In Markets

With the first four weeks of the year green, you’d be forgiven for thinking that Crypto Spring had sprung, but the Bitcoin price rise came to a shuddering halt today with a dip below US$23K (A$32.6K), perhaps on fears the Federal Reserve might throw a curveball with its interest rate decision this week. However most pundits seem to expect a soft quarter point hike. Earlier this week around 64% of Bitcoin holders were in profit, but that’s fallen below 50% today according to IntoTheBlock. Crypto stocks including Silvergate, Coinbase, MicroStrategy and Block all surged by double digit percentages earlier this week. Bitcoin finishes the week down 4% to trade at A$32,300 (US$22,775) while Ethereum lost 7% to trade at A$2,220 (US$1,565). XRP was down 11%, ADA lost 5%, MATIC increased 5%, and SOL was down 5%. At the time of writing the Fear and Greed Index was at 51 or Neutral.

Market Update

From the IR OTC Desk

This week – for the first time in 2023 – we will hear from the US Federal Open Market Committee (FOMC); the European Central Bank (ECB); and the Bank of England (BoE).

Beginning on Thursday at 6:00am AEDT, the FOMC is widely expected to increase the federal funds rate by 25bps, to a 4.50-4.75% target range. Thursday at 11:00pm AEDT, the BoE are forecast to increase the cash rate by 50bps to 4.00%. This is followed by the ECB on Friday at 12:15am AEDT – where the Governing Council are also tipped to make a 50bp hike to all three of their targeted borrowing/lending rates.

Given we are now close to the forecast end of the interest rate tightening cycle, this week’s central bank communication could set the tone for risk assets in both the short and medium term. If, for example, the FOMC declared their job near complete – with US inflation having peaked – a central bank ‘pivot’ would likely be concluded by financial markets and cryptocurrencies. This would be particularly positive for the medium-term price action of risk assets. Alternatively, if central banks were to ‘hold the line’, the market may exhibit some disappointment in the short term, due to the unwavering central bank rhetoric. Watch this space.

On the data front, last week we highlighted the importance of the US PCE inflation reading (December) and declared that a ‘headline’ PCE Price Index (YoY) below 5.00% would be particularly positive for risk assets – noting that PCE inflation is the FOMC’s preferred measure for inflation. While the PCE Price Index came in at exactly 5.00% the US Core PCE Price Index (YoY) for December moved down to 4.4% (from 4.6% in November) -a notable sign that inflation pressures are continuing to ease. On Wednesday we will receive both the EU employment data as well as the EU inflation data and then on Friday we will receive the US employment data for January. These data points will prove critical.

In cryptocurrencies, January 2023 has proven to be the best start to the calendar year for BTC since 2013 – with Sunday’s being the best day of the week for outperformance. On the OTC desk the positive price action led to a significant increase in customer interest and deal flow volumes. In general, layer 1’s have drawn the most query; with SOL, AVAX and Matic continuing to outperform the majors.

In the past we have detailed USDT flow in some detail. This is due to the direct relationship between USDT buy flow and Defi allocation. It makes sense that USDT has remained well established around the 1:1 peg for a number of weeks now. The desk has seen a noticeable increase in buy side flow for USDT – the timing of which has coincided with the rally in tokens like CRV, CVX and DyDx.

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

In Headlines

Amazon’s NFT plans

Blockworks reported that Amazon will launch an NFT initiative in the coming months. Four different sources told the publication that there will be a focus on blockchain based gaming and related NFT applications, but the report was pretty light on details.

Crypto adoption surges

Despite, or perhaps because of, Bitcoin and Ethereum’s big price falls in 2022, the number of addresses with US$1,000 (A$1,420) or more of the two major cryptocurrencies grew by 27%. More than 3.4 million Bitcoin addresses and more than 1.73 million Ethereum addresses now have balances worth more than US$1,000. The highest rate of growth came in the fourth quarter when FTX collapsed, suggesting a price crash can actually have some positive effects too.


Algo stablecoins are back

A bold new experiment in the controversial world of algorithmic stablecoins is due to start this week, with the expected launch of Djed, which is backed with Cardano/ADA and a new reserve coin called SHEN. Algo stablecoins have a terrible reputation due to the collapse of the Terra Luna system but Djed’s creators argue that unlike Terra Luna, ADA has value outside of its use backing the stablecoin, and the system will also be overcollateralized by 400%, so a death spiral is unlikely to happen. Djed will reportedly go live on more than 40 Cardano based DeFi projects.

ASIC worried about FTX Australia

Emails obtained by The Guardian show that the Australian Securities and Investments Commission started looking into FTX Australia after learning it would offer trading with 20X leverage. ASIC issued three notices to FTX Australia before it collapsed, but the notices and FTX’s responses have not been released. ASIC said it continues to investigate.

Other FTX stuff

Former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang are not cooperating with the bankruptcy court proceedings, though they are still cooperating in the criminal case against Sam Bankman Fried for fraud. The Department of Justice asked a court to prohibit SBF from using Signal to influence witnesses. Meanwhile SBF’s lawyers are trying to revoke the bail condition that prevents him from accessing FTX funds.


White House roadmap

The White House has published its “roadmap” to mitigate crypto risks. It calls for authorities to “ramp up enforcement where appropriate” and for Congress to pass new measures. It warned against closer ties between mainstream finance and crypto but also added it “wholeheartedly supports responsible technological innovations that make financial services cheaper, faster, safer, and more accessible.”

Singapore crypto cuts

The Singapore based Matrixport Technologies is cutting its headcount by 10% according to chief operating officer Cynthia Wu: “We’ve sharpened our strategic focus towards accredited investors given the significant shift in the regulatory climate following the industry-wide capitulations.” Matrix Asset Management also lost CEO Damien Loh and head of business development I Z Wong. Swiss fintech Crypto Finance is scrapping its Singapore office according to The Zurich headquartered company has waited more than a year for a payments services licence and apparently ran out of patience.

Twitter crypto possibilities

Twitter has begun applying for regulatory licences across the US and designing software to enable payments on the platform to transform it into an “everything app” like WeChat in China. While the focus is on fiat, the Financial Times reported that CEO Elon Musk wants it built so that crypto functionality could potentially be added at a later point.


Unlikely Celsius resurrection

Celsius attorney Ross M. Kwasteniet told a court that the firm is negotiating with its creditors on how to relaunch the platform and pay them back, perhaps by issuing a new Celsius token. The CelsiusFacts Twitter account suggests the full plan would see Celsius publicly traded, compliant with US rules and users would be allowed to withdraw US$7,500 (A$10.6K) or 95% of their locked funds, whichever is smaller.

Bits and pieces

Bankrupt crypto lender BlockFi accidentally released financial documents showing it has US$1.2 billion (A$1.7B) in assets tied up with FTX and Alameda research. Pseudonymous analyst Trader Tardigrade says a year after the next halving Bitcoin will see a new ATH “at $200K (A$283K) and next floor will be at US$70K (A$99.2K).” DeFi protocol Mango Markets has filed a lawsuit against Avraham Eisenberg seeking US$47M (A$66.6M) in damages after his team drained the protocol of US$117M (A$166M) in an exploit and allegedly forced the DAO to vote for an agreement for a “bounty” giving them almost half. Mango Markets wants this agreement rescinded. The SEC has once again rejected a proposal to list the ARK 21 Shares Bitcoin ETF.


Until next week, happy trading!