Market Wrap #6: Get on the train?
Bitcoin closed the week almost flat at ~$23k levels, aligned with S&P500 performance +0.5%, while Nasdaq outperformed at +2.3% in the same period. The week was mostly colored by the Non-farm Payrolls beating estimates (528k vs 250k est, unemployment rate at 3.46%) and inflation number that remains sticky (CPI 9.1%).
Corporate earnings have been better than feared in the US but weak in Europe, reflecting the economic divergence between the two regions. In the US, 52% of SPX companies reported beats vs consensus by over 1std while in Europe the number of companies missing by at least 5% was the highest in 6 years (30%). While the cryptoverse took a fresh hit as thousands of Solana wallets were hacked (SOL -5.8% for the week, underperformed BTC and ETH), on the brighter side, there is significant increased interest in bullish positioning in Ethereum as many are anticipating the Merge which is due on the week of September 19th.
Charts of the Week
ETH strong outperformance (orange line below) was apparent this week as 4th Aug marked the network upgrade, Bellatrix, which is a part of the Merge’s two-step process. 1) starts with a network upgrade, Bellatrix, on the consensus layer, followed by 2) the execution layer’s transition from POW to POS, Paris.
ETH’s open interest (OI) is significantly higher around the Merge, and year end, and OI for Calls are significantly higher than Puts, suggesting bullishness.
Similarly, BTC dominance has normalised from a strong level post the Terra collapse in April-May that spooked many investors to relatively “safer” assets.
Since Vitalik has painted a rosy picture on The Merge, many investors seem to have “Bought the Rumor, (and potentially) Sell the Fact”. However, if there is anything that the past crypto cycles have taught us, crypto often offers big surprises on the upside or on the downside. Getting your exposure via options may indeed be the most prudent way to play this trade. (Your maximum loss in buying a call option is only the premium you paid)
Our friends at Zeta Markets is probably the best way to execute this.
Would you get on the train now before it gets too crowded (or not)?
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. Virginia pension fund invests in crypto lending in bid to boost returns
Virginia pension fund looks to invest in crypto lending in a bid to boost returns, tapping into yield farming, and crypto lending markets. They placed $35m each with Parataxis Capital’s digital yield fund and VanEck’s new finance income fund.
“Some of the yields that you’re able to achieve in a yield farming strategy are really attractive because some of the people have stepped back from that space,” Katherine Molnar, Chief Investment Officer of the Fairfax County Police Officers Retirement System.
Their initial crypto investments took a 50% hit YTD, but is still up 350% overall. The fund believes that stronger technologies and products within the market will survive crypto winter.
2. BlackRock announced Bitcoin partnership with Coinbase
BlackRock’s institutional clients who also own Bitcoin on Coinbase can access Aladdin — BlackRock’s suite of software tools, to manage their portfolios and conduct risk analysis on investment decisions.
This partnership applies to only BTC. Client’s demand will determine if the partnership will extend to other cryptocurrencies.
3. Solana wallet hack
Nearly 8,000 digital wallets have been drained of just over $5.2 million in digital coins including Solana’s SOL token and USD Coin (USDC).
Funds have been drained without users’ knowledge from major hot wallets including Phantom, Slope and TrustWallet. The attacker obtained the ability to sign off transactions on the behalf of users. While investigations are still ongoing, a Solana status update blames an accidental leak of users’ private keys from their Slope wallets.
4. ETH derivatives surges as Hedge Funds speculate on Merge
Aggregate open interest of Ether options across top exchanges increased from $2.74 billion on July 2 to more than $7 billion on July 29, larger than aggregate open interest of Bitcoin options markets. Open interest indicates the value of all outstanding contracts that have yet to settle.
ETH has seen its price pick up in anticipation of the Merge, rising 59% over the last one-month period. The Merge is expected to occur in September.
5. BBVA, BME and IDB issue the first regulated bond in Spain registered with blockchain
The project will serve as the basis for the future issuance by IDB of thematic bonds in Spain, Latin America and the Caribbean. BBVA has acted as the transaction’s ‘active bookrunner’, digital custodian, tokenizer of digital money and digital structurer.
This project reaffirms BME’s commitment to the development of new solutions based on blockchain technology. The issuance, book-entry, trading, settlement and corporate events processes have been implemented through smart contracts based on blockchain technology developed by ioBuilders.
6. India uses blockchain for overseas payment via Unified Payment Services (UPI)
Open Financial Technologies, a Bengaluru-based neo-banking company, has been given the nod for its new product that will ensure tamper-proof monitoring of transactions.
India will have the ability to democratize e-commerce and reign in the technology companies that are building monopolies. A key part of the rationale behind UPI is to create a neutral marketplace and commerce platform that is low-cost and accessible.
This also prevents corruption, fraud, and bypassing unreliable banking systems; allowing the poor to have access to money with low transaction costs.
7. Tightening the rules in Crypto
US SEC charges 11 individuals in Forsage’s $300 million Crypto Pyramid Scheme. Forsage has allegedly duped retail investors of $300 million using aggressive marketing tactics promoted through social media platforms.
New York State Department of Financial Services (NYDFS) imposed a $30 million fine on Robinhood for alleged violations of anti-money-laundering and cyber-security regulations.
Crypto will be considered as commodities and regulated by CFTC. It would also require such companies providing crypto platforms to register with the CFTC — brokers, custodians and exchanges. That registration would come with requirements to maintain fair pricing, prevent market manipulation, avoid conflicts of interest and maintain “adequate financial resources”.
Economic Summary/Market Stats
7d Market Update
Crypto
🔻 BTC: -3.04% to $23,048
🔻 ETH: -0.71% to $1,699
🔻 SOL: -8.30% to $40
🔻 Overall Crypto Market Cap: -0.69% to $1.094T
🥴 Bitcoin Fear & Greed Index: Fear (30/100)
Equities
❇️ S&P 500: +0.36%
🔻 DJ Industrial Average: -0.31%
❇️ Nasdaq 100: +2.15%
🔻 Hang Seng Index: -0.81%
🔻 Stoxx Europe 50: -0.58%
Rates
💸 USDC Supply APY: 0.66%
💸 ETH Supply APY: 0.75%
💸 BTC Supply APY: 0.02%
💲3-Month US Dollar Libor: 2.86671%
💲US Treasuries 2-Year: 3.234%
💲US Treasuries 10-Year: 2.829%
Key Economic Releases
10 Aug (Wed)
8.30am ET: Consumer Price Index (median forecast 0.3%, previously 1.3%), Core CPI (median forecast 0.6%, previously 0.7%)
11 Aug (Thurs)
8.30am ET: Initial jobless claims (median forecast 265k, previously 260k)
8.30am ET: Producer price index (median forecast 0.2%, previously 1.1%)
