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Week in Review
- June’s CPI rises 5.4% compared to last year, the largest jump since June 2008. Treasury Secretary Yellen claims the year may close with higher inflation rates.
- New inflation records and Delta variant looms the markets as S&P (-1.04%), Dow Jones’ Index (-0.44%) and Nasdaq (-0.77%) print declines.
- S&P launches five more crypto indexes; one of which tracks 240 assets.
- China continues crackdown with mining operations shut down in three more provinces.
- Fed Chair Jerome Powell claims stablecoins need regulations, as Yellen soon meets with bank regulators this week to discuss stablecoin rules.
- Grayscale’s main crypto fund becomes an SEC-reporting company.
- Bank of America approves Bitcoin futures trading for select clients.
- PayPal raises crypto weekly purchase limit to $100k, removes annual cap.
- Australia’s Digital Law Association launches initiative to legally recognise DAOs, whilst the government grants funds for blockchain projects aiming to reduce compliance burden.
- Brazil approves first Ethereum ETF in Latin America, with custody by Winklevoss’ Gemini.
- Founder of crypto exchange FTX claims Goldman Sachs and CME acquisitions are a possibility if the company surpasses Binance and Coinbase.
Winners & Losers
- Bitcoin faced a mild sell-off this week, predominantly driven by news in traditional markets and a lack of buying pressure. Crypto newsflow remained muted with the exception of minor regulatory shifts out of India, China and the UK. The lack of volatility has led some commentators to anticipate a drastic move should volume pick back up. For the moment, most are waiting for such a move before repositioning. Overall, the asset returned -7.27%, closing at $31,775.
- As has been the case in previous weeks, ETH fell alongside BTC. As with the broader crypto market, the majority of ETH traders are sidelined while longer-term investors are continuing to buy spot. Overall, ETH recorded a -11.65% loss this week.
- The US10Y jumped earlier this week as higher than expected CPI data was released for June. However, later in the week, Jerome Powell addressed the figures. Powell reaffirmed the Fed’s position that inflation is transitory and insisted that while the Fed will taper QE, it would not be earlier than previously stated. This swiftly placed downwards pressure on the US10Y forcing a -4.43% loss WoW.
- Gold continued its strong move to the upside earlier this week as inflation data was met with a dovish statement by the Fed. A slight dip on Friday was experienced due to a bounce in US bonds and the greenback. Overall, GOLD recorded a 0.18% gain.
- Equity markets retreated from their highs this week as earnings hype settled. This was compounded by continued concerns surrounding inflation expectations. The S&P 500 lost -1.04%, the Dow Jones -0.44% and the NASDAQ -0.77%.
Macro, Technicals & Order Flow
- We didn’t see much happening this week given divergent on-chain data, low open interest in the derivatives markets, and uncertain/oscillating funding rates. This scenario played out – and looks to continue in the coming week, although there is one caveat – large on-exchange transfers.
- Macro factors at play still surround the delta-variant Covid-19 numbers spiking in key regions, and whether policy responses will play into this. Conversely, inflation figures are showing jumps over June through economic activity coupled with supply chain disruptions. These issues will be closely watched by the broader market for direction and implicated liquidity conditions.
- Once again, BTC liquidations showed pain for short-term traders who dared to choose a direction. Flipping from longs to shorts aggregated liquidations – albeit on smaller aggregated volumes.
BTC Aggregated Liquidations
- Implied vols continue to drop – not much hedging going on a the moment, and not much interest. At some point, this will be a beautiful mean-reversion play on vol – if not now, when we get some macro confluence bringing indicative direction.
BTC ATM Implied Volatility
- The VIX continues to edge higher WoW, in line with global equity market retracements. Could this be a leading indicator for BTC implied vols?
- Aggregated spot volumes are naturally still suppressed against this backdrop, although the OTC desks are reporting relatively consistent, non-leveraged buying. Perpetual swaps were on-balance, negative over the week – with shorts paying longs. This is a precarious market to play with any kind of leverage. Be warned.
- The futures basis continues to bounce between contango and backwardation, with no clear direction. Open Interest is holding steady, although still suppressed compared to the rest of the year.
BTC Aggregated Daily Volumes
BTC Perpetual Swaps Funding
BTC Futures Annualised Rolling 1 Mth Basis
BTC Futures Annualised Basis – Current
BTC Futures – Aggregated Open Interest
Total BTC Options Open Interest
Number of Active Bitcoin Addresses
- Interestingly we saw a large spike of inflows into exchanges on the 17th. It was reported that a massive 13,003 BTC was transferred into Coinbase which would’ve led to other inflows no doubt. This is fairly significant in the current environment. Low liquidity with potential stops below the 31,000 to 28,000 level. Keep an eye on this.
Bitcoin Net Transfer Volume from/to Exchanges
Tweet Notification of Large Transfer
Bitcoin Hash Rate
Probability of BTC being above x$ per maturity
Grayscale Bitcoin Trust (GBTC) Premium
- In summary, watch the exchange flows – as this could run to the downside if big sells hit the market. I’d expect this to be short-term, and not cause a liquidity cascade given open interest and suppressed implied vols. The next medium to longer-term move will likely take its cues from broader intermarket flows and macro conditions.
- Ethereum is following the same liquidity and volatility conditions as Bitcoin. The lows at 1,725 are the next key levels, but given the environment, ranging moves at or through this level are not overly significant.
- We have some early indications last week that some bullish momentum could be building in on-chain data via exchange outflows. This has continued, converse to BTC, and seems to be building on the back of the upcoming fork.
- The DeFi Index (FTX) is retracing back to the downside, again reflecting lower volumes and associated yield plays.
Ethereum Exchange Net Position Change
- The Perpetual Funding rates are, like BTC, bearish – with shorts paying longs. Open interest is still suppressed.
ETH Perpetual Swaps Funding
ETH Futures Annualised Rolling 1 Mth Basis
ETH Futures Aggregated Open Interest
Ethereum Net Transfer Volume from/to Exchanges
Ethereum Number of Active Addresses
Probability of ETH being above x$ per maturity
- The amount of ETH in the ETH 2.0 staking contract currently sits at 6,282,555. This represents 5.38% of the total supply estimated to remain locked for ~ one year, continuing to slowly constrict supply.
- In summary, we are waiting for some triggers to indicate the next move. It’ll be important to watch the NASDAQ and how tech affects ETH in the short-term if we continue to see an elevated VIX and equity market downside. On-chain indicators and whether we see follow-through will be equally important to monitor.
DeFi & Innovation
- Jack Dorsey announces Square is working on Bitcoin-based DeFi platform.
- AAVE founder announces plans to build Twitter-alternative on Ethereum’s network.
- Samsung launches “Paperless” blockchain service to reduce cloud document forgery.
- UniSwap launches layer 2 scaling solutions for low cost, high-speed DEX trading.
- Tennessee city seeks to accept tax payments in Bitcoin.
- Nifty’s partners with Warner Bros. to launch a social NFT platform.
What to Watch
- We mentioned last week that June’s CPI release and statements from the Fed would shed a light on where the economy is headed, and it seems to be retracing into much further uncertainty. June’s CPI registered a 13-year record. As the markets take a breather, the Delta variant feeds into fears of a fourth Covid wave. However, in the medium-term, economies still seem to be opening up worldwide, with stronger vaccine rollouts and continuously lower mortality rates. It’s a moment to stay put and observe, as we maintain focus on the markets and announcements from Fed and the White House, while keeping track of data on the Delta variant.
- Crypto investment products recorded their weakest trading volume since October. Broader cryptocurrency outflows from exchanges (except BTC this week) point at a ranging/accumulation phase. Economic uncertainty has spread across markets, and that includes cryptocurrency, as large investors carefully wait for signs of recovery or further declines. Innovations promoting institutional adoption continue – the coming quarter will be one to watch as volatility potentially mean reverts.
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 12 Jul. 2021 0:00 UTC to 18 Jul. 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|