Market Wrap #4: The Uncanny Resemblance
BTC closed the week at 8% higher in the past 1 week after rallying close to 17% in the early part of the week, thanks to the improving market sentiment on the back of the slightly better than expected company earnings, very light funds positioning and thin liquidity.
The increased demand for call options relative to put options also pointed to an improving market sentiment. While the rally provided some relief, we still do not see green lights anytime soon as the run may be nothing more than a bear market rally. As SPX managed to close on another week of lower highs (chart 1), the coming week continues to put a dark cloud as companies are not only concerned by slowing growth, but the strong US Dollar is also going to be a commonly mentioned reason for slower performance. In general for every 10% increase in USD against a basket of currencies, we will observe 2–3% drop in SPX EPS.
In the past 10 equity trading days, the average intraday moves in the NDX (from US open to close) were +0.8% (very good price action during US hours). Interestingly, we saw a very similar type of price action into the end of March and early June this year (also Dec’18 and Mar’20), which if you have not yet realized, both times proved to be nothing more than a bear market rally. (Keep reading to see how this is significant for cryptos)
Chart of the Week
Where to from here? For what it is worth, we think that the equity market may provide useful pointers for how crypto may trade, at least from a systematic trading and macro perspective. The below is a common occurrence on our watch screen, a steady downtrend. This is the Russell Index.
Overlaying the BTC chart on top of the Russell index, one may argue that the BTC chart (in purple) is almost in sync with and hard to discern from the Russell index, as it overlaps and similarly shows a steady downtrend.
As the equity market continues to see a challenging environment ahead, the lower end of the market (Russell Small Cap index) continues to reflect the discouraging price action. We remain opportunistic and ready to arm our tactical positions by looking for pockets of opportunities, but this uncanny resemblance prompts us to stay patient and wait until the dark clouds clear from both equity and crypto markets.
The information presented is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. As always, please do your own research.
Market Recap
1. SEC lists 9 crypto tokens as securities
Following Coinbase insider trading charges, the SEC has arrested & charged the employee with wire fraud, mentioning 9 tokens as securities in the complaint (AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX, KROM).
Coinbase also released a post, saying that “Crypto assets that are securities need an updated rulebook to help guide safe and efficient practices. Crypto assets that are not securities need the certainty of being outside those rules. Anything short of that will have the effect of entrenching incumbent technologies at the expense of innovation and ultimately, consumers,” — Coinbase chief policy officer Faryar Shirzad.
2. Barclays is planning to have a stake in Copper
Barclays is set to join a funding round to take a stake in Copper, a crypto financial services firm which is looking to raise at least $500m. The firm last raised $50m in their Series B round. Barclays previously invested in Elwood Technologies.
3. Zipmex considers possible rescue offer with ‘interested parties’
Zipmex halted withdrawals last Thursday, being among several that have encountered financial difficulties in the crypto industry. On Sunday, it said that it was considering a possible rescue offer after talks with ‘interested parties’ and due diligence should commence soon. Zipmex has US$48 million of exposure to Babel and US$5 million with Celsius
4. UK to regulate stablecoins as Treasury introduces new financial bill
UK Exchequer Chancellor presented the new Finance Services and Markets bill to Parliament to bring forward changes to the country’s cryptocurrency operations. Among suggestions put forth, regulation of stablecoins (USDT, USDC etc) & granting BOE the authority to limit FCA’s approach in regulating payment systems through digital assets if any of the regulatory actions influence the business in the country or if its results in financial instability, stood out.
Economic Summary/Market Stats
7d Market Update
Crypto
❇️ BTC: +7.71%% to $22,836
❇️ ETH: +19.20% to $1,609
❇️ SOL: +4.15% to $41.13
❇️ Overall Crypto Market Cap: +0.59% to $1.018T
🥴 Bitcoin Fear & Greed Index: Extreme Fear (30/100)
Equities
❇️ S&P 500: +2.55%
❇️ DJ Industrial Average: +1.95%
❇️ Nasdaq 100: +3.33%
🔻 Hang Seng Index: -1.87%
❇️ Stoxx Europe 50: +1.99%
Rates
💸 USDC Supply APY: 0.49%
💸 ETH Supply APY: 0.93%
💸 BTC Supply APY: 0.01%
💲3-Month US Dollar Libor: 2.77%
💲US Treasuries 2-Year: 2.997%
💲US Treasuries 10-Year: 2.778%
Key Economic Releases
26 July (Tues)
10am ET: Consumer Confidence index (median forecast 97.8, previously 98.7).
27 July (Wed)
2pm ET: Fed Funds Target Rate (previously 1.5%-1.75%)
28 July (Thurs)
8.30am ET: Gross Domestic Product First Release for Q2 (median forecast 0.3%, previously -1.6%)
8.30am ET: Initial jobless claims (median forecast 248k, previously 251k)
29 July (Fri)
8.30am ET: Core PCE price index (median forecast 0.6%, previously 0.3%)
8.30am ET: Employment cost index for Q2 (median forecast 1.2%, previously 1.4%)
