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Note on release date: This week’s Weekly Crypto Market Wrap was released on a Tuesday due to the Anzac Day public holiday in Australia, on the 25th of April.
Week in Review
- Fed Chair Powell states half-point rate hike is “on the table” for Fed’s May meeting.
- Morgan Stanley states Bitcoin’s lightning network is more practical than debit cards, predicts rise in crypto use for payments.
- US leads world rank of crypto profits in 2021, 6x higher than UK’s 2nd place; Chainalysis.
- AUSTRAC releases two new crypto regulatory guides on ransomware and criminal activity, urges institutions to de-bank clients engaged in suspicious behaviour — APRA releases regulations roadmap expected by 2025.
- IMF financial stability report states recent world crises brought forth the “cryptoization” of global economy, considers digital asset strategies to avoid sanctions “impractical.”
- Bitcoin transaction fees lowest in two years, averaging at $1.04.
- Emmanuel Macron re-elected in France — states crypto is “an opportunity not to be missed” but also a “social and societal challenge” towards proper regulation.
- US Treasury Department lists crypto mining firm in latest sanctions against Russia — sanctions three Ethereum addresses allegedly linked to North Korea.
- Earth Day — Bitcoin naturally gravitating towards renewable energy; at 58.5% by Q4/21.
Winners & Losers
- Risk Parity based portfolios continue to play defensively this week. The bond market collapsed in accordance with higher rate hike expectations. Growth equity portfolios also took a significant hit as higher funding costs are revising future discounted book valuations. Thus, making the traditional 60/40 (60% equity/40% bond) portfolio a pain trade to own. The liquidation has also channelled into weekend risk hedging through cryptocurrency usage as the only venue of liquidity to hedge against potential downside risk during Saturday and Sunday markets. BTC traded to a low of 38,200 and ETH to 2,796 before bouncing back to above 40,000 and 3,000, respectively, as liquidity reemerged. But near-term weak stop-loss orders on the downside would have been triggered accordingly.
- Supply chain concerns escalated this week as major cities such as Shanghai and Beijing head into hard lockdown over rising COVID19 cases. IMF downgraded the global growth projection for 2022 (from 4.9% to 4.4%), and China’s central bank, PBoC cut the bank reserve requirement ratio by 25bp to ease money market liquidity. Corporate earnings followed the bearish tone, with JP Morgan reporting a 42% drop in Q1/22 profit, enhancing the gloominess with a downbeat Q2 forecast. HSBC reported lower Q1 profit on credit charges as its share price dropped to a six week low.
- The Australian central bank, RBA, will closely monitor the upcoming CPI data (to be released on Wednesday). The market forecast has it at 4.6% YoY. The main concern is that RBA has been behind the curve with its 0.1% official cash rate. The general belief is that the inability of the central bank to catch up with inflation is because the Federal election is due to occur on the second last Saturday of May. This means that despite an urgent need to normalise the yield curve, the political barrier hinders economic independence. That could also mean an aggressive catch up once the election finishes. Westpac is currently forecasting a 40bp hike during the June meeting, with consecutive walks in the following months.
Technicals & Order Flow
- Bitcoin opened this week’s action in the 39,500 zone. Bears temporarily broke through key support at 39,250. However, bulls bid up these levels and any remaining bearish momentum dried up. Topside resistance above 42,500 prevented a continued and exaggerated rebound from weekly lows. The 39,000 level is the one to watch. A few false breaks here on the daily, and of the ascending channel back to Feb. If 39,000 holds, price could be lured back into the range; the path of least resistance. However, on-chain and fundamental factors will trump technicals.
- Sentiment dampened as a result of the IMF’s revision of their global growth forecast. This acted in favour of the bears and affirmed the down move Bitcoin faced early in the week. However, risk appetite was quick to rebound as investors sentiment followed positive suggestions from Terra, who hinted at further BTC accumulation as a reserve asset.
- Toward the latter part of the week, markets showed signs of weakness in the face of increasing treasury yields and were reminded by Fed Chairman Powell of the imminent rate hikes, suggesting a 50bps hike for next month. As a result, any further bullish price action was squandered, volatility dampened, and price consolidated back within the 39,500 zone.
- Last week, we mentioned that moods in equity markets may roll over into the digital asset space. This week, we saw mirrored action between the Nasdaq and Bitcoin. While Bitcoin is often compared to Gold, Bitcoin is currently behaving more like a tech stock.
- Since the end of October 2021, supply held by short term holders has gradually edged higher. This can be indicative of new entrants into the space, but it also is suggestive of an increasing proportion of traders who are more likely to exit positions in the presence of heightened market volatility.
- Looking toward URPD for reference, the significance of support at current levels can be identified. A lack of support below current levels paired with an increased proportion of short term holders may result in an unwind if current levels are lost.
- Implied volatility has decreased significantly since November 2021. As a result, bullish option plays reside at relatively cheaper levels.
- Currently, Bitcoin’s action is reflective of a risk-asset. On-chain suggests that there is a growing proportion of Bitcoin’s supply short term holders and metrics such as URPD emphasise the importance of the support at current levels. While volatility is cheapening, increasing the appeal to investors making bullish plays, any significant price moves to the upside will likely face resistance at the 42,500 level and may be dampened by a continued pivot to risk-off.
- Like Bitcoin, Ethereum experienced fluctuating WoW price action. Subsequent to its sharp fall on Monday, price rallied aggressively but met topside resistance within the newly formed range at 3,180. This level aligns with the 0.618 retracement level drawn from the high on April 10th. For the remainder of the week, ETH exhibited compressed price action ranging between 2,880 and 3,180. ETH closed out the week down 2.21% at 2,920.
- Markets are witnessing consistent volatile moves upon week opens. Notably, this coincides with the opening of the US equities futures session. The last two Mondays have hosted price declines of 7.9% and 3.6% respectively. Like recent Bitcoin moves, ETH is suffering from a high correlation to the Nasdaq. Hence, its action is currently suppressed by the unfavourable economic backdrop. Markets await the upcoming ETH merge and look to see if ETH can decouple from risk-assets and the Nasdaq more specifically.
ETHBTC Daily Chart
- The in-focus pair of ETH/BTC closed marginally lower this week. A lack of conviction from participants resulted in seesawing price action throughout the week. The pair was restricted to a concise range between 0.073 and 0.076. A descending triangle pattern is forming, with a continuation higher and a test of the 0.0775 resistance fitting for the current thematic building around the merge.
- Looking on-chain, we continue to see heavy net outflows from exchanges. Current outflows are approaching levels experienced in August 2021 that coincided with Ethereum’s run to new ATHs. Persistent outflows appear to have had a material impact on exchange-traded Ethereum volumes. It seems as though participants are looking to lock away their Ethereum in staking protocols rather than pursue short term opportunities.
- In the options space, Ethereum’s 10-day realised volatility reached YTD lows at 35%. Prior instances where the 10d volatility dropped below 35%, acted as precursors for a +/- 15% move in the subsequent fortnight. Generally, as the price of an option (volatility) cheapens, traders are axed to buy options at a lower than the usual premium.
- Since its listing on March 17, ApeCoin has returned 1,588% relative to its open price. Yuga Labs, creators of the Bored Ape Yacht Club and the ApeCoin token have indicated their intention to expand the ecosystem into the Metaverse and Web3.0. In turn, this has driven speculation and price appreciation for the ApeCoin token.
- Ethereum’s notable correlation to the Nasdaq paired with continued pivots to risk-off have resulted in three consecutive weeks of negative returns. While broadly affecting risk-assets, the persistent Hawkish outlook has prevented any uncontested moves toward the upside. As the correlation between Ethereum and the Nasdaq persists, macro factors will likely continue to dictate price action.
DeFi & Innovation
- Goldman Sachs states Apple and Meta lead metaverse technology research — Apple to release its first metaverse hardware in 2023.
- Terra’s algorithmic UST stablecoin flips Binance’s BUSD, becomes market’s third-largest.
- Volume in Decentralized Exchanges (DEXs) plunges over 50% from November highs.
- Ridley Scott to produce film about the history of Ethereum — “The Infinite Machine,” based on novel of the same name by Camila Russo.
What to Watch
- US’ Core PCE and Advanced GDP, on Thursday and Friday.
- AU CPI data on Wednesday.
- First-week results from Australia’s upcoming Bitcoin ETF.
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 Apr. 2022 0:00 UTC to 24 Apr. 2022 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.
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