Last Week Recap
- Powell’s speech in Washington mentioned that further interest rate increases are still likely “If we continue to get strong labor market reports or higher inflation reports.”
- Binance suspended all USD bank transfers from Feb 8th temporarily.
- Lido proposed V2 including a staking route, where anyone can develop on-ramps for new Node Operators, and withdrawals, which will allow stETH holders to withdraw from Lido at a 1:1 ratio.
- Coinbase CEO Brian Armstrong tweeted that he’s been hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers.
- Kraken announced a settlement with SEC and has agreed to end its on-chain staking services for U.S. clients.
- AAVE launched GHO, its stablecoin, on testnet.
- SEC issued a Wells Notice to Paxos and alleges that BUSD is unregistered security.
- Blur airdrop farming coming to an end, and likely to see weakness in the NFT market post-event.
Legacy Markets – DXY
DXY printed the reversal that we were looking for last week. This also resulted in lower time frame tops in tech stocks. The rally was driven by the narrative that the FED could pivot soon, with inflation coming down. Mid to late January inflation components actually started to pick up in price again – creating sticky inflation which, as the FED pointed out, could lead to a “higher for longer” environment. This isn’t favorable for risk assets. This should also lead to a higher dollar.
CPI for this month is up in the air if it comes in soft mainly because they revised November and December CPI’s and the BLS also changed the calculation method(. But expectations for CPI’s after this one are high probability to pick up again.
Legacy Markets – VIX
VIX poked again above 21 last week. This is mainly because of 2 components. One is a hedging activity for CPI on Tuesday. The volatility curve for Tuesday already shows a large IV for the event. Meaning it’s quite well-hedged.
The other part is because of the war escalation picking up which could always lead to unpredictable world events the more intense it gets.
BTC Weekly View
As mentioned last week BTC was ranging while equities were flying the last 2 weeks of January. With equities cooling off BTC also saw its first larger drop with higher VIX, BTC correlates faster to equities.
For the upcoming weeks, the market will have quite a rocky road. Starting this Tuesday with CPI, the immediate effect will likely be a bounce because of how hedged the event is, but the after-effects are more important (See prev slide sticky inflation). After that, we immediately get closer to the Shanghai upgrade and large quarterly expiries in futures and options in late March. Next to that regulatory scrutiny is also picking up on stablecoins and staking programs. The main driver other than idiosyncratic events specific to crypto will be how the market prices the sticky inflation and how the FED reaction to it.
ETH Weekly View
ETH on the USD pair is showing a similar picture to BTC. But there are some details to note: ETH is trading relatively weak to BTC which is not ideal. With the specific perceived Shanghai risk upcoming we’d expect structural underperformance for ETH at least till post – Shanghai.
ETH/BTC is trading weaker and weaker within the range making sequential lower highs and lower lows on the lower time frames. We’d expect this to accelerate the closer it gets to Shanghai Upgrade. Stars are seemingly lining up for the perfect mix of FUD for March. Inflation is likely to become sticky leading to equity weakness and the structural weakness of ETH relative to BTC because of specific event risk. This means a retest of the 2-year support zone (=green box) is likely.
TOTAL2 – USD Market Strength
TOTAL2 is showing no large uptick. From this one could extrapolate that altcoin rallies so far have been mainly rotations from money already in the system. And no real fresh capital flowing in. This means most rallies, for now, are running on borrowed time. The big worry at the moment is how the market will price sticky inflation and how this will actually affect retail traders’ appetite for risk.
TOTAL2BTC – BTC Market Strength
TOTAL2/BTC is also weaker relative to BTC. This is generally not something we like to see. The stronger BTC is relative to the market, the more the market is actually in defensive mode and “risk-off” in crypto terms. This is further confirmed by most alts being rotated and not in structural uptrends from fresh capital. Chart wise just like ETH/BTC we’d give a high probability for another leg down on ALTS relative to BTC.
- The market rallied in January on expectations that inflation would come down and FED pivot in 2023. Data is starting to reflect a sticky inflation situation which causes a whole lot of unknowns. With the crypto-specific risk for March and regulatory scrutiny, it’s a good time to start being cautious after the large rally.
- DXY is rotating. Looking for further strength post-CPI on Tuesday. The number is up in the air for February with all the changes being made in the calculation and revising of previous CPIs. Expectations afterward for March and later this year are higher CPIs.
- ETH/BTC structural weakness is relative to BTC. This makes ETH vulnerable if BTC would see a large USD downside, we’d expect ETH to be significantly weaker to the downside.
- Crypto options update:
- ETH 60-day 25 delta R/R remains in slightly bearish territory for Feb23 MTD
- ETH 60-day ATM vol continues moving sideways after coming off the Jan23 mid-month spike.
- Interesting recurring moves seen in ETH 17 Feb 23 10 delta put IV ahead of last Friday’s Ribbon Finance DOV auction.
- Seeking to-close long Put leg from our ETH 31Mar23 Straddle Position on price softness. Overall profitable LTD.
- Good time to be cautious if positioned heavily long till the market reaction to all the new and incoming data becomes more clear.