Weekly Crypto Market Wrap, 20th September 2021

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Week in Review

• US’ Federal Reserve set to discuss tapering timeline this week during Federal Open Market Committee (FOMC) meeting.
• Global stock markets  continue trending on the defensive, Dow Jones Industrial  Index closing in the red three weeks consecutively. Nasdaq weighted down by high bond yield and USD funding costs. 
• US federal agencies discuss launching a formal review process towards regulating stablecoins, debating whether they “threaten financial stability.”
• US SEC Chair Gary Gensler testifies before the Senate, puts pressure on crypto firms for regulatory discussion, claiming they need to “come in and talk to us,” while reinforcing that the commission is working hard to create cryptocurrency rules.
• Over 60 South Korean crypto exchanges set to suspend services this week before new regulation starts on Friday, demanding that exchanges register as virtual asset service providers and partner with banks to ensure trading accounts are held by real people.
• New York Attorney General orders shut down of trading platform Coinseed for converting assets to dogecoin without customers’ consent. 
• Coinbase plans to raise $2 billion in debt offering to invest in product development and potential acquisitions; files for futures and derivatives trading. 
• NFT platform OpenSea confirms insider trading scandal, bans executive involved.
• PayPal completes crypto offerings rollout for UK customers.

Winners & Losers

• Bitcoin’s price action remained relatively muted after breaking short term resistance on Tuesday. The asset consolidated for the remainder of the week as traditional markets anticipated the quadruple witching – the quarterly futures & options expiry event. Ethereum displayed slightly more volatility although the asset still looks to be consolidating as investors reposition and await the next move. Overall, BTC returned 2.62% and ETH -2.14% WoW.
• Last week’s risk-off trend continued in equities as the Evergrande saga spooked global markets and investors hedged delta risk ahead of the quarterly futures and options expiries. Lower than expected CPI data was released on Tuesday, raising concerns that the Fed may begin tapering in a slowing economy. Strong Empire State Manufacturing data suggests the CPI miss may have been a one off, although investors will still be paying close attention to the long list of central bank and federal reserve meetings occurring globally this week. The S&P 500 closed -1.22% down WoW.
• The US10Y experienced some back and forth this week closing up at 1.365%. The CPI miss early in the week caused a drop in yields however all losses were recovered in the following days due to a combination of the strong manufacturing data mentioned above, a reduction in weekly jobless claims, and positive retail sales data for August.
• Gold started the week positive as the market priced in the CPI miss. Although, the slew of economic data that followed dampened expectations of delays to the proposed taper timeline. This combined with a strengthening dollar led to a weekly loss of -1.91%. 
• All eyes are on the upcoming FOMC meeting to gain further clarity on the US’ taper timeline. Asian markets remain weary with property and development stocks taking the brunt of de-risking, alongside credit markets. This could be further amplified as most of Asia goes on holidays for the mid-Autumn festival period.

Macro, Technicals & Order Flow

Bitcoin

• We mentioned last week that we are in a push and pull scenario. “If equities continue to take a meaningful dip, risk-off will filter into cryptocurrency in the short-term.” We’ve seen an extension of the dip, with equities and equity futures across the board in the red in the face of the potential Evergrande collapse. We provided some insight for the media on our thoughts earlier last week. In short, Evergrande does present some risk given the global nature of its bond holders, however the loose liquidity conditions would need to be offset by credit conditions in a fallout scenario. This is less likely, but has a high impact in the current environment if it were to play out. Sometimes these scenarios can be the straw that broke the camel’s back – it’ll be telling to see what markets do when Europe gets going later tonight (Monday).
• BTC has broken below the 200-SMA, and given the current range could head down toward the 43,000 level which intersects with the 38.2% fib. A break below 43,000 leaves the door open technically down to 40,000 the figure. Topside levels are 53,000 – the most recent highs. Given event risk around Evergrande, sentiment is negatively geared early in the week, even though exchange outflows are growing (bullish).
• Perp funding rates have moderated, although still mildly positive. Leverage ratios are moderate, suggesting less chance of a stop-cascade.
  

BTC Perpetual Swaps Funding

Bitcoin Futures Estimated Leverage Ratio

• Spend Output Age Bands are still showing that recent and current moves are built on shorter-term holders. We’ll be monitoring this metric against the evolving Evergrande news to see what the ‘smart money’ takes from intermarket moves.

Bitcoin: Spent Output Age Bands

• Bitcoin’s net position change on exchanges continues to signal a supply squeeze. This is notable against equities and current event risk, echoing longer-term holder indicators above. 

Bitcoin Net Position Change

• Futures curve compressed again as would be expected.

BTC Futures Annualised Rolling 1 Mth Basis

• Grayscale premium is still negative at -15%. 

Grayscale Bitcoin Trust Premium

• In isolation, on-chain is bullish, but we need to see whether the market does see growing risk in Evergrande and the potential upcoming taper announcements. We also have CB event risk with the FOMC, the BoJ, the BOE, the SNB, Riksbank and Norges meetings this week, plus central bank meetings in Brazil, Turkey, and Indonesia. Norway is expected to raise rates by 25bps, while the BoE will be closely watched for any hints. The FOMC will be the main event, with guidance on near-term taper likely a major driver for markets. Watch these broader indicators and how bitcoin reacts for clues on the next move.

Ethereum

• Ethereum is similarly following the risk environment right now. Key downside level at 3,000, with topside resistance at 3,550 – the prior breaking point of the the recent stall.
• Similar to BTC, perpetual funding rates are still positive, and at moderate levels.

ETH Perpetual Swaps Funding

• Although unlike BTC, ETH’s net exchange position change has shifted positive, meaning that exchange inflows could indicate increasing propensity to sell. It’s notable that this is diverging from BTC. We still hold that in a risk move, although the market as a whole tends to move initially, longer-term BTC holds great value as a hedge against economic shocks.

Ethereum Exchange Net Position Change

• ETH futures basis curve predictably compressed.

ETH Futures Annualised Rolling 1 Mth Basis

• The amount of ETH in the ETH 2.0 staking contract currently sits at 7,688,732 . This represents 6.54% of the total supply estimated to remain locked for ~ one year, continuing to slowly constrict supply.

• Layer 1 and 2 blockchains are also feeling the pain today, except COSMOS which is holding its value. 
• SImilar intermarket forces will likely drive ETH’s value this week. However, as we normally argue – this could diverge from BTC in the medium-term if the risk moves continue with equity market moderation and any nerves around taper timelines and inflation forces.

DeFi & Innovation

• US’ OCC head Michael Hsu claims DeFi contributes to disintermediating banking systems.
• After much anticipation, Cardano launches smart contracts after successful hard fork.
• EY announces Polygon integration to aid Ethereum’s network scaling for crypto services.
• Google Cloud partners with Dapper Labs to assist Flow blockchain improvements. 
• Solana blockchain suffers 17-hour outage, likely caused by Initial Dex Offering hunting bots.

What to Watch 

• The stock market recorded another week of losses amidst speculation around tapering measures after last week’s release of August’s jobs report. We’ll learn more about the Fed’s stance on tapering after tomorrow’s FOMC meeting. 
• As we longed for more details on how the SEC will move forward with crypto regulations, Chair Gary Gensler testified before the Senate that the commission is working on setting up rules to oversee crypto markets and invited exchanges to meet with the SEC. While details were vague, Gensler claimed to be “all in” for crypto innovation, as long as it’s backed by proper regulations. Other federal agencies also debated the issue, with a pertinent focus on stablecoins, while a NY attorney general ordered an unprecedented complete shut down of a crypto platform. It’s clear that regulatory measures are definitely making their way into the US market, however clarity on how agencies will contribute to the process is still lacking.

Insights 

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FAQs

What were the major events in the crypto market for the week of 20th September 2021?

The major events included the US Federal Reserve’s discussion on tapering, global stock markets trending defensively, US agencies discussing stablecoin regulations, and over 60 South Korean crypto exchanges preparing to suspend services. Additionally, Coinbase planned to raise $2 billion, and PayPal completed its crypto offerings rollout for UK customers.

How did Bitcoin and Ethereum perform during the week?

Bitcoin’s price action remained relatively muted, consolidating for the week, and returned 2.62%. Ethereum displayed more volatility but also seemed to be consolidating, with a return of -2.14% for the week.

What were the significant developments in DeFi and Innovation?

The US’ OCC head claimed DeFi contributes to disintermediating banking systems. Cardano launched smart contracts after a successful hard fork, EY announced Polygon integration, Google Cloud partnered with Dapper Labs, and Solana blockchain suffered a 17-hour outage.

What are the key things to watch in the crypto market?

Investors should watch for the outcomes of the FOMC meeting regarding the Fed’s stance on tapering, the SEC’s movement on crypto regulations, and the overall regulatory landscape in the US market, especially concerning stablecoins.

What is the Zerocap Bitcoin Trust?

The Zerocap Bitcoin Trust is a newly launched fund catering to institutional investors. It provides pure Bitcoin exposure through a regulated unit trust, covered by insurance underwritten by Lloyds of London.

Disclaimer

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 6 Sep. 2021 0:00 UTC to 12 Sep. 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