In Markets

Bitcoin pulled back 5% this week — but remains up 31% over the past 30 days and is currently trading at A$103,770 (US$67.6K). Ethereum fell 12% to trade at A$5,388 (US$3,517) despite the network’s Dencun upgrade reducing fees to sub-cent levels. Part of the issue was that Solana’s soaring activity and price saw social media users comparing it very favourably to ETH’s slow and expensive L1, rather than ETH’s cheap and fast L2s. Solana surged 30%, hit a record-high market cap, and is now the fourth-largest cryptocurrency. XRP lost 8%, Cardano fell 11%, Avalanche gained 25%, and Dogecoin lost 19%, even though Elon Musk said Telsa plans to add it as a method of payment at some point. The Crypto Fear and Greed Index is at 77, or Extreme Greed.


From the IR OTC Desk

While the meme coin frenzy continues, the theme of this week is macroeconomics. For a long time now, cryptocurrencies have ‘marched to the beat of their own drum’ and have shown very little correlation to broad macroeconomic drivers. This appears to have changed over the last seven days. One hypothesis for this is that ETF flows and supply-side profiling are now more significant to the cryptocurrency market than ever before. At the margin, ETF inflows are sensitive to macroeconomic events, and in turn, this is making cryptocurrencies more sensitive to macroeconomic events.

So far, the ETF supply story has remained incredibly positive. As markets become more complacent, however, there becomes an inherent risk that one softer data print of ETF inflows can upset the euphoria. When asset pricing accelerates quickly, their sensitivities to all data points magnify. We may be at this inflection point for BTC currently, although this is yet to be seen.

The macroeconomic landscape this week is headlined by the US Federal Open Market Committee (FOMC) meeting for March. At the end of last year, US 10-year treasury yields were trading at circa 3.80%, having fallen from near 5% only a few months earlier. This change was the result of an FOMC pivot, in which they announced an expectation/requirement to reduce interest rates in 2024. Inflation was falling quickly at the time, and the forward-looking market had priced in circa 150bps of interest rate cuts for the 2024 calendar year.

Fast forward to today, and US 10-year bond yields have reverted to 4.33% (a precarious technical ceiling). This turnaround was caused by strong labour markets and sticky inflation. Last week’s Producer Price Index MoM (Feb) rose 0.6% on the month against a market forecast of 0.3%.US inflation YoY (Feb) rose back to 3.2% from 3.1%, while US core inflation YoY (Feb) ticked down from 3.9% to 3.8%.

So where to from here? This Thursday at 05:00 am AEST, we will receive the FOMC interest rate decision as well as the 1-year and 2-year interest rate projections. At 05:30 am, Chair Powell will begin the Fed Press Conference. Of interest will be whether the FOMC maintains their forecasts in their Federal Funds rate projections, or whether perhaps the 1yr and 2-year interest rate projections may be revised upward – currently, the 2024 median dot sits at 4.625%. If this were to be the case, it would highlight a much more cautious FOMC and a forecast increase to the projected cost of borrowing in asset markets. Watch this space carefully.

On the OTC desk, altcoin season continues to build, with substantial shifting from layer 1 tokens into long-tail assets. So far, the long-tail assets we have traded are not specific to any one project segment. What they do have in common, however, is relatively low market caps, high price volatility and the potential for significant price movements. Broadly, the OTC market is becoming increasingly comfortable with the current positioning in the cycle. For now, the rhetoric appears to be that we are partway through the cycle but have not yet seen retail euphoria – an expectation for a (near) future point in time.

BTC and ETH have both underperformed SOL this week as SOL meme coins drive significant market speculation on the Solana ecosystem. This seems likely to continue, although time will tell. For now, we are waiting for the FOMC.

For any further information, please feel free to reach out.

In Headlines

Why is Bitcoin down?

Apart from macro conditions and inflation, analyst Rekt Capital suggests that a “pre-halving retrace” of between -20% to -40% invariably happens 14-28 days before the halving. We have 33 days to go. One interesting but unconfirmed theory is that a large hedge fund (reportedly North Rock Digital) was shorting Microstrategy by buying US$1 billion (A$1.52B) of Bitcoin on the theory MSTR’s share price premium over the underlying Bitcoin it owns would disappear after the ETF approvals. That hasn’t happened, so rumours suggest the fund had to sell that Bitcoin.

Memecoin frenzy on Solana

The meme coin frenzy on Solana reached “peak degeneracy” this week with more than US$100M (A$152M) in SOL fired at controversial “presales” in just three days, including Book of Meme (BOME). Some unnamed AI project raised US$33M (A$50.3M) in a day, while SLERF raised US$10M (A$15.25M) before the SLERF intern accidentally sent all $10M of the presale tokens to a burn address. Supporters of Dogwifhat raised a small fortune to put the iconic picture of a dog wearing a hat on the Las Vegas Sphere, and it hit a new ATH price. An NFT of that picture just sold for US$4.3 million (A$6.55M). While activity on Solana has surged to ATHs, lots of transactions have been failing.

SEC slammed by judge for “gross abuse of power”

The SEC has been sanctioned by a US district court judge for acting in “bad faith” in its fraud lawsuit against crypto project Debt Box. Judge Robert J. Shelby made it clear in his judgement that the SEC lawyers had lied intentionally by advancing “evidence in deliberately false and misleading ways.” He ordered the SEC to pay costs and said it had engaged in a “gross abuse of the power entrusted to it by Congress” that had “undermined the integrity of the court process.”

Craig Wright is not Satoshi

UK High Court judge Justice Mellor ruled the evidence is “overwhelming” that Australian Craig Wright did not write the Bitcoin White Paper, or create Bitcoin, and is definitely not Satoshi Nakamoto. Wright had been sued by the Crypto Open Patent Alliance (Copa) to prevent him from continuing to make those claims.

Another huge week for Bitcoin ETFs

The Bitcoin ETFs had another incredibly strong week, with US$2.565 billion (A$3.9B) worth of inflows. On March 12 there was more than US$1.045B (A$1.6B) worth of inflows in a single day, led by Black Rock’s enormous US$849 million (A$1.3B) haul. Grayscale continues to see around US$250M (A$381M) in outflows on most days.

Tether delisted

In a worrying sign for crypto’s most used stablecoin, Tether’s USDT has essentially been delisted by OKX exchange for European Union users (except to swap into USDC or the Euro). CoinDesk wrote the action may foreshadow regulatory restrictions in the EU “as upcoming EU rules will require stablecoin issuers to be licensed electronic money institutions.”

Dencun upgrade

Data from Dune Analytics showed average transaction fees on Ethereum L2s plunged immediately following the Dencun upgrade: Arbitrum fell 87%, Optimism (69%), Base (88%), and ZkSync Era (63%). Uniswap trades on Optimism, Base and Zora often now cost less than 1c, and transactions on BASE surged to 2M per day afterwards. The upgrade introduced proto-danksharding and replaced gas-intensive permanent call data with temporary data storage on binary large objects (blobs). Ethereum’s TVL (including liquid staking) also hit an ATH this week of US$102.6B (A$156.5B)

Ethereum ETFs

While the odds still aren’t looking that promising for a May approval, there’s been movement on the Ethereum ETF front, with Fidelity refiling its ETF application to include staking ETH for yield. Grayscale has also filed an amended 19b-6 form for its Ethereum Trust, suggesting it still wants to convert it into an ETF despite massive outflows from its Bitcoin Trust following its conversion. Standard Chartered analyst Geoffrey Kendrick told The Block he believes the ETFs will be approved by May 23 and tips US$15B to US$45B (A$23B to A$69B) of inflows in the first year. However, the Bloomberg ETF analysts believe approval is still unlikely, and Rhode Island Senator Jack Reed and California Senator Laphonza Butler penned a letter to SEC boss Gary Gensler this week urging him not to approve any more crypto ETFs.

Bits and pieces

Analysts at Bernstein predict the overall cryptocurrency market cap will surge three fold to US$7.5 trillion (A$11.4T) by the end of 2025, with the Bitcoin ETFs hitting US$300B (A$457B) in AUM. JMP Securities tipped US$220B (A$335B) of inflows into Bitcoin ETFs in the next three years will drive the price to US$280K (A$427K) and the market cap to $5.5T (A$8.4T). Crypto folk on The Australian’s list of the 250 richest people in the country include’s Edward Craven (31), who has A$3.86B, and Immutable’s James and Robbie Ferguson (211 and 212), with a combined A$700M. Prosecutors have recommended a 40-50-year sentence for FTX founder Sam Bankman Fried after he was found guilty on fraud charges. A new poll suggests crypto owners have changed allegiances from Joe Biden in the 2020 election and now support Donald Trump 48% to Biden’s 39%. ANZ has been trialling Chainlink’s CCIP system to connect up trades using Avalanche and Ethereum.

Until next week, Happy Trading!