Zerocap provides digital asset investment and custodial services to forward-thinking investors and institutions globally. Our investment team and Wealth Platform offer frictionless access to digital assets with industry-leading security. To learn more, contact the team at [email protected] or visit our website www.zerocap.com
Week in Review
- Fed Chair Powell speaks at BIS virtual conference – “Supply-side constraints have gotten worse,” higher inflation is imminent, but still worried about job growth.
- Crypto market hits new cap record, bitcoin and ethereum hit record highs before profit taking into the weekend.
- JPMorgan – Inflation concerns, not ETFs, are driving bitcoin demand.
- ProShares’ Bitcoin ETF hits $1B AUM in two days, the quickest ETF to reach the $1B mark ever in the US.
- Australian Senate Committee releases report calling for overhaul of crypto legislation, pushes Australia to become a leading regional crypto hub.
- Grayscale files with SEC to convert the current GBTC fund into a Bitcoin ETF.
- Facebook launches crypto wallet Novi, but without its Diem cryptocurrency. US Senators urge Facebook to “immediately discontinue” both projects.
- US Treasury mentions need for better crypto policies in new report – later acknowledges most crypto transactions as legitimate.
- Institutional managers hold a record 72.3B of crypto – CoinShares report.
- China’s planning agency calls for public opinion on the bitcoin mining ban.
- NY Attorney General shuts down two crypto firms for unlawful activities, maintains investigation on three other companies.
- Walmart begins installing bitcoin ATMs in US facilities, plans to have 8000 nationwide.
Winners & Losers
- Crypto markets faced a turbulent week, headlined by the launch of the first futures-based Bitcoin ETF in the US, issued by Proshares. On the first day of trading, the fund recorded the second-highest opening day trading volume in NYSE history. In the days following the ETF also became the fastest NYSE listed fund to reach >$1B under management. Alongside a host of other positive headlines for the asset, the market rallied, printing a new all-time high of 67,000 on Wednesday. However, due to a build-up of directional leverage and profit-taking, bitcoin failed to hold momentum and spent the rest of the week grinding down to close at $60,900. Ethereum saw similar bullish momentum early in the week before falling just $5 short of its all-time high and retracing. Over the remainder of the week the asset outperformed BTC, as did the rest of the crypto market. This is likely a result of BTC profit distribution across the rest of the market. Bitcoin returned -0.99% for the week while ether returned 6.15%.
- US Equity market started on a positive note with the S&P 500 continuing the momentum into 4,500 and closing around the ATH level of 4,545. A strong earnings season lifted the market’s morale despite inflationary concerns from both market participants and some FED governors. Despite strong earnings for Q3 reporting, there is still a sense of worry behind both inflationary and policy issues leading to a growth slowdown next year. Industrial production in the US dropped 1.3%, and China’s new property tax on the industry generates further concerns of economic shock to the downside.
- The UST curve flattened out substantially during the week, with the five-year yields reaching 1.2%., a level not seen since Feb 2020, just before the COVID19 panic selloff in markets. The market is now pricing in the first FED FUND hike by June next year and two hikes by the end of 2022.
- VIX (fear) index continues to retrace throughout the week on strong Q3 equities earnings. So far, 23% of the S&P 500 have reported, and up to 84% have beaten forecast expectations. The VIX begins the week at 16.11 and ends at 15.43 after a test of the low at 15.06 earlier.
- Commodity and precious metals prices were generally stronger for the week. Gold finally climbed back towards $1,800 following an earlier dip towards $1,726 during the beginning of October. But oil prices dominated the headlines this week. Not only are pump prices hitting record highs, but wholesale WTI is still shifting higher by the day. An announcement by the largest oil producer Saudi Arabia committing to net zero emissions by 2060 further increased supply fear in the market. The last update was WTI @ $82.45, Brent at $85.53 a barrel.
Macro, Technicals & Order Flow
- Bitcoin trading super well on technicals. Rejections occurring on the ascending topside channel coinciding with the 60,000 level. We are currently heading higher with a look to break key highs again this week.
- There are some bullish factors lining up for BTC, even at these levels. The US Fed Chairman is talking about potential stagflation, the BTC ETF launches went spectacularly and it looks like there are more in the pipeline, and Central Bank Digital Currencies (CBDCs) are slowly brewing in the background. These factors are fundamentally buoyant for BTC over the cryptocurrencies that are more correlated with risk moves in equities. The spot funds are bidding up this environment, holding more BTC every week, alongside longer-term holders maintaining accumulation.
Bitcoin Held By Funds
Bitcoin: Total Supply Held by Long-Term Holders
- Most notable is the acceleration of BTC leaving exchanges, which is generally a bullish sign as indicative of holding/reducing supply on exchanges. The rate of change here is impressive.
Bitcoin Net Position Change
- The on-chain UTXO price distribution shows the depth of bitcoin’s transacted at certain price levels. This is a great way to check how much wood we need to chop to get through key levels, especially given we are near all-time highs. There is little resistance all the way up to 66,000.
UTXO Realised Price Distribution
- The futures basis curve is naturally on the up – with $1B straight into the Proshares ETF, which currently allocates 40.2% to buying CME bitcoin futures contracts that settle in October, and 31.2% for futures that settle in November (the remaining 28% or so is put in U.S. Treasury bills). This should keep a healthy premium on dated futures, aiding yield plays and liquidity for delta-neutral funds.
BTC Futures Annualised Rolling 1 Mth Basis
- Are there any headwinds for bitcoin right now? Funding rates (leverage) are starting to drift to the high side. We are not at extremes, but there is certainly some interest building which could lead to volatility and liquidations to the downside in the coming weeks. On balance however, this week looks weighted to the topside even with leverage growing. All in all, looking to be a buoyant week for the king!
BTC Perpetual Swaps Funding
Bitcoin Futures Open Interest
Bitcoin Futures Estimated Leverage Ratio
- Ethereum is still catching a bid on the back of bitcoin’s move, as is the rest of the altcoin market which is catching some green today. ETH made a run at all-time highs, but fell short by a couple of points. Price action is printing higher lows, and given the bid across the market and strong earnings we are seeing in equities, the risk environment is conducive to break highs.
- Our OTC desk is seeing significant flow looking to capture profits before the 5,000 level. If we break highs at 4,380 – planning exits up to 4,800 is not a bad play here. Note that the 5,000 is a psychological level – consider setting take profit levels at a healthy point below 5,000 if you are looking to book profits.
- Similar to bitcoin, we are seeing strong outflows from exchanges, at a similar pace of acceleration. This bodes well for the bulls.
Ethereum Exchange Net Position Change
- On-chain data also showing the curve of larger wallet holders – with supply held by 10 to 100 ETH continuing to increase. The smart money is still accumulating, despite price velocity lagging behind BTC.
Ethereum Exchange Net Position Change
- Perp funding rates are elevated, but not as elevated as BTC historically. Indicatively, there could be more in this move.
ETH Perpetual Swaps Funding
- The futures basis is naturally ranging as opposed to BTC’s curve which is pumping on ETF flows. There is some talk of a potential ETH ETF from speculators, but we feel that pricing challenges, depth on the CME and the general hangover from getting the BTC ETF over the line will probably delay any decisions on applications until at least early next year.
ETH Futures Annualised Rolling 1 Mth Basis
- This said, there is no lack of institutional interest in ETH. The Grayscale AUM continues to climb which is a strong institutional signal.
- The ETH/BTC trade we’ve mentioned a while back has traded back into the range, invalidating the break of the 200-SMA. We still think ETH/BTC has room to move to the downside, but tough to pick a clean level for a break around here. 0.06 coincides with the ascending trendline from May – although given ETH is playing catchup to BTC, and has some very strong on-chain signals buoying price, we may get a further whip to the topside.
- Ethereum staking contracts continue to limit floating supply – the amount of ETH in the ETH 2.0 staking contract currently sits at 7,996,408 . This represents 6.77% of the total supply estimated to remain locked for ~ one year, continuing to slowly constrict supply.
- In summary, ETH looking for a positive week, although we are cautious on intermarket cues (inflation, stagflation and growth concerns). Keep an eye on the break of highs if it goes this week – there should be some fireworks if so.
DeFi & Innovation
- Goldman Sachs report – DeFi market has several advantages over traditional finance.
- THORChain, part of our DeFi Index, reactivates pools and triggers 78% price surge.
- Following market ATH, DeFi’s TVL reached a $233B record a week after breaking $200B.
- Cosmos is building a new blockchain, called Sagan, for ecosystem testing.
- France tests CBDC issuance in Treasury bond blockchain trial.
What to Watch
- The past week was overwhelmingly positive for the asset class; the launch of the first crypto ETFs in the United States was a wild success. While the ecosystem continues to indicate another promising week, we look for developments on Facebook’s Novi wallet case for insights on how the US Senate may deal with digital asset initiatives coming from major corporations.
- China is calling for public opinion on its bitcoin mining ban – could the government be leaning towards a reversal on the decision? We’ll keep an eye on it, as any indication of policy moderation would be huge news for the market.
- Fed Chair Powell is even more concerned about inflation and the economy’s recovery, pointing that the path ahead will be even rougher than previously estimated. For a better understanding on where trends may lead, we look forward to the data on Advanced GDP on Thursday, PCE Price Index and Treasury Currency report on Friday.
- The Australian Senate seems keen on becoming a competitive hub for crypto innovation under comprehensive regulations, as seen by its recent report. We hope to see any new developments on the matter, and whether the projected frameworks will be truly aimed at user protection and innovation.
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 18 Oct. 2021 0:00 UTC to 24 Oct. 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|