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One year of Weekly Crypto Market Wrap
It’s been a whole year since we started writing this weekly newsletter. The crypto market has grown substantially since October of 2020 and so has Zerocap. The team is truly grateful for all subscribers and will continue to provide expert analysis of the ecosystem for many years ahead. Onward!
Week in Review
- Senate votes to raise US debt ceiling until December 3, extending the limit to an extra $480 billion — deferring the risk for a pre-Christmas political showdown.
- The US Jobs report disappoints again, with only 194,000 jobs added in September (against almost 500,000 forecasted). Some blamed calendar miscounting on the 161,000 drop in education employment due to the pandemic. Market still pricing in bond tapering this year.
- US WTI crude price at seven-year high, lack of recent investment in infrastructure the main constraints on supply. Several central banks anticipate a rise in inflationary expectation and normalisation of interest rates between 2022–2023.
- The US Justice Department sets up a National Cryptocurrency Enforcement Team. Senator Elizabeth Warren introduces bill to investigate fiat and crypto roles in ransomware.
- US’ SEC approves ETF that tracks stocks with high exposure to bitcoin, while chair Gary Gensler says the SEC has no intention of banning crypto. Market anticipates a Futures based ETF to be approved soon.
- US Bank launches crypto custody services through partnership with NYDIG.
- George Soros’ fund made an allocation to bitcoin, suggesting the cryptocurrency has long-term potential.
- Amount of ETH held by miners reached its highest level since 2016.
- Bank of America publishes a report with a bullish outlook on the future of cryptocurrencies.
- Institutions buying bitcoin rather than gold as a hedge against inflation according to JPMorgan.
- Crypto transactions in Asia surged 706% over the past year due to institutional adoption.
Winners & Losers
- Equity markets began the week on a positive note as speculation of an official government intervention to bail out Evergrande was on the cards; the EV unit of the embattled property giant rallied 20% on the HK exchange. However, as the week progressed, it was obvious that Evergrande and several other Chinese developers were running into trouble servicing their offshore USD bond repayment. Anticipation for a strong US Non-farm payroll figure was the highlight of the week, as mid-week ADP and initial claims data both emerged above expectations. Stocks end the week off highs, with the NFP employment report missing the mark (194k vs 488k exp), equities still up 0.8% WoW.
- The VIX index remained elevated for most of the week with credit, geopolitical, and inflationary concerns supporting risk aversion, however risk moderated as the week concluded. The index closed just below the 20 level at 18.77 after peaking out at 22.96 earlier.
- Digital assets saw a drop in correlation to traditional markets this week as bitcoin crossed a $1 trillion market cap for the first time since May. With the bitcoin futures premium surging to 12.8% p.a., the move appears to be driven by institutional flows, likely a result of the US’ recent net positive crypto news coverage and the potential for a BTC ETF to be approved in the coming months. Ethereum and the broader crypto market saw mixed returns on the week, boosting BTC dominance. This is likely a result of capital rotation within the sector as well as a divergence in narrative between BTC and the rest of the market (BTC acting as an inflation hedge), while others were broadly treated as tech stocks. Overall, BTC returned 13.44% and ETH 0.07%.
- US treasury yield curve bear steepening throughout the week, with the 30 year closing near high of 2.16%, and 10 year at 1.61%. There was a small retracement following the weaker than expected NFP data release, though the market adjusted to price in the expectation of asset tapering as early as next month.
- Gold prices remained range-bound for the week, with a spike towards 1780 as the DXY weakened. However, prices ended the week at 1757; alongside the JP Morgan report that bitcoin has become the preferred alternative to gold as the portfolio inflation hedging tool.
Macro, Technicals & Order Flow
Bitcoin
- We’ve seen bitcoin outperforming against the macro backdrop. The 50,000 level was broken, leading to a clean run to 56,000. Price is looking very bullish here now — a break of the highs at 56,530 (just happened) will likely test 58,000. Price is looking overbought here on the stochastic indicator, however overnight we saw a gap on some feeds to 51,000, leading to some liquidations in derivatives and select spot venues.
- A mixture of low liquidity on Sunday and a big order through on Bitstamp was the culprit here. Stops hit. Market quickly took it back to fair pricing. Exchange volumes across the board spiked as part of the rebalance.
BTC Perpetual Swaps Funding
Bitcoin Futures Estimated Leverage Ratio
Bitcoin Held By Funds
Grayscale BTC Trust Premium
Bitcoin: Total Supply Held by Long-Term Holders
Bitcoin Net Position Change
BTC Futures Annualised Rolling 1 Mth Basis
BTC Seasonal Returns
Ethereum
- We mentioned last week that we could be in the early stages of hedge vs risk asset playing out. This seems to be the emerging case.
- This said, the market is still looking buoyant against the USD this week. The VIX has dropped back below 20, outflows from exchanges are increasing and the perpetual funding rates and leverage are at manageable levels.
Ethereum Exchange Net Position Change
ETH Perpetual Swaps Funding
ETH Futures Annualised Rolling 1 Mth Basis
New Inflows into Fantom
Protocol Revenue
DeFi & Innovation
- Total value locked in DeFi tops $200 billion for the first time.
- AAVE deploys on Avalanche network, deposited assets reach $1 billion in a few hours.
- MakerDAO begins funding to tackle world issues, starting with climate change.
- IMF director says 110 countries are currently working on CBDCs.
- Arab bank set to integrate crypto services using Tezos’ blockchain.
- MetaMask partners with three crypto custodians towards higher institutional adoption.
- El Salvador starts mining bitcoin using volcanic energy.
What to Watch
- Last week, we conjectured that US regulators are taking the crypto wave of innovation seriously instead of bluntly cracking down on the asset class. This week, the SEC approved the first crypto-related ETF, with the SEC having no intentions of banning digital assets. Crypto was also included in a fiat-based bill on ransomware, and a National Cryptocurrency team was created by the Justice Department. The question remains on what departments will ultimately have authority over cryptocurrency legislation, and whether different sectors of the asset class will sit under separate verticals. In any case, the pillars are being built rapidly and we look forward to new developments this upcoming week.
- September’s jobs report disappointed, the debt ceiling raised while inflation continues to reach new targets in the US and across the global economy. Could such factors change the Fed’s tapering plans? Seems unlikely at this point, with November on track for the Reserve to begin reducing bond purchases. Meanwhile, we’ll keep an eye on September’s Consumer Price Index and detailed records of the FOMC’s last meeting, both slated for release next Wednesday, for insights on what to expect in the few weeks ahead.
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 27 Sep. 2021 0:00 UTC to 3 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:
Originally published at https://zerocap.com on October 11, 2021.
