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Week in Review
- US markets close higher after volatile week, but still register volatility as tapering measures loom closer and half a trillion dollars gets wiped off Chinese markets.
- Fed’s annual Jackson Hole symposium has moved to a virtual setting due to Covid concerns, set to discuss tapering plans. Snippets released Wednesday from a July meeting show consensus in scaling back the $120 billion monthly Treasury and securities purchases following any of three remaining 2021 meetings.
- Worldwide crypto adoption jumped 880% since August 2020; Chainalysis’ Global Crypto Adoption Index.
- ASIC issues warning about risks with unlicensed crypto businesses in Australia, mentioning issues such as unfair liquidations and platform outages.
- Coinbase announces $500 million crypto purchases, seeks to invest 10% of all future profits into digital assets.
- BlackRock ETFs hold $384 million in shares of Bitcoin mining firms.
- US’ second largest mortgage lender set to accept crypto payments this year.
- PayPal launches crypto services for UK customers.
- Wells Fargo files for Bitcoin fund, Galaxy Digital files for Bitcoin Futures ETF.
- All Binance users are now subject to immediate KYC verification.
Winners & Losers
- Bitcoin and Ethereum had a relatively volatile week, spending the first few days retracing before continuing their rallies. BTC ended the week up 4.84% with a newly established local high set on Saturday at US$49,833, while ETH fell short at local resistance and recorded a -2.14% loss. Economic uncertainty due to tapering concerns had an impact on the crypto markets this week despite positive newsflow and price action in the sector.
- While equity markets faced a volatile week on the Fed’s suggestion of tapering in 2021, major indexes faced losses due to sell-offs among the banking and energy sectors. Continued concern over a Covid-19 resurgence has also caused uncertainty, with the market response being reactive to negative newsflow. Overall the S&P 500 returned -0.33%, the Dow Jones -1.05% and the NASDAQ -1.39%.
- The US10Y had a predominantly flat week, although signs of a reversal could mean that bond yields will edge higher as the market is given clarity on the Fed’s timeline for tapering asset purchases. Conversely, the Fed explicitly stated that a hike in interest rates will not likely follow tapering, signaling that a rise in yields may be slower than currently anticipated. The US10Y closed -0.94% down WoW.
- Gold also faced a flat week as investors sat in limbo awaiting the anticipated announcements related to tapering at the upcoming Jackson Hole symposium. With little movement in the US10Y, gold also remained muted this week, gaining only 0.04%.
Macro, Technicals & Order Flow
- We are still in bullish territory, despite some moderation in on-chain indicators. Price is approaching the head and shoulder break from early May, with the next level in sight at 53,000. Crypto market cycles are seemingly getting shorter and shorter, with the runs recovering more quickly than prior liquidity moves.
- Exchange net transfer volume has moderated slightly. However, on balance we are still negative when compared to average net exchange flows, keeping the bullish market structure intact for the short-term. If we see this flip decidedly positive, we could be seeing increases in selling interest.
Bitcoin Net Transfer Volume from/to Exchanges
Bitcoin Net Position Change
- The perpetual funding rate is positive, indicating leveraged long interest. The positions have not been built to the extent that we expect any significant squeezes over the coming week.
BTC Perpetual Swaps Funding
- Options open interest from last week were clearly in the know, with calls at the 50,000 strike hitting the mark today. The next significant strike is aimed at 55,000. If we can clear the 53,000 level, this does not look too far away.
BTC Options Open Interest by Strike Price
- The futures basis is slowly expanding, showing growing long interest in medium-term pricing, although it’s still relatively compressed compared to earlier in the year. Open interest continues to grow – signalling some healthy activity across the board.
BTC Futures Annualised Rolling 1 Mth Basis
BTC Futures – Aggregated Open Interest
- In summary, the bullish market structure remains intact, but there could be some macro headwinds with potential shifts in global liquidity with the upcoming Jackson Hole and FOMC meetings, and the market’s expectation around tapering timelines.
- ETH ranged for much of the week, breaking short-term correlation with BTC. There were some huge moves in some altcoins, with relative outperformance by Cardano, Solana, and other alternative blockchains which took the wind out of Ethereum’s sails. We continue to maintain that the supply shifts in ETH will continue to buoy the asset, albeit not as aggressively as of the alts when market hype spikes.
- Key level to break is near term highs at 3,350.
- The net position change on exchanges has moderated, however we are still strongly negative indicating higher prices this week.
Ethereum Exchange Net Position Change
- Perpetual swaps funding is positive, indicating leveraged longs are in play. No extreme positioning yet.
ETH Perpetual Swaps Funding
- The rolling futures basis broke 10% toward the end of the week and looks to be holding. Aggregated open interest continues to climb. We are not yet in over-leveraged territory though, particularly when assessed against prior perp funding rates on big liquidations.
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 6,891,004 . This represents 5.87% of the total supply estimated to remain locked for ~ one year, continuing to slowly constrict supply.
- In summary, ETH is still looking poised for more upside this week. Keep an eye on any liquidity challenges at a macro level, and how that affects key topside levels and on-chain indicators.
DeFi & Innovation
- Galaxy Digital partners with Bloomberg and launches the DeFi Index, with nine assets focused on “institutional trading and custody readiness.” Six of them are part of Zerocap’s DeFi Index – nice one Galaxy!
- Microsoft researches Ethereum blockchain use to fight piracy.
- SEC chair Gary Gensler claims most DeFi projects are “highly centralized” and will need to be registered.
- US State Department offers up to $10 million in crypto for hackers to aid its cyber defence.
- TikTok chooses Audius crypto project for its first music integration venture.
What to Watch
- All eyes are on Jackson Hole. Taking place next Friday, the Fed’s annual symposium will potentially bring market impact as uncertainty has grown steadily over the past few months around the tapering timeframe. Last week, we referenced a Reuter’s poll and the Dallas Fed President discussed tapering starting as early as September. If such predictions are true, then Friday’s event will be vital to determine what comes next for the US economy. The crypto market flourished over the week as Bitcoin and altcoins from DeFi and NFT sectors registered substantial gains. Bitcoin’s symbolic $50k resistance is broken, and any move by the Fed on tapering could bring volatility – it’s a decisive moment across global markets.
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 15 Aug. 2021 0:00 UTC to 22 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|