Market Wrap #5: Doves Actually
Bitcoin (BTC) rallied towards the $24k handle in the past week as Q2’s busiest week of earnings season also coincided with a busy macro calendar. While BTC initially dipped to $20k in the early part of the week, the dovish message from the FOMC meeting and better than feared corporate earnings have largely supported the market. In case you missed it, Powell was undoubtedly dovish:
- Classified 75bps as “extraordinary” & highlighted the lagged effects of rate hikes
- Spoke of growth slowdown and demand moderating rather than inflation being the biggest focus
- Referenced June Summary of Economic Projections (SEP) (not swayed by June’s CPI)
- Spoke about the benchmark rate reaching 3.25–3.5% which was previously forecasted by Fed officials last month
Looking at last week’s bearish narrative, many were pleasantly surprised at Powell’s more accommodative comments. Under the hood, BTC and Ethereum (ETH) investment products brought in USD206mn and USD120mn in new assets respectively. This marked the highest single week of inflows for bitcoin investment products since May. For ETH, this was the biggest weekly inflow since June 2021 and ended an 11-week run of outflows.
Chart of the Week
This week, given the relatively muted weekly price action in BTC and ETH, we thought it might be worth looking at BTC Spent Output Profit Ratio (SOPR). This indicator reflects the profit taking and cut loss actions action in BTC, which is computed by dividing the realized value by the value at creation of a spent output, or in simpler terms: price sold/price paid. For more information on the metric, please refer here.
Judging from the recent reversal of BTC SOPR back above 1 ratio level, many have started to take profit off their positions vs those who cut losses, showing an improved sentiment.
With that said, while it seems that the worst is already behind us, we are still in the camp that believes this is nothing but a bear market rally. Fasten your seatbelts and hang tight is probably the most apt advice one can receive now.
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. Voyager ordered to cease false promises about US banking insurance
The Fed & FDIC issued a joint letter demanding Voyager to “cease and desist from making false and misleading statements” by exaggerating the reach of the deposit insurance. It seems attractive in the crypto space to have accounts protected by the national safety net — especially in times of volatility.
“Inaccurate representations about deposit insurance by non-banks, including crypto companies, may confuse the non-bank’s customers and cause those customers to mistakenly believe they are protected against any type of loss,(of up to $250k)”
2. El Salvador aims to buy back Sovereign bonds
President Nayib Bukele says the highly-indebted nation plans to repurchase $1.6B in bonds trading at a discount amid fears of a default. The funds will come from its international reserve assets (provided by IMF), government issuing 10 year bond, and a regional multilateral lender. They could save ~$900M if funds are secured to retire the bonds outstanding. Its debt rating is downgraded to Caa3, junk territory.
3. Crypto Firms make hackers an offer: keep a little and give back the rest
In a recent heist, Crema Finance managed to negotiate with the hackers to take a white-hat bounty of $1.7M and return the rest. Amid multiple high profile hacks, many firms have begun to offer bug bounties preemptively. “The criminal is able to steal money and is happy to accept a much smaller amount of clean money in order to be able to walk away scot-free” — Alex Rice, HackerOne.
4. Stablecoins, miners and their response to the upcoming ETH merge
Tether CTO Paolo said: we’re carefully watching the evolution of Ethereum. The role of Tether is to support communities, meaning that whatever decision will be taken will be purely driven by demand and of course by security.
Circle said it will have a public statement on this in the near future. POW ETH is expected to be forked and maintained by miners, but it is uncertain whether it will be supported by protocols, especially stablecoins.
ChandlerGuo said that it is expected that after the merge of Ethereum, there will be 6 to 7 forked POW ETHs, and exchanges will choose the Token with the largest consensus to list; miners should not criticize the Ethereum Foundation, they decide to switched to POS before.
He expects that both developers and protocols will choose POS Ethereum, so this may be the biggest challenge for POW ETH after the fork. ChandlerGuo is an early miner in China who is leading the fork of Ethereum, he was also an advisor to Binance when it was founded.
Economic Summary/Market Stats
7d Market Update
Crypto
❇️ BTC: +4.09% to $23,770
❇️ ETH: +6.32% to $1,711
❇️ SOL: +7.25% to $44
❇️ Overall Crypto Market Cap: +8.21% to $1.102T
🥴 Bitcoin Fear & Greed Index: Fear (33/100)
Equities
❇️ S&P 500: +4.26%
❇️ DJ Industrial Average: +2.97%
❇️ Nasdaq 100: +4.70%
🔻 Hang Seng Index: -1.67%
❇️ Stoxx Europe 50: +2.38%
Rates
💸 USDC Supply APY: 0.65%
💸 ETH Supply APY: 0.77%
💸 BTC Supply APY: 0.02%
💲3-Month US Dollar Libor: 2.79%
💲US Treasuries 2-Year: 2.896%
💲US Treasuries 10-Year: 2.669%
Key Economic Releases
1 Aug (Mon)
10am ET: ISM Manufacturing Index (median forecast 52.1%, previously 53%)
3 Aug (Wed)
10am ET: ISM Services Index (median forecast 53.9%, previously 55.3%)
4 Aug (Thurs)
8.30am ET: Initial jobless claims (median forecast 255k, previously 256k)
5 Aug (Fri)
8.30am ET: July Nonfarm Payrolls (median forecast 250k, previously 372k)
8.30am ET: July Unemployment Rate (median forecast 3.6%, previously 3.6%)
