Weekly Crypto Market Report: Jan 17-23, 2022 - BTC, ETH, Stablecoins & More
Market Fundamentals Analysis
Crypto markets remain in an extremely fragile place, with Bitcoin touching C$43k over the weekend, and the bounce off the lows not yet showing any resolve. Most of what we’re seeing here in the market structure is pretty typical of what we have seen in the past year on selloffs like this. The key reasons have been the Feds’ hawkish agenda, along with the rumours which sparked around Russia’s central bank considering implementing a blanket ban of cryptocurrencies, following China’s footsteps.
Alts are performing worse than BTC, with betas to BTC around 1.5. Beta is a measure of an asset's volatility in relation to the overall market. Distribution of betas is actually relatively tight; alts are trading in a pretty strong correlation right now. This is very consistent with other risk-off moves, as any idiosyncratic headline about an alt is overwhelmed by the larger delta move. Futures liquidations have been significant, but frankly, are not the primary driver of the move. This is a change in the market structure, which has gradually been taking place over the past two years; leverage is still more prevalent in crypto than in traditional markets, but that importance has been reduced to some extent. Volatility has finally upticked.
After a week where realized vol on Bitcoin cruised along at 40%, on Friday we saw it jump to 120%, and it’s currently around 80% over the past 24h, and of course higher on alts (around 130% on ETH with a peak over 180%). This has allowed implied vols, which had been trading in one direction for over a month, to finally see an uptick. Since Thursday, vols on the monthly basis have rallied from around 55% up to around 70%. There is a very steep skew on, which puts trading about 10 vols higher.
Across personas, retail aggregators have been selling off BTC and buying stablecoin USDC and USDT, which may indicate a desire to keep some readily liquid cash on the sidelines amid volatility. For institutional personas, hedge funds have been selling large volumes of BTC and ETH, further increasing the negative price pressure on the largest assets in the space. BTC dominance currently stands at 41.2%, while ETH dominance is at 17.9%.
It’s important to note that this selloff is largely not due to anything inherent to crypto, and also that that knowledge doesn’t really matter. We’ve seen many times before that crypto tends to strongly correlate with macro risk assets during downticks, especially in the short term. All assets are experiencing corrections, a trend that has continued after a series of Fed announcements expressed a more hawkish agenda as it plans on reducing its balance sheet, tapering the purchase of bonds and raising interest rates. Correlation breaks down over wider time horizons, but generally, in risk-off moves, traders are focused on shorter windows. While equities have opened a touch higher this morning, the main event for the week will be the FOMC rate decision. There has been a game of chicken played over the past year between the Fed and equities markets: the Fed deploys hawkish language, the equity markets sell-off, and the Fed has thus far reacted by backing off on the rhetoric. The longer this game is played, the more meaningful any deviation from it will be.
A similar trend seems to be setting into the crypto marketplace, signaling that the market seems to be on a path towards maturity. The next few days remain crucial for the market, and while we do remain optimistic at current levels, and would like to believe that the sell-off has bottomed out, we remain cautious.
Weekly Snapshot
Market Updates
- The United States Securities and Exchange Commission, or SEC, has officially disapproved the application for First Trust SkyBridge’s spot Bitcoin exchange-traded fund after several deferments.
- NYC Mayor Eric Adams previously said he would be accepting his first three paychecks, or $97,000 annualized, in cryptocurrency.
- President Nayib Bukele, president of El Salvador confirmed purchases of 410 BTC was made against $15 million.
- The U.S. Federal Reserve is opening comments to the public after releasing a discussion paper on the pros and cons of a potential central bank digital currency.
- Microsoft enters the Metaverse with Activision Blizzard purchase. The Activision purchase was for $95.00 a share in a deal that’s expected to conclude in fiscal 2023.
Bitcoin Technical Analysis
Bitcoin has been trading in a downtrend over the past two months. The asset tried to take support at C$50,500 and was showing good signs of recovery. However, the bears grabbed the bounce as an opportunity to sell as the prices resisted at the 20 Day Moving Average and the descending trendline around C$55,500.
BTC broke the key support of C$50,500 and witnessed a sharp fall making the low of C$41,700. On the daily time frame, the asset has taken multiple support in the past from C$37,000 to C$35,500 and if the prices test these levels then the bulls may see it as a buying opportunity. BTC also has psychological support of C$40k. The RSI below 25 indicates the asset is in the oversold zone.
KEY LEVELS:
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Disclaimer:
Information provided in the weekly market report is for information purposes only and should not be interpreted as investment, legal, or tax advice. Prior to investing, it is very important to evaluate your investment objectives and your risk tolerance carefully. This technical report is not meant to provide guarantees of future performance, and users should not rely on it, as the actual performance and financial results may differ significantly.