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
- Markets edged higher in anticipation of the Jackson Hole meeting. S&P 500 and Nasdaq continued to burst records while Dow Jones’ Index aims its top from Aug. 16.
- Jackson Hole: Fed chair Jerome Powell confirmed tapering will start in 2021 if the economy continues to grow; the process will be gradual with the central bank in no rush to raise interest rates. Fed continues to label current inflation concerns as transitory.
- Broad crypto terms in the US$1.2 trillion infrastructure bill are unchanged after the House vote. Crypto lobbyists fight to update confusing terms before the upcoming vote on Sep. 27.
- Asset managers and companies own roughly 6% of bitcoin’s entire supply.
- Microsoft wins US patent for “ledger-independent token service.”
- Bitcoin’s hashrate triples since June 28 as blockchain recovers from the mining crackdown.
- CFTC publishes file clarifying their role in digital asset regulation.
- CNBC poll – 11% of young Americans invested their stimulus checks in cryptocurrencies.
- Citi is considering bitcoin futures trading for institutional investors.
- Europe prepares for the first bitcoin futures launch on its largest derivatives market.
- Cuba set to recognise and regulate cryptocurrencies.
Winners & Losers
- Bitcoin and ethereum markets were fairly volatile this week as the assets made a number of failed attempts to break out of the existing range. Positive newsflow continued to prop up sentiment although a significant portion of the market remained sidelined in anticipation of the Jackson Hole meeting and significant option expiries on Friday. Overall, BTC returned -0.99% and ETH -0.52%.
- Equities posted gains this week, driven early in the week by the full approval of Pfizer’s Covid-19 vaccine. Gains were further cemented by a rally on Friday following Jackson Hole which verified the Fed’s current position on tapering. The upcoming August US jobs report should offer further insight into economic health. The S&P 500 (1.12%) and Nasdaq (2.39%) posted all-time highs this week further contributing to the asset inflation narrative.
- The US10Y edged higher this week with a slight decline following Jackson Hole and the Fed’s statement detailing that in the short-term, QE will remain the same despite the potential for a reduction in asset purchases in the coming months. Jerome Powell reiterated that any reduction in asset purchases is not indicative of rate hikes, easing investor concern. The US10Y finished the week up 3.97%.
- Gold endured a slow start to the week, however, the commodity rallied 1.36% following Jackson Hole as investors digested the likelihood of continued inflation in the near term. This move retraced the week’s losses and secured a return of 1.38% WoW.
Macro, Technicals & Order Flow
- Jackson Hole has told us that the party is not over, and despite runs across equities, we are not seeing moves in BTC and ETH yet. Indicators are showing divergence across on-chain, technicals and derivatives. This week should give us an indication as to how the crypto market (majors) are viewing taper liquidity and the correlation to risk-on/risk-off moves.
- The range is sitting between 44,000 and 50,000, with near term support at 47,000.
- Net on-chain outflows for BTC are slowing and looking like they could turn positive this week, presenting some potential selling pressure.
Bitcoin Net Position Change
- Perpetual funding rates are moderately positive, presenting little risk of a downside squeeze. The futures basis remains in its range and historically compressed. The longer the basis stays in this range, the more we are thinking that there is a structural shift occurring in the space. Morgan Stanley, Goldman Sachs and Citi are all gunning to offer crypto futures trading, which will bring more efficiency in these markets (and hence shallower futures curves/interest rates).
BTC Perpetual Swaps Funding
BTC Futures Annualised Rolling 1 Mth Basis
- Open Interest by strike in the options markets is showing a bullish short-term lean, with calls outpacing puts. The options that expired on Friday were in the perfect place for option sellers. The spot market was higher than the optimal point for option market makers, there was large scale selling of futures during the day. The market rallied post options expiry as a result of repositioning post expiry.
BTC Options Open Interest by Strike Price (03/09)
- Spot buying is still steady, although the Grayscale Trust is still trading at a discount, suggesting that institutional inflows are not as strong. This said, Morgan Stanley have picked up a huge chunk of these shares recently. The fact that the premium is still trading at a heavy discount suggests that there are still significant hedge funds looking to offload these shares in the secondary OTC markets.
Grayscale Bitcoin Trust Premium
- In summary, divergent indicators present with realised volatility dropping against slowing BTC outflows from exchanges indicate ranging in the short-term. We didn’t get the risk-on pump that equities got, so wait and see is the game until we get some clarity on how the market is digesting BTC against a dovish tapering environment.
- Ethereum is following the same tune as bitcoin – ranging with key downside support sitting at 3,000 and topside resistance on a breakout at 3,350 – the breaking point of the May liquidation. Its peers, however, are on another mission – Solana, Luna, Tezos and Fantom continue their tear this week with Layer 1 competitors to ETH in focus. Fees in ETH have seen some volatility lately due to the NFT rush, and ETH 2.0 has not yet rolled out (although the London Fork has happened, which is a pivotal step to this). We are thus yet again seeing fee challenges for market participants on the Ethereum network.
- This is echoed in ETH’s number of active addresses, showing declines this week in favour of other Layer 1 blockchains.
Ethereum Number of Active Addresses
- Short-term indicators are pointing to a ranging environment, with on-chain exchange outflows continuing to moderate and perpetual funding rates at manageable levels.
Ethereum Exchange Net Position Change
ETH Perpetual Swaps Funding
- The futures basis continues to hold its range. Same comments here as for the bitcoin basis curve – we are increasingly seeing market structure shifts here, which may be the ‘new normal’.
ETH Futures Annualised Rolling 1 Mth Basis
- The amount of ETH in the ETH 2.0 staking contract currently sits at 7,084,028 . This represents 6.04% of the total supply estimated to remain locked for ~ one year, continuing to slowly constrict supply.
- In summary, wait and see for ETH right now. Layer 1’s are screaming ahead this week in terms of price, but never underestimate the incumbent – especially with ETH 2.0 on the way.
DeFi & Innovation
- Chainanalysis report: DeFi adoption is still far from mainstream, as most users are “experienced crypto investors and traders” from high-income countries.
- Twitter’s Jack Dorsey discusses plans to build a decentralised exchange for bitcoin.
- Visa joins NFT craze, buys Cryptopunk for $150k in ethereum.
- OpenSea NFT marketplace surpasses $1.5 billion in monthly trading volume; year-to-date volume was $1.02 billion merely two weeks ago, $24 million in all of 2020.
- Budweiser uses $120k to purchase NFT fan art and ethereum domain Beer.eth.
- Digital Yuan used in China’s futures market for the first time.
- Celsius becomes the first CeFi/DeFi platform to cross $20 billion in assets under management.
What to Watch
- Last week we mentioned the importance of keeping an eye on Jackson Hole. Chair Powell said tapering in 2021 is a reality if the economy continues to grow, albeit with very gradual changes. Nothing new on the high inflation talk, as the Fed remains confident that current inflation rates will drop along with the Covid-19 crisis. While the tapering structure isn’t totally clear, the US job report coming up this Friday is a solid indicator of the economy’s strength if it continues its unemployment downtrend since May.
- Bitcoin failed to hold its ground over the $50k mark, with ethereum trading sideways as DeFi and NFT markets boom. Investments moving from bitcoin and ethereum towards other sectors of the asset class is characteristic of a bullish momentum across crypto, and this week will be vital to determine if the market is truly on sight for another takeoff or if its biggest assets will drop towards lower resistance levels.
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 23 Aug. 2021 0:00 UTC to 29 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|