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A Low Conviction Rally Reaching An Inflection Point
Crypto markets saw *some* uptick volatility last week but these were centred around individual names vs. the broader market after traders weighed risk of hawkish central bank.
Global MCAP as measured by CryptoCap was fast approaching its 200D MA but risk-on sentiment was capped after the Fed confirmed they would be willing to take rates higher for longer in order to cap price.
Markets were lifted up by only 0.98% over the week with the market looking like it lost steam before it really got going.
For BTC, resistance was met at $21.5k but the bulls may point out a new resistance-turned-support might be at play at the $20.5k level. This marked the top of the previous channel range but it is unclear if this will be defended well.
Despite breaking new local highs, you get the sense there is still some level of scepticism throughout the market. This was also perceived before the FTT-Alameda drama (more on this later).
A more interesting development was BTC outperformance vs. equity indices over the past week (and closing above key resistance). BTC gained an impressive 7.84% vs. NASDAQ 100 which was the largest gain on the ratio since the 21st March 2022.
This was also a period of equity strength (SPX +4% W) implying that both equities and crypto have recently defied the significantly weak sentiment.
The BTC/NDX rally is now resetting as equities stay stable but crypto sees weakness trickle back in.
Meanwhile, ETH has tested its 200d MA but so far failed to break above it ($1680). This longer-term metric has been a reliable indicator for momentum/sentiment reversal for the asset as well as the broader market.
There have been cases of brief false bullish break outs but these have occurred when ETH/USD has come from above the 200d MA, not below.
If we look back at history, ETH tends to move ‘decisively’ above or below its 200d MA and why it appears we are at an inflection point in the market:
When ETH has been sustained below its 200d MA for an extended period, a break above its 200d MA has resulted in an extended period of bullish price action
When ETH has been sustained below its 200d for an extended period, a rejection against the level has resulted in a decisive declines.
Therefore, the longer ETH stays below its 200d MA, the more bearish the outcome may be for the asset - there would just not be enough conviction in the market.
Will Macro Add The Fuel For Volatility This Week?
The macro week ahead is ‘light’ but the two key events may be able the catalyst the markets are looking for post-November FOMC.
Tuesday
US Midterm Elections
Thursday
US CPI
Headline Est. 7.9%, Prev 8.2%
Core Est. 6.5%, Prev 6.6%
Polls and markets point to Republicans taking significant ground from the Democrats where a significant victory for the party may mean fiscal spending being frozen while reducing high budget deficits. This, in turn, may give a boost to both treasuries and equities allowing conviction to grow for traders who have turned bullish on both. Downbeat sentiment and lower rate volatility outlooks have been key drivers for the bulls.
At the same time, CPI is expected to cool indicating some early signs of high rates starting to take effect on the economy.
Therefore, we have two higher likely outcomes (bar any surprises) that are conducive for a more extended bear market rally for risk assets.
SPY 0.00%↑ has some way to go to reach resistance levels (e.g. 4000) as well as its 200d MA which acted as the ceiling for the previous run over summer.
Dollar weakness has added to the pressure but gauges like the DXY remain above YTD support and would need to fall a further 1.2%+ to reach these levels.
Interest-rate differentials and persistent inflation pressures may continue to favor the dollar with a break below YTD support being a stronger conviction signal that we are at the bottom of the cycle.
Meanwhile, the US10-02 yield curve is becoming more inverted painting a gloomy picture for early 2023 when it comes to recession risk. The US double-dip recession outlook suggest the worse is yet to come. Widespread layoffs and the emerging impact of the growth-to-value rotation by investors are the only signals you need.
Equity bottoms form during recessions, not before.
Just this morning, Bloomberg reports on huge capital calls from pension funds and endowments necessitating sell pressure in stocks and bonds. The pressure is on.
Finally, market liquidity has been relatively stable over the past few weeks despite the Fed’s accelerated QT program since September. This has likely supported the recent moves in risk assets but the overarching liquidity risk is remains an overhang.
There have been growing calls for a QT pause citing ‘complications in the banking system’ in the future. However, this still seems like a 2023 story.
On-chain
On-chain metrics for majors like BTC continue to highlight the idea that the current price range is attractive for more longer-term investors.
BTC active address ‘momentum’ (using the 30d and 365d MAs) signals on-chain network usage is still in decline. At the same time, new address momentum has flipped positive which signals a growing network relative to the past year.
Measures of average realized profit/loss multiple for spent coins suggest BTC is approaching an inflection point as aSOPR reaches 1 once again.
aSOPR of 1 in a bearish trend has often acted as resistance where investors exit liquidity around their cost basis. A sustained break above 1 would indicate investors are increasing their positions and becoming more constructive.
The weekly average of aSOPR approaching the break-even value of 1 from below may also indicate volatility is approaching. This would either be a breakout or yet another rejection for orange coin at key levels.
This also aligns with BTC and ETH realized volatility which remains very low. Low volatility bear market periods often precede large price moves in both directions. Contextualising with the 200d MA analysis and macro catalysts laid out above together paint another inflection point momentum for the market.
DeFi And Dispersion In The Market
When it comes to DeFi, the sector recovered some losses relative to majors like ETH last week (+2.4%) but has yet to prove that it can break out of its current ‘rut’.
As noted last week, DeFi’s lacklustre performance in aggregate shows the classic ‘altszn’ rally remains a distant memory.
The difference now is that we are seeing institutions and franchises start forming real-world use cases using Web3 technology despite price action.
This ‘convergence’ of the old with the new has driven key focus on enabling infra and middleware within the space. Names like MATIC, MASK, and AR have all outperformed beta in response to Meta’s vote of confidence in Web3.
Rising tides doesn’t lift all boats with performance dispersion becoming more defined in the market, giving plenty of market opportunities for more active managers.
A upcoming narrative on these lines may be L2s. L2 TVL as a ratio of ETH L1 TVL has seen a steady increase YTD.
Arbitrum launching its token and zkSync launching ‘baby alpha’ V2 will only add more fuel to the narrative while potential bringing the focus back on Ethereum and away from alternative L1s.
FTX vs. Binance - Sweet Home Alabama Alameda
After Coindesk released a report on Alameda Research’s balance sheet, Binance’s CZ stated he would liquidate the company’s FTT holdings.
It is unclear as to what the implications will be within the market but there are growing concerns about potential collateral damage. Given the scar tissue from earlier this year, it may be how the market perceived these developments that is the risk rather than real collateral damage unfolding itself.
Just merely hours into the saga and the bank run on Alameda/FTX is already underway.
BNB and FTT often moved in lock step with one another until recent events started creating a pronounced divergence. The market is pricing in CZ strength while discounting FTX’s ability to defend FTT even at $22.
Over the last few hours, the number of FTT on exchange balance has spiked with other measures indicating that 60% of the circulating supply is on exchanges.
FTT OI has unsurprisingly spiked as traders start speculating heavily on FTT declines from CZ selling.
This may have an opposite effect periodically if shorts are squeezed out from time to time.
Large FTT token holders are also still selling at a loss. SBF has attempted to reassure the markets but the market will remain skeptical - looking for its next opportunity.
The impact on the overall crypto markets is clear. Bringing it full circle, crypto’s strength relative to equities has been put on pause despite equities showing risk-on positioning.
From Sunday onwards, majors like BTC and ETH have slumped while NASDAQ futures are up. As the market learns more about ongoing developments, it may be hard for crypto to outperform its equity counterparts.
But as we know in this skittish market, things can reverse fast. What we also know, is that inflection points in the market are also forming.
Some would say poetically well-timed.
Decentral Park Market Pulse
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Global Market Cap
$979B; Global market cap gained 0.9% last week but remained below its 200d MA which was used as resistance in March 2022. Remains a reliable conviction signal for momentum reversal and strength.
DeFi MCAP
$46B; DeFi market cap gained 1.2% over the past week but has struggled to gain momentum alongside beta.
Bitcoin Dominance
40.63%; BTC dominance reversing gains seen last week as traders start looking to cash as Alameda developments unfold.
Trader Positioning
BTC futures OI stays steady at $12B (293k BTC).
BTC funding rates increasing to 0.008% as traders are becoming more bullish in their positioning despite the decline in prices on Monday.
Little change in BTC options put/call skew.
Grayscale GBTC
GBTC discount to NAV at 37% while 30D volumes keep flat at 3m.
ETHE discount to NAV 33% while 30D volumes also keep flat at 2.5m. Grayscale products seeing no love.
Volumes
Daily exchange volumes spiked to $24.5B and we could see volumes falling back within the YTD channel. BTC-denominated transfer volumes (7d MA) starting to increase but unclear what is driving this.
Aggregate Order Books
Order books look heavier on the bid side. Heavier resistance up to $21.3k.
Miners
Bitcoin hash rate remains at ATH levels (266m TH/s). This comes as Bitcoin mining farms have been struggling to keep their balance sheets afloat given higher energy prices and muted price action.
Top performers seen largely in mid-cap names but liquidity remains very thin with some names below printing no more than $3m/daily volume (Covalent).
Top 100 (7d %):
OKB (+35.2%) - opens up shop in Bahamas
Arweave (+34.7%) - Meta’s incorporation for storing data
Polygon (+32%) - Meta’s incorporation for NFT minting/trading
Litecoin (+27%) - mining difficulty hitting new highs
Algorand (+20.5%) - FIFA World Cup momentum
DeFi Top 100 MCAPs (7d %):
bZx Protocol (+134%)
Band Protocol (+109%)
Beefy.Finance (+27.2%)
Alchemix (+24%)
DODO (+20.9%)
Concentrator, a compounder protocol for Curve, launched ETH / cbETH, ETH / frxETH and ETH / pETH vaults with 17%, 11%, 91% APY respectively.
Stake DAO launched liquid lockers on Arbitrum, users can stake CRV for 14%, ANGLE for 56% and FXS for 12% APR.
Aura launched a migrator service which helps LPs to transfer their positions from Uniswap / Sushiswap to Balancer and Aura.
Stride increased stOSMO / OSMO pool incentives, current APR is 116% in STRIDE.
📚 State of NEAR Q3 2022 [Messari]
📚 ASICS Taps STEPN to Launch Running Shoe, Solana NFT Collections [Decrypt]
📚 Coinbase blames sagging crypto volumes as revenue plummets [FT]
📚 Eco assets vs. FTT [PC Principal]
📚 Proof of Reserves [Cobie]
🎙️ a16z’s Crypto Thesis [Empire]
🎙️ eGirl and Larry Cermak on the dynamics shaping the bear market [The Scoop]
🎙️ Weekly Roundup 11/04/22 [On The Brink]
🎙️ The Chopping Block Ep. 416 [Unchained]
🎙️ E103 [All-In]
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.