This Week in Crypto: 9th February 2023
Bitcoin Fear & Greed Index
The Bitcoin Fear & Greed Index is currently at 55 in the Greed zone, down 5 points from this time last week. The index reached a high of 60 on Friday last week and a low of 54 on Tuesday this week.
- Markets take pause to digest latest data from global central banks.
- Australian Treasury releases Token Mapping Consultation paper.
- Digital asset majors stall higher but continue to consolidate above local support.
- Mastercard, Goldman Sachs, Fidelity, and other traditional finance heavyweights utilise blockchain technology to ‘rewrite’ global finance.
- BTC Markets CEO, Caroline Bowler joins Ausbiz to discuss the Australian crypto industry.
Several high impact data releases are scheduled in the week ahead, including Westpac’s consumer confidence change and NAB’s business confidence in Australia on Tuesday, 14th February. The GDP growth rate will be handed down in Japan and year-over-year core inflation rate will be released in the US. Japan will release balance of trade data on Thursday, 16th February and the United Kingdom will release month-over-month retail sales on Friday, 17th February.
Following a robust schedule of macroeconomic activity this past week, investors took pause to digest the latest data releases from the US Federal Reserve, the European Central Bank, and the Bank of England. The market seemed to readjust expectations from the US Fed, considering the likelihood of more aggressive interest rate hikes following strong economic data.
Overall excitement from January’s rally showed early signs of stalling and attention shifted to the latest buzz in the world of AI chatbots where a race between ChatGPT and Microsoft’s US$10 billion investment in OpenAI, Google’s Bard AI, and Baidu’s Ernie was well under way.
Following the Federal Reserve's decision to raise interest rates by 0.25% in last week’s FOMC press conference, Federal Chair Jerome Powell addressed the Economic Club event in Washington, D.C. Chair Powell’s comments signaled caution about strong economic data, stating that “the reality is we’re going to react to the data. So, if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.”
JP Morgan strategist, Marko Kolanovic shared his expectations of two more Fed rate hikes in March and May, calling the latest market rally a bear trap. Kolanovic reiterated that investors should “fade last week’s Federal Reserve induced stock-market rally,” arguing that recent disinflationary metrics in the US may indeed only be transitory.
Jurrien Timmer, Director of Global Macro at Fidelity Investments, provided his perspective regarding last week’s market surge, commenting that “the market is trading several points above fair value, taking into account where we are in both the earnings and rate cycle. The bear market may or may not be over. Either way, between the technicals, valuation, and where we are in the earnings cycle, an S&P 500 trading at 4195 is not a great level at which to be increasing allocations. The market wants and expects a soft landing and Goldilocks scenario. After last week, we are at peak Goldilocks, and it has been fully priced in.”
Bloomberg Intelligence macro strategist, Mike McGlone shared his macro-outlook which included a perspective of crypto, stating that “markets typically make it difficult to identify bottoms, and the Federal Reserve is still tightening in February despite rising recession risks, and that should remain a headwind for most risk assets, particularly cryptos.” When addressing the digital asset majors, McGlone shared his thoughts that “the maturing crypto market appears similar to the bottom process of 2018-2019, with two key differences: the Fed is tightening and Ethereum is keeping up with Bitcoin. A foundation appears to be forming in Bitcoin vs. the stock market.”
State of crypto
The digital asset majors stalled higher, continuing to consolidate above established support around US$22,500 for Bitcoin and US$1,500 for Ethereum.
At the time of writing, Bitcoin was up 39.09% at US$22,987 and Ethereum was up 38.45% at US$1,653 in 2023.
Over the past two weeks, Bitcoin’s dominance by market capitalisation pulled back to 43.16% dominance. At the peak of local highs, Total crypto market cap topped US$1.06 trillion before pulling back to current levels at US $1.02 trillion total capitalisation.
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 from 1st January 2023.
As a follow-up from a previous edition of This Week in Crypto which covered Relative Strength Index (RSI), Bitcoin’s daily RSI has cooled off slightly from 14th January highs but has continued to show significant strength.
The chart below shows the daily RSI from January 2020 to February 2023. The chart illustrates fluctuations in Bitcoin’s relative strength and the observer can see overbought, oversold, and neutral RSI during the timeframe provided. Notice that from 10th of January to 1st February 2023, RSI measured as high as 89.24, but has cooled off slightly to a current level of 60.04.
Leading blockchain data and intelligence platform, Glassnode released their latest onchain report which suggested that data is showing a potential turning of macro market regime. The report, titled ‘Shifting Market Tides,’ provided an in-depth look under the hood of the market for onchain activity. Generally, it takes time to turn a market around and a transition in market regime doesn’t happen overnight. Historically, previous bear markets like the ones seen in 2011-’12, 2014-’15, 2019-’20, took around a year to consolidate before establishing a true market bottom. According to Glassnode, “following an explosive month of volatile price action, Bitcoin is consolidating above the on-chain cost-basis of several cohorts. This puts the average BTC holder into a regime of unrealised profit and demonstrates a potential turning of the macro market tides is underway.”
Glassnode’s analysis found that the net unrealised profit to loss ratio shows that the recent rally in markets has shifted the market regime to one in which the average holder is ‘back in the green.’
According to the report, while the change in trend remains young, it appears that the market is within a transitional phase where “the rotation of capital from Long-Term Holders to the Short-Term Holder cohort has been a persistent trend over the last 12-months. This is elegantly reflected in the growing wealth held by the Short-Term Holder cohort, absorbing coins from their Long-Term Holder counterparts who continue to distribute.”
Mastercard, Goldman, and TradFi Titans in Blockchain.
Mastercard, Goldman Sachs, Fidelity, and other traditional finance heavyweights are utilising blockchain technology to ‘rewrite’ global finance, according to a recent article by Forbes.
CEO of Goldman Sachs, David Solomon stated that “under the guidance of a regulated financial institution like ours, blockchain innovations can flourish,” and Matthew McDermott, Head of Digital Assets at Goldman described the way they see huge commercial opportunity in the digital asset space. For example, McDermott and his 70-person team successfully underwrote an EU$100 million bond offering for the European investment bank in a process which took only 60 seconds, where typically, a bond sale of the kind would take around five days.
Chief executive of Mastercard, Michael Miebach shared his opinion that crypto’s recent challenges may accelerate adoption of blockchain technology, suggesting that “you are going to get more mainstream players in, and the regulators are going to show up to address the risks. That’s a recipe for this to become a mainstream technology.”
Visa’s crypto strategy.
Payment giant Visa is reportedly seeking customer requests to convert digital assets into fiat payments, similar to how it settles foreign currencies. When it comes to blockchain technology and digital assets, Visa has continued to carry course on their strategy, targeting speed and settlements.“We’re thinking a lot about how to take some of the value that Visa provides on existing bank rails, with existing forms and rebuild that on top of blockchain rails."
Visa is investing in global settlement between digital assets and fiat currencies and is exploring how to utilise blockchain technology to improve speed and efficiency of existing networks. According to Cuy Sheffield, Head of Crypto at Visa, “the same way that we can convert between dollars in euros on a cross-border transaction, we should be able to convert between digital tokenised dollars and traditional dollars.”
At a recent event in Tel Aviv Sheffield said that “the ability to make settlement payments to Visa in digital currencies could offer meaningful benefits and efficiencies, particularly for fintechs who run their business in crypto.”
BTC Markets updates
Australian Treasury’s token map.
BTC Markets welcomes this week’s announcement and publication from Treasury regarding token mapping. It is timely given recent announcements from the US and UK on similar topics, highlighting the need for Australia to stay at pace with the rest of the world. We also note the recognition of international coordination as a key building block, a sentiment also mirrored by global regulatory peers. Both of these facets are crucial if Australia is to remain globally competitive in the digital economy.
The consultation paper stated that the 1997 Wallis inquiry into financial regulation “targets the performance of intermediaries, agents, and financial markets.” The consultation paper goes on to say that “Products that truly involve none of these three concepts may – without reforms and new regulatory approaches – be fundamentally incompatible with the existing financial services regulatory framework.” This is important recognition as one fundamental tenet of the crypto economy involves decentralisation and the removal of intermediaries.
BTC Markets are grateful for the work Treasury have already committed to this subject. We welcome the chance to continue our consultations with government and regulators on these vital issues.
BTC Markets on Ausbiz.
Our CEO, Caroline Bowler joined Ausbiz to discuss the state of crypto and the impact of the Treasury’s latest token mapping paper on the Australian crypto industry.
When asked if she would go so far to say the crypto winter is over, Caroline commented that "I think that we're seeing a thawing, I wouldn't go so far to say that it's gone. In January there was an increased movement in terms of liquidity of the market, which is a very good indicator of health. I still think that we have a little bit further to go before we can officially declare that spring has arrived in crypto, to take that analogy further”.
When addressing The Treasury’s Token Mapping Consultation paper, Caroline commented that “in Australia specifically, they take a different view to regulation, or to the devising regulation compared to some of our international counterparts. Here, they follow the Bank of International Settlements by applying what they call a functional approach to regulation, which is to say they look at the function of the particular asset, activity, product or what have you and see if it maps to existing financial services, activities, and regulation. That differs from, say, what the US are doing which is more of a risk and activities-based approach.
We're seeing both these different approaches against a backdrop of what we've seen coming out of Europe with MiCA and what we're seeing out the US coming forward.
Here, locally, Treasury are looking at token mapping, which is to determine the function behind each of these different tokens and see if they sit within existing financial regulations. Others, as perhaps just a digital identification, which although may be cryptocurrency in name, may not be cryptocurrency in a financial sense in its function.
And so that's why it's so important to see the outcome and really be engaged in this token mapping as Treasury has outlined.”
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Prices are accurate as of 11:00 AM AEDT, on 09/02/2023