Crypto markets rebounded in earnest this week, supported by a softer USD. Both BTC and ETH broke key 100-day moving average levels, and a meaningful number of short positions were liquidated. Economic data seems to be reinforcing more relaxed views on a global recession, while the approaching end of the Fed hiking cycle means a less imbalanced interest rate differential relative to other foreign currencies. Equity earnings season kicks off today (January 13), but it seems like a lot of negative market expectations have already been priced in.
Meanwhile, recent SEC charges may provide incremental clarity on the Genesis Global Trading situation, with the crypto lender potentially owing over US$3B to its creditors. Its parent company Digital Currency Group (DCG) is exploring the sale of its VC assets to raise capital, according to the Financial Times (January 12). In addition to these topics, this week we look at web3 protocol NOSTR, a decentralized platform for social media alternatives to Twitter or Telegram.
Finally, please read our 2023 Crypto Market Outlook, where we present the key themes that we expect to prevail this year as well as the major trends in Bitcoin, Ethereum, L1s/L2s, stablecoins, regulation and more.
Weekly Market Call
View replays of our weekly crypto market analyses from our Americas, APAC and EMEA Coinbase Institutional teams, available here.
Market View
US dollar weakness has helped support risk assets this week including crypto, as it seems the bearish market sentiment that started the year has subsided for now. Instead, the economic data has given way to more relaxed views about a global recession in 2023. Also, in our view, the probability of a US soft landing scenario engineered by the Fed is currently on the rise.
A relatively benign US inflation print (6.5% YoY in December in line with expectations) was consistent with less hawkish comments from Philadelphia Fed President Patrick Harker (a voter in 2023) and Boston Fed President Susan Collins (non-voter this year). Consequently, the idea of tighter monetary policy from the European Central Bank (ECB) and Bank of Japan (BoJ) appears to be juxtaposed against the approaching end of the cycle for the Fed, even if we assume a terminal rate above 5% - which isn’t being priced by Fed funds futures at the moment. This is contributing to less imbalanced interest rate differentials within the FX space.
Meanwhile, despite lingering concerns surrounding the Genesis Global Trading situation, BTC and ETH were able to stage impressive recoveries, breaking out of the narrow ranges they’ve been trading in since mid-November 2022. This was mostly a macro driven move in our view, although it helped that FTX was able to find US$5B in cash and other liquid assets this week (vs an estimate of only $1B previously) to help repay creditors and customers.
BTC/USD broke above its 100-day moving average of $17,895 and ETH/USD broke above both its 100d and 200d moving averages ($1298 and $1396). Indeed, more crypto short positions (vs longs) in aggregate have been liquidated in the last five days (over $605M) than at any point since late October 2022 ($495M between October 24 to 28). The rally in altcoins also seems to suggest that there may be some retail participation here.
Open interest in BTC options has risen from $3.4B to start the year to $4.2B as of January 11, with 1m ATM implied vol currently near 40% compared to 63% three months ago (100% at the peak of the FTX collapse in November 2022). BTC is now trading well above the max pain price of $17,000 for its month-end Jan 27 option contract on Deribit. ETH open interest had a similarly steep rise from $2.8B to $3.9B with 1m ATM implied vol currently near 55% compared to 76% three months ago (143% at the peak of the FTX collapse in November). ETH/USD spot is currently trading above a max pain price of $1300 for the January month-end option contract.
Chart: ETH daily transactions have recovered from the holidays
Web3
NOSTR + LN
An open-source protocol called NOSTR (Notes and Other Stuff Transmitted by Relays) has been gaining traction recently (particularly among the bitcoin community) as a platform for social media alternatives to web2 applications like Twitter or Telegram. NOSTR allows users to communicate with each other in a decentralized and censorship-resistant manner using a public key which corresponds to a private key that securely signs messages or posts.
NOSTR itself is simply a protocol which allows for applications (or clients) to be built on top of the protocol – applications like:
- Damus (a Twitter lookalike),
- Anigma (a Telegram clone) or
- Nvote (a Reddit replica)
Users interface with these clients in order to send/post messages, which are broadcasted via a network of relays (or independently run servers). Importantly, anyone can permissionlessly run a relay which creates a decentralized network of servers and allows users to own their identity and the content associated with that identity.
The protocol and many of its existing clients were designed by bitcoin/Lightning Network developers (@fiatjaf & @jb55) with the intent of creating a decentralized communications layer that would complement the Lightning Network, a decentralized payments layer. Certain NOSTR clients like Damus have already integrated Lightning payments for activities like tipping and identity verification.
Further, bitcoin-advocate Jack Dorsey donated 14 BTC to NOSTR in December 2022 to help accelerate its development. The ultimate potential of the protocol may extend beyond just social media and could become a sandbox for other types of decentralized solutions such as marketplaces, exchanges or other applications. Although the platform is still in its early stages, we think the project could represent meaningful utility to the crypto community in the future.
Crypto & Traditional Overview
(as of 4pm EST, January 12)
Asset | Price | Mkt Cap | 24 hour change | 7 day change | BTC correlation |
|---|
BTC | $19,002 | $366B | 8.18% | 12.7% | 100% |
GBTC | $10.48 | $7.27B | 7.14% | 28.05% | 70% |
ETH | $1,429 | $175B | 6.65% | 14.33% | 88% |
Gold (Spot) | $1,899 | - | 1.25% | 3.25% | 42% |
S&P 500 | 3979.42 | - | 0.25% | 4.06% | 34% |
USDT | $1 | $66.3B | - | - | - |
USDC | $1 | $43.9B | - | - | - |
Coinbase Exchange and CES Insights
Crypto markets broadly rallied on higher than average volume this week. ETH and BTC volumes made up just 64% of on exchange volume as traders looked to move out the risk curve into other assets. SOL continues to be in focus as traders bet that the worst is behind it and initiate long positions. Additionally, the GALA token saw retail interest after Gala Games announced that it had completed its acquisition of Ember Entertainment, which is known for its Walking Dead game.
Both traditional and crypto native hedge funds were strong buyers on the market’s move higher. While miners used the strength to continue their sell programs. Smart Contract Platforms, Scaling, and Liquid Staking were favorite sectors on the buyside.
View From Around the World
Asia
"Trading in virtual assets will be restricted to highly liquid products for retail investors in Hong Kong when a new licensing regime comes into effect in June - according to the newly appointed CEO of the Securities and Futures Commission (SFC). The SFC is planning to issue a consultation paper in this quarter detailing the products and conditions for retail trading in virtual assets, along with licensing requirements for trading platforms." (SMCP)
