Newsletter

This Week in Crypto: 2nd February 2023

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BTC Markets
This Week in Crypto: 2nd February 2023

Bitcoin Fear & Greed Index

The Bitcoin Fear & Greed Index is currently at 60 in the Greed zone, up 2 points from this time last week. The index reached a high of 61 on Monday and a low of 51 on Tuesday this week. 

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TLDR

  • Markets attempt to stay one step ahead of the curve of February's FOMC press conference.
  • Nasdaq prints its strongest January in over two decades.
  • Bitcoin lifts 39.95%, Ethereum gains 32.73%, and total crypto market cap closes above US$1.01 trillion.
  • Fidelity Digital Assets covers the latest developments in their 2023 Look Ahead report. 
  • Solana is now live on BTC Markets.

Market outlook

In the week ahead, several high impact economic drivers are scheduled, including US unemployment rate, non-farm payrolls, and non-manufacturing PMI. In Australia, balance of trade and the RBA interest rate decision will be handed down on Tuesday, 7th February, and balance of trade will also be released from Canada and the US on Wednesday, 8th of Feb. Year-over-year inflation rates will be released from China, and year-over-year growth rates will be handed down in the United Kingdom.

US earnings season also continues in full swing with expected results from PayPal, Uber, Disney, PepsiCo, and CME Group among others in the upcoming week.

Market reflections

Markets surprised to the upside as January’s trade came to an end. The Dow rose 2.8%, the S&P gained 6.2%, and the Nasdaq printed its strongest January in over twenty years, lifting upwards of 10.8% on the month. The picture, however, remained mixed and seemed to lack a cohesive picture. Many macro-outlook reports for 2023 suggested that the first half of the year would be all about defense, and yet, in the single month of January global markets rallied. At the start to February’s trade, investors were encouraged by US inflation data having met expectations but remained cautious leading into the February 1st Federal Open Market Committee (FOMC) meeting.

Market participants attempted to stay one step ahead of the curve, eyeing the FOMC press conference closely for signals of what was yet to come. How many more 0.25% interest rate increases would continue throughout the year and how close was the Fed to wrapping up their tightening process?

Results met expectations of a rate increase of 0.25%, bringing rates to a target range of 4.5% to 4.75% and the markets responded positively. While Powell's messaging suggested ongoing increases in upcoming meetings in March and May, a less than hawkish tone seemed to encourage equities higher.

In his comments, Federal Chair Jerome Powell stated, “today the FOMC raised our policy interest rate by 0.25%. We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time. In addition, we are continuing the process of significantly reducing the size of our balance sheet.” Powell added, “restoring price stability will likely require maintaining a restrictive stance for some time."

Chief Economics Correspondent for The Wall Street Journal, Nick Timraos commented that “the Fed is finally getting more of the data they've wanted but wants to ensure disinflation isn't transitory. That's why their outlook for the labour market and the role they think it'll play in sustaining progress is and could continue to be a big focus.”

Colby Smith, US Economics Editor for the Financial Times, stated that “Powell's message today is that it's premature to ‘declare victory’ in the fight against inflation, despite encouraging signs that the disinflation process is underway. The Fed is not yet done raising rates and is still more concerned about not doing enough rather than too much.” Smith continued, “per the policy statement, the FOMC still anticipates ongoing increases in the target range will be appropriate.”

State of crypto

Bitcoin closed the monthly candle of January 39.95% higher at US$23,132 and Ethereum lifted 32.73% on the month to US$1,585. Bitcoin dominance rose 5.50% in January, positioning BTC at 44.39% dominance by market cap. Total crypto market capitalisation gained 32.87%, closing the month above the key level of US$1.01 trillion.

The chart below shows the relative performance of Bitcoin, Ethereum, ETH/BTC, Bitcoin dominance by market cap, and total crypto market cap in 1hr increments for the month of January 2023.

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One metric we wanted to share in this week’s edition was Bitcoin’s correlation with the major indices. When measuring daily correlation with the Nasdaq, for example, Bitcoin was significantly negatively correlated in only 4% of the period shown below, meaning that when Nasdaq traded higher, Bitcoin traded lower and vice versa. Conversely, 62% of the time, Bitcoin was significantly positively correlated, meaning that when Nasdaq traded higher, Bitcoin also traded higher. When measured against the S&P, the results were very similar with 4.6% significant negative correlation and 57.6% positive correlation for the given timeframe.

The reason why these relationships matter is because Bitcoin is positioned in a complex economic context amongst global financial markets, and of course, does not exist in a vacuum. Because of Bitcoin’s general correlation with major financial markets, it’s important to understand how digital assets are positioned relative to macroeconomics and what’s going on in in the bigger picture.

The following chart illustrates Bitcoin’s relationship to the largest and most liquid markets in the world, the Dow, S&P, and Nasdaq from November 2021 (Bitcoin’s all-time high) to February 2023. Note that even to the naked eye, the visual movement follows a similar pattern to a certain degree. This pattern of correlation can also be observed on lower timeframes.

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The following chart shows the aforementioned correlation occurring over a shorter timeframe, during a single day of trade. The chart displays the performance of Bitcoin, Dow, S&P, and Nasdaq in one-minute increments on 2nd February. Note the behavioral similarities between the two charts, where in the case of the chart below, the markets tracked together in correlation for nearly the entirety of the US trading session.

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Crypto News

Fidelity’s Bitcoin research.

Fidelity Digital Assets’ ‘Bitcoin First’ research study trended this past week. The original report, released in January 2022, outlined why Bitcoin is best understood as a monetary good, why it is fundamentally different from any other digital asset, and why one of the primary investment theses for Bitcoin is “as a store of value asset in an increasingly digital world.” The report also provided an in-depth view of digital assets’ place in an investment portfolio, including Bitcoin’s risks, potential sources of return, and its overall role in the portfolio.

Fidelity also released their 2023 Look Ahead report, where they share their view of the biggest developments in the digital asset space to keep an eye on. The report covers macro, price action, and trends to follow.

As a point of context, Fidelity Investments is one of the largest mutual fund companies in the US, with over US$9.6 trillion in assets under administration. Their digital asset arm, Fidelity Digital Assets, was created as a dedicated business to support the broader adoption of the digital asset class.

The growth of Tether.

A recent article by Blockworks addressed the growth of Tether (USDT), the most widely used stablecoin in the digital asset space. Ranked number three by market cap USDT’s total market capitalisation is over US$67.8 billion and has traded in excess of US$980 billion in exchange volume over the past thirty days. When compared to other major stablecoins like USD Coin (USDC), USDT tends to trade exponentially greater volume despite its market cap being only 50% larger.

In a recent newsletter, Tether commented that “we think the continued growth of Tether supply is a positive indicator for the continued price rally.” The overall growth of USDT has historically been a positive sign for the market, however, not everyone is convinced USDT’s growth is a precursor to price rallies.

Messari’s State of Avalanche report.

Crypto intelligence platform, Messari, released their ‘State of Avalanche’ report this past week. The report unpacked Avalanche’s (AVAX) 2022 performance and provided insight surrounding the network. Despite headwinds in 2022, daily active transactions on Avalanche remained stable, averaging over 2.9 million transactions per day.

According to the report, one of Avalanche’s strongest key metrics was overall network health. Research analyst, James Trautman stated that “the continued growth in address activity on subnets indicates demand for those network’s applications and that subnet functionality is healthy.” Trautman continued, adding that “Avalanche's network and ecosystem showed considerable strength and development, making significant strides towards adoption, several upgrades to subnets, integrated with strategic partners, and expanded into DeFi, NFTs, GameFi, and beyond.”

Trade AVAX now.

BTC Markets Updates

Solana (SOL) market is now live!

We’re pleased to announce that Solana is now live on BTC Markets!

Solana is a powerful, fast, and energy-efficient blockchain platform that is designed to bring blockchain technology to the masses. It is ideal for developers, users, and anyone in between. Its fast block times, decentralised architecture, scalability, and energy efficiency make it a great choice for any project. Additionally, its low transaction fees and easy-to-use interface make it a perfect choice for anyone looking to explore the world of blockchain technology.

Login and start trading SOL today.

Flare (FLR) distribution updates.

The Flare Network have announced via Twitter that their incentive pool proposal, FIP.01, has been accepted. Analysis and implementation timetable is expected to follow next week.

As the incentive pool operates in a similar way to a staking product, BTC Markets is unable to offer this service currently due to Australian regulatory constraints.

BTC Markets customers that wish to receive future distributions of FLR tokens from the underlying network will need to move their FLR tokens to a platform that supports the wrapping and delegation of FLR tokens.

Learn more via our FAQ support page.


Scams are on the increase in Australia.

We would like to bring to your attention an increase in scams targeting BTC Markets clients. Our Customer Support Team will never cold call you to request personal information, transfer funds, share passwords, or to gain remote computer access. We advise all clients to be hyper vigilant regarding fake websites and social media accounts, scam social media posts and fraudulent callers posing as BTC Markets representatives. Do not provide personal or credit card information through email or social media.

For your protection, we have an Online Safety page on our website and encourage you to read it. Additionally, the Australian government's 'Scam Watch' website provides updated information on recognising, avoiding, and reporting scams. If you have any concerns, please submit a support ticket through our platform or read our online safety article for more information.

Disclaimer: The information provided in this email is for general purposes only. It should not be construed as professional financial advice from BTC Markets Pty Ltd. BTC Markets is not a financial adviser, and you should consider seeking independent legal, financial, taxation or other advice to ensure that the information relates to your unique circumstances. BTC Markets is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this information contained with this email.

Prices are accurate as of 11:00 AM AEDT, on 02/02/2023.

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