Market Moons to Lunar New Year
Crypto market recovered strongly to start the Year of Tiger. In terms of price actions, BTC continued to rise (BTC +14%) and is now sitting at the 50 DMA ($43k). Ethereum outperformed the broader market with a weekly gain of 19% — also worth mentioning that the average transaction fee on Ethereum is down 31% week-on-week (see KPI index next page), making on-chain transactions a lot cheaper. On derivatives front, BTC and ETH funding rates have ticked a tad higher, and trades close to zero (Chart 1), which makes sense given short covering + short liquidations seen (Chart 2). The liquidations were relatively mild (biggest on 4 Feb was ~$99m of short liquidations), implying rather low level of leverage, and perhaps a spot-driven rally. It’s also worth noting that the rally came despite the lack of supportive (or rather, unchanged) macro backdrop and generally weak US equities (that crypto has shown strong correlation to in the recent months).
On the crypto-native side, we never run out of drama, as Wormhole got exploited for 120k ETH ($320mio equivalent) –Jump Crypto replenished the ‘hole’, making the bridge whole. The discussions on multi-chain world have been increasing, as Ethereum DeFi dominance declined to ~62% from >90% at the start of last year. Bridges have played an important role in the blossoming DeFi scene in non-ETH chains, but recent exploits of bridges (Wormhole $320mio, Qubit Finance $80mio, Meter $4.4mio just in the last 10 days) exposed the vulnerability of bridges, and that users are taking on extra layer of smart contract risk. Going forward, we expect continued investments/problem-solving in the bridge space — including those focused on security, as well as liquidity fragmentation.
On the institutional/regulatory front, MicroStrategy bought another 660 bitcoins, bringing its total holdings to 125,051 bitcoin ($3.78bn) at average price of $30,200. Indian government also clarified legality of crypto, by unveiling 30% tax on crypto assets (tax bad, but uncertainty worse) and its own plan for CBDC. On the CBDC side, Mitsubish UFJ Trust and Banking also announced plans to launch a yen-pegged stablecoin in 2023 for clearing and settlements of digital securities.
On the macro side, it was a heavy week of earnings and economic data releases. The biggest puzzle was in Wednesday’s ADP nonfarm payrolls (- 301k vs. Est. 208k), biggest drop since start of the pandemic; Friday’s official NFP, however, came at significantly above expectations (467k vs. Est. 150k), despite the impact of Omicron. Average hourly earnings also exceeded expectations (0.7% vs. Est. 0.5%), recording biggest gain in 10 months. The steady job market recovery (Chart 3) pushed bonds yields to new new multi-year highs (10s to 1.93%, highest since Dec’19). On the earnings front, 112 companies in the S&P 500 Index reported earnings, including several mega-cap names which drove significant moves in the overall benchmarks (FB -26% with decline in users and guidance for slower revenue growth; AMZN outperformed with better-than-expected earnings). In other parts of the world, the central banks sang to the hawkish tone, with BOE raising rates for second month in a row (MPC voted 5-to-4 to raise bank rate by 25bp to 0.5%, and unanimously to stop reinvesting proceeds from maturing govies), while ECB’s Lagarde also commented that left door for possible rate hike this year, given 5.1% Eurozone inflation print in January. Going into the week, all eyes are on CPI (Est. 7.3% YoY)
Bitcoin and major tokens have broken out of their descending trendlines on Saturday, and with bitcoin above 40k for the last few days, we have turned long-biased. A few caveats are that: market is eerily quiet despite the rally, and despite the decoupling of crypto/macro in the last few days, we have yet to see narrative change. Stay alert and good luck!