Back in early 2018 all of crypto was pinning its hopes on a post Lunar New Year recovery that never came. Well, in 2023 the markets keep going up and much of Crypto Twitter seems united in disbelief. Is this just a bull trap? Bitcoin is now up 38% in the year to date and hit US$23,230/A$33K on the weekend for the first time since August 2020. The total crypto market cap is once again above US$1 trillion – it’s currently A$1.5T – and Gold and the S&P 500 are also recovering, up 19% and 13% respectively. Bitcoin finished the week up 6% to trade around A$32,700 (US$22,980) while Ethereum gained 1% to trade at A$2,320 (US$1,630). Almost everything else was up including XRP (8%), ADA (5%), DOGE (4%), SOL (4%), but MATIC lost 4%. The Crypto Fear and Greed Index remains at 52 or ‘neutral’.
From the IR OTC Desk
This week is the foreword to the US Federal Open Market Committee (FOMC) meeting, scheduled for Thursday the 2nd of February at 6:00am AEDT. Inflation targeting central banks (in general) tend to have three core mandates:
- 1) Inflation (as the overarching mandate);
- 2) Employment/the labour market;
- 3) Financial stability.
This week delivers the end of calendar year 2022 inflation data for the US, Australia, and New Zealand. It is expected that inflation will drive the tone of the FOMC meeting, which is then likely to drive the next move in risk assets (being up or down). BTC continues to correlate with the US equity market complex. The pace of reduction in US wage inflation, and the strength of the global labour market should provide a leading indicator that monetary policy tightening has reached its maximum.
In the US, Q4 GDP is scheduled for Friday at 12:30am AEDT, and is expected to print at 2.7% versus 3.2% for Q3. On Saturday at 12:30am AEDT we receive US core PCE inflation for December. This is the FOMC’s preferred measure of inflation and will prove critical to next week’s monetary policy meeting. The market’s expectation for the December PCE (YoY) is 5.1%, relative to 5.5% in November. Anything less than 5% would be particularly positive for market sentiment and cryptocurrencies. Watch this space.
In cryptocurrencies, the Lunar New Year has historically been prosperous for BTC and so far this has continued. Last week we highlighted a recognisable pattern for the pricing cycle. Right here and now, it would appear that we moved onto the third phase of this cycle, with BTC generally outperforming.
More recently, we haven’t addressed leverage and counterpart credit risk concerns – which were near dire in the second half of 2022. Importantly for the asset class, these risks appear to have now (in large) been ‘worked through’, creating a significantly more stable trading environment. As cryptocurrencies continue to become more mainstream, expect the macro environment to play a greater role in both volatility and price movements for the complex.
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Remind me in one year
Matrixport reports that buying Bitcoin at the end of the first day of Chinese New Year and selling it ten days later would have made an average return of 9% in the years since 2015 – with every year making a positive return so far.
Ethereum devs have created a shadow fork to test out the upcoming Shanghai upgrade, which will enable withdrawals of staked Ether from the network. The testnet will be used to see if malicious nodes sending bad blocks can “break” the upgrade. Around 16 million ETH is in the staking contract (worth around A$37.1B) so getting this right is important work. The upgrade is due around March. Meanwhile Ethereum creator Vitalik Buterin has proposed the creation of “stealth addresses” to protect privacy on the network. Toni Wahrstätter, an Ethereum researcher, explained it wasn’t about laundering money. “For example, when I buy a coffee at the supermarket, I might not want the supermarket to know my employer, how much I earn and what I spend it on,” Wahrstätter said. “Stealth addresses are yet another, quite straightforward tool to increase the overall privacy in the network.”
Bitzlato flew under the radar for a reason
US and European authorities shut down the crypto firm Bitzlato and arrested founder Anatoly Legkodymov over ties to darknet marketplace Hydra. Officials claimed that US$700M (A$996M) was funnelled from one to the other, with the firm helping launder the proceeds of ransomware attacks. Around US$19M (A$27M) in crypto was seized.
Genesis is bankrupt
The other shoe finally dropped with the lending arm of Genesis filing for chapter 11 bankruptcy this week. The company owes its top 50 creditors more than US$3.4B (A$4.84B) including lots of little guys with funds in Gemini Earn accounts who are owed US$765.9 million (A$1B). Genesis plans to sell its assets at auction in an attempt to exit the bankruptcy. Parent company Digital Currency Group attempted to paper over Genesis’ losses in July last year by issuing it a US$1.1B (A$1.56B) promissory note and it also owes Genesis another US$575M (A$818M) in cash and crypto. That means its crypto media publication CoinDesk is up for sale along with many other assets. Ironically, it was CoinDesk’s excellent reporting into FTX/Alameda that led inexorably to this point. Cardano founder Charles Hoskinson has expressed interest in buying it.
FTX to resume operations?
In FTX news this week, new CEO John J Ray III says he’s looking at restarting the exchange. “There are stakeholders we’re working with who’ve identified what they see is a viable business,” he said. And while Sam Bankman Fried reported he was down to his last $100K in his bank account, court documents show the Feds seized US$700 million (A$996M) of his cash, shares and crypto.
Crypto to be regulated as a financial product
Minister for Financial Services Stephen Jones told the Sydney Morning Herald this week that he thinks crypto should be regulated as a financial product. ASIC and CBA reportedly agree with this position, but Blockchain Australia warns it would harm investment and lead to a loss of jobs in the industry. Piper Alderman partner Michael Bacina warned that regulating crypto as a financial product “without a clear and usable pathway to licensing and compliance will likely send even more crypto businesses offshore and create more risk.”
Aussie dollar stablecoin
National Australia Bank is the second of the Big 4 banks to mint an Aussie dollar stablecoin. Known as AUDN, it aims to allow business customers to settle transactions, trade in carbon credit and send money cross-border using the Ethereum blockchain. ANZ created a similar product nine months ago called A$DC.
Bits and pieces
More than 101 million NFTs were traded in 2022, a 67.57% increase on the previous year according to DappRadar. Ethereum’s layer 2 networks are seeing rapid growth: Polygon has 313,000 daily users, up 30% since October, Optimism spiked 190% to 62,000 users and Arbitrum is up 40% to 42K daily users. Fox News host Tucker Carlson thinks Bitcoin’s sudden price rise this year was due to the US government buying billions in Bitcoin to pay up for a ransomware attack that grounded US and Canadian airlines. He provided zero evidence for the claim. Ransomware attacks fell 40% in 2022, with the total amount paid in ransoms falling to US$456 million (A$649M) last year. A new survey of 10,000 retail investors from 13 countries found that 69% report either positive or mixed feelings about the impact of crypto winter. Pantera Capital’s latest letter to investors says crypto is better placed than ever before, with DeFi set to lead the way to the promised land.
Until next week, happy trading!