expected range by the Fed and White House, fostering a goldilocks environment. In response, the S&P 500 and Dow Jones continue to reach new highs despite inflation risks. So far tapering measures remain speculative, but it all points to a late-September announcement. Over the next week, new mentions on the tapering measures may surface from Fed chairs, while markets will most likely remain unphased by such discussions.
This document has been prepared by Zerocap Pty Ltd, its directors, employees and agents for information purposes only and by no means constitutes a solicitation to investment or disinvestment. The views expressed in this update reflect the analysts’ personal opinions about the cryptocurrencies. These views may change without notice and are subject to market conditions. All data used in the update are between 2 Aug. 2021 0:00 UTC to 8 Aug. 2021 23:59 UTC from TradingView. Contents presented may be subject to errors. The updates are for personal use only and should not be republished or redistributed. Zerocap Pty Ltd reserves the right of final interpretation for the content herein above.
* Index used:
|Bitcoin||Ethereum||Gold||Equities||High Yield Corporate Bonds||Commodities||TreasuryYields|
|BTC||ETH||PAXG||S&P 500, ASX 200, VT||HYG||CRBQX||U.S. 10Y|