This week saw no major moves on the crypto market…until today. The overall market cap has dropped under US$1 trillion to around US$965M (A$1.5T). There are signs of continued hiring in the US jobs market, despite a slight rise in unemployment to 3.7%, but all eyes will be on the inflation data coming out later this week. Bitcoin finishes the week down 8% to trade around A$30,275 (US$19,540) and Ethereum which was down 12% to finish at A$2,240 (US$1,440). XRP was down 9%, Dogecoin (-32%) and Cardano finished at -11% for the week. Solana also dropped 23% for the week despite good news about partnerships with Google. The Crypto Fear and Greed Index is at 31, or Fear.
From the IR OTC Desk
The US Federal Open Market Committee (FOMC) delivered another ‘jumbo’ 75 bps increase to the federal funds rate at their November meeting. This takes the target band for the federal funds rate to 3.75%-4.00%. While this was broadly expected by the market, the press conference delivered one of the sharpest equity market turnarounds (for an FOMC meeting date) on record.
Risk assets initially rallied following what appeared to be a change in stance from the FOMC with the Meeting Statement highlighting:
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
The message out from Chair Powell could not be more clear however:
“The incoming data since our (the committee’s) last meeting suggests that the ultimate level of interest rates will be higher than previously expected”, and that “it would be premature to be thinking about pausing”.
The FOMC is scheduled to meet again on the 14th of December, where the committee may consider a smaller move (likely a 50bp increase) – data dependent. At the December meeting, the FOMC will also provide an update of the dot plot and economic forecasts.
In US data, US CPI is scheduled for release on Friday the 11th of November at 12:30am (AEDT). The current market forecast is for an Inflation Rate YoY (Oct) of 8% versus 8.2% for (Sep); and for the Core Inflation Rate YoY (Oct) to move down to 6.5% versus 6.6% (Sep). Inflation remains the critical input for the FOMC. Watch this space.
In Australia, this week’s calendar looks particularly light. It may prove to be the ‘calm before the storm’, however, with next week (the week beginning the 14th of November) delivering:
- the RBA Meeting Minutes;
- the AU Q3 Wage Price Index;
- AU unemployment data;
- and a speech from RBA Governor Lowe.
On the OTC desk, global equity markets have continued to grind higher, providing a positive catalyst for a broad based positive sentiment in cryptocurrencies. More recently this week however, we have seen high levels of volatility in cryptocurrencies – particularly in those tokens associated with the collateral positions of some of the major crypto lenders. This has resulted in correlations between the layer 1 tokens breaking down.
Interestingly, buy flow volumes have outweighed sell flow volumes this week – this is the first time this skew has resulted in a number of months. In a sign that interest in DeFi is progressing, we continue to see a good appetite to purchase USDT and USDC. In the past, buy side flow has tended to correlate nicely with positive price action in alt coins and ETH crosses.
For any trading needs, please don’t hesitate to get in touch.
JPMorgan becomes a degen
JPMorgan executed its first ever cross border DeFi transaction using Polygon and a modified version of Aave. The trade of Singapore dollars and Japanese yen was facilitated by the Monetary Authority of Singapore’s (MAS) Project Guardian on Nov 2. The experiment also simulated the buying and selling of tokenised government bonds.
According to Glassnode 78% of Bitcoin’s circulating supply has been held for six months or more which could reduce the likelihood of significant selling activity in future. Ark Invest also released a report stating Bitcoin’s current low volatility could mean it was coiling up for a big move. The last time volatility was this low “Bitcoin rose from US$9,000 to US$60,000 (A$14K to A$93K) in less than a year,” said Ark analyst Yassine Elmandjra.
100 million Bitcoin investors can’t be wrong
Billionaire investor and Bitcoin bull Tim Draper told Web Summit 2022 in Lisbon, Portugal that Bitcoin adoption was growing fast. ” There are 100 million Bitcoin wallets now, and that’s pretty extraordinary, pretty exciting. And we’re only 15 years in,” he said. The same conference heard from the inventor of the World Wide Web Tim Berners-Lee. He said he doesn’t believe blockchain is a viable way to build the next version of the internet and instead talked up his own Web 3.0 concept which has similar aims. Another guest in Lisbon, Matthew Graham, CEO of Sino Global Capital said the current market was an opportunity for smart investors. “Bear markets are where you make your money, bull markets are where you find out how much money you made.”
Solana in Lisbon
Solana Breakpoint conference in Lisbon was attended by 13,000 people all buzzing over the news that Google Cloud is building and will operate a block producing validator for the Solana network. Google Cloud is also working with Solana to introduce a Blockchain Node Engine to the chain, and it will index Solana data and put it on BigQuery, a serverless data warehouse, by next year.
The Wall Street Journal reports that Meta is gearing up for “large scale layoffs” of thousands of staff. It may be related to its so far disastrous pivot toward the Metaverse, with its Reality Labs Metaverse division registering a US$3.7B (A$5.76B) loss in the third quarter. There’s been a wave of crypto layoffs over the past month including at Galaxy Digital, Digital Currency Group, BitMEX, Dapper Labs (which led in percentage terms by cutting 22% of its staff) and Mythical Games.
The talk of crypto Twitter this week was a leaked balance sheet from crypto billionaire Sam Bankman-Fried’s Alameda Research, which is a huge player behind the scenes in crypto markets. It suggested the firm could be near insolvent given most of its assets are in the illiquid FTT token (native token of FTX exchange), making it allegedly vulnerable to a Celsius-like death spiral if the token price fell. Changpeng Zhao, CEO of FTX rival Binance, poured fuel on the fire by announcing the firm would sell all of its substantial FTT holdings. SBF called it “a bunch of unfounded rumours” while Alameda CEO Caroline Ellison has said the leaked balance sheet only referred to “a subset of our corporate entities” and other assets worth over US$10 billion (A$15.6B) “aren’t reflected there”. She added that Alameda has hedged everything, paid out most of its loans and that there’s nothing to worry about. Users were however alarmed after stablecoin withdrawals from FTX and the exchange’s matching engine began having issues.
Aussie Bitcoin ETF fizzles out
Despite launching with a blaze of publicity and bold predictions from the Australian Financial Review that local crypto ETFs could amass $1 billion in inflows, Cosmos Asset Management’s Bitcoin and Ethereum ETFs have been delisted. Launching in May just as crypto winter really set in, by the end of October there was just $890K of funds in the Bitcoin ETF and $270K in the Ethereum product.
Good and bad news for Ethereum
On November 5, data showed that the minting of Office of Foreign Assets Control compliant blocks on the Ethereum network had grown to 73%. The OFAC has a list of blacklisted addresses connected to crypto mixers, and this has raised concerns over decentralisation following ETH’s move to Proof of Stake. However, cofounder Vitalik Buterin released an updated ETH roadmap this week, with a new phase called “the scourge” which will allow for greater neutrality in transaction inclusion by fixing MEV issues and helping address the censorship concerns.
What if MicroStrategy had bought ETH?
Blockchain researcher Eric Wall shared data from a site tracking MicroStrategy’s Bitcoin purchases and comparing it to a scenario in which it bought Ether at those times instead. “It turns out they would be up US$1.47 billion (A$2.29B) instead of down US$1.35 billion (A$$2.1B) lmaooo,” he wrote. According to the Blockchain Center website, MicroStrategy’s BTC holdings are worth US$2.712 billion (A$4.22B) currently but if Saylor had bought ETH it’d have a stack worth US$5.625B (A$8.77B).
MAS’s stance on “programmable money”
In his speech at the recent Singapore Fintech Festival, Mr Ravi Menon, Managing Director of MAS, summarised the central banks’ stance on digital assets, which he termed “programmable money”. In summary, MAS is discouraging retail investment in cryptocurrencies, facilitating stablecoins through sound regulation, allowing tokenised bank deposits, and experimenting with CBDCs.
MAS also announced a series of blockchain-related initiatives during the Festival.
- Project Ubin+: a global initiative on the cross-border exchange and settlement of foreign currency transactions using wholesale CBDCs.
- Project Orchid: identifying four promising areas for applying programmable or purpose-bound money in Singapore.
- Project Guardian: laying the structures and protocols that will help harness the benefits of tokenised assets and DeFi while managing their risks.
Bits and pieces
The Web3 Foundation, which is behind Polkadot, says it has worked with the US SEC FinHub over the past three years and is now confident that DOT is software and not a security. The US$56B (A$87B) hedge fund Elliot Management says a financial meltdown due to hyperinflation caused by central bank money printing is on the cards and we could see a “seriously adverse unwind of the everything bubble“. Joe Longo, chair of the Australian Securities and Investment Commission said ASIC will go after “issuers promoting high-risk products as appropriate investments that will make up a significant portion of an individual consumer’s investment portfolio. This will not be tolerated and action will be taken,” he warned.
Until next week, happy trading!