Weekly Crypto Wrap: 23rd March 2023

TLDR

• Bitcoin up 27.17%, Ethereum gains 12.68% and XRP price surges.
• RBA considers pausing while US Fed hikes 25bps.
• Banking contagion spreads to Credit Suisse, Switzerland's second-largest bank.
• Is Bitcoin a hedge against the flood of money from the Fed?
• Hong Kong cultivates crypto hub to attract business.

The week ahead

March 24th: Japan will announce their year-on-year Inflation Rate. The United Kingdom will release their month-on-month Consumer Confidence report and Retail Sales figures. Additionally, the US Durable Goods Orders for the month will also be revealed.

March 27th: the Business Climate Indicator for Germany will be released. This is a survey-based index that provides an overview of the current and expected economic conditions and business sentiment in Germany.

March 29th: Germany's Consumer Climate Indicator for April to be released. This is a forward-looking index that measures the overall confidence and willingness of German consumers to spend on goods and services.

March 30th: The annual Inflation Rate for Germany will be disclosed. This is a measure of the percentage increase in prices of a basket of goods and services in Germany over the past 12 months, compared to the same period a year ago.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

The Reserve Bank of Australia (RBA) is considering a pause in its tightening cycle come April, according to its March meeting minutes. The board acknowledged the prevailing economic uncertainty and persistent inflation, highlighting that monetary policy has already transitioned into a restrictive phase.

Even though headline inflation is expected to have peaked, returning to the target range is not predicted until mid-2025. Additionally, members agreed the cumulative impact of consistent rate increases since May 2022 and the lag effect of monetary policy, cannot be overlooked.

RBA Governor, Philip Lowe, expressed his "open mind" regarding the potential pause at a recent business summit. The RBA's decision is likely to be guided by four critical data points: employment, inflation, retail trade, and business conditions.

Despite two of these data points showing stronger than expected results, such as the unemployment rate dropping to a near 50-year low of 3.5% in February, it remains uncertain if the current trend will continue.

Global

The US Federal Reserve has announced a 0.25 percentage point increase in its benchmark interest rate to a range of 4.75%-5%. This decision is aimed at curbing inflationary pressures in the US economy, which have been increasing due to strong consumer demand and supply chain disruptions. The rate hike is expected to have a ripple effect on global financial markets, as it could increase borrowing costs for businesses and consumers, and potentially slow down economic growth. However, the impact on the global economy will depend on how other central banks respond to this move and how financial markets react in the coming weeks.

Credit Suisse, Switzerland's second-largest bank, has now become the latest victim of the global banking contagion. Requiring a rescue that was announced on Sunday through a press conference resulting in US$280 billion merger, supported by state funds, that prioritised shareholders' interests over bond investors. The decision also appears to have concentrated all risks into one banking giant, UBS Group AG.

In the US, the drop in consumer sentiment suggests potential weakening of consumer spending, but the decrease in inflation expectations may provide some relief. "Inflation expectations are falling, giving the Fed some flexibility in the future path of rate hikes," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. "The Fed now has two serious concerns over financial stability and persistent inflation."

“It’s a very tricky one to call because if they pause you might think that’s good for risk assets, but then simultaneously if you give too many reasons for the pause then that could frighten the horses,” said Chris Beauchamp, chief market analyst at IG Group. However, the US housing market is showing continued growth with building permits in the United States surging 13.8%. the highest reading in five months and well above market expectations

The global economy faces a mixed outlook, with Japan's trade deficit suggesting a slowing recovery and challenges due to high commodity prices and a weak yen. and the ECB has raised its key interest rates to tackle inflation, while remaining vigilant towards market tensions.

Germany’s Economic Sentiment fell in March due to high levels of uncertainty, while Canada's annual inflation rate fell to 5.2% in February. The UK's annual inflation rate fell to 10.1% in Jan 2023, falling for a third consecutive month to the lowest since Sept 2022.

State of crypto

In the past trading week, the major market indices showed mixed results, while the cryptocurrency market has moved in a positive direction. After a three-week downward trend, all major digital assets closed in the green. Bitcoin showed a significant increase of 27.17%, closing the week at US$27,972. Ethereum also reported a gain of 12.68%, ending the week at US$1,780. XRP reported a modest increase of 3.85% on the week, closing at US$0.3857.

In terms of yearly gains, Bitcoin has performed exceptionally well, showing an impressive 64.98% gain, and currently trading at US$27,284. Following closely is Ethereum with a 45.03% yearly gain, presently trading at US$1,734, while XRP has gained 23.66% and is currently trading at US$0.4186.

Bitcoin's market capitalisation has shown a notable increase of 8.74% on the weekly close, with its dominance rising to 47.15% following the recent price rally. Moreover, the overall cryptocurrency market capitalisation has surged over the weekend with a 16.505% gain, currently valued at an impressive US$1.121 trillion.

Alt action

Algorand (ALGO) addresses scalability, security, and decentralisation.

Algorand is a public blockchain platform that was created to address the scalability, security, and decentralisation limitations that are often associated with other blockchain networks. It was founded by Silvio Micali, a computer science professor at MIT, and is designed to be a highly efficient and fast blockchain platform that can support a wide range of decentralised applications and transactions.

As a proof-of-stake consensus mechanism, Algorand allows for fast and secure transactions with a high level of decentralisation. This means that transactions can be validated and processed quickly, without the need for energy-intensive mining processes that are required by some other blockchain networks.

The platform also offers advanced smart contract capabilities, making it a suitable for the development of decentralised applications across various industries, including finance, real estate, and supply chain management.

Since its launch in 2019, Algorand has gained significant attention and adoption. They have cultivated various partnerships and collaborations with leading companies and institutions, including Circle, The Marshall Islands, and the International Blockchain Monetary Reserve.

Algorand (ALGO) is currently trading at US$0.2119, up 22.84% for the year.

Trade ALGO now on BTC Markets

The Big 3

Bitcoin’s influx of liquidity.

Bitcoin's recent surge, up almost 70% in 2023, has outperformed gold, equities, and US Treasuries due to its ability to measure liquidity better than any asset in traditional finance. Professional investors could be turning to Bitcoin as a hedge against the US Federal Reserve's move to flood the financial system with more liquidity.

The Fed's Bank Term Funding Program has allowed US banks to pledge collateral like Treasuries in exchange for cash funding, leading to a liquidity flood that has boosted Bitcoin's price. The recent surge is a reaction to a new Fed pledge to supply more US dollar liquidity to the global financial system via more regular funding swap lines with several central banks.

British macroeconomist Michael Howell claims that liquidity cycles work on regular five to six-year intervals, and his firm, Cross Border Capital, has built data models to measure liquidity in the financial system as a guide to future asset returns. Howell's research suggests that more liquidity is bullish for Bitcoin for the next few years.

Plans for capital adequacy and custody requirements for exchanges in Australia suggest that the further regulatory oversight of financial markets could also affect the cryptocurrency ecosystem.

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The final stage of ETH's Shanghai upgrade is underway.

Ethereum's long-awaited Shanghai upgrade is in its final stages, with the final test run before the withdrawal of staked ETH is successfully completed. While a date for the upgrade has been tentatively set for around April 12th, further delays are possible. The upgrade will allow users to withdraw staked ETH and is expected to cause a surge in interest in Ethereum staking, which has already seen wide participation even without the withdrawal option.

According to Beincrypto.com, their analysis of on-chain data from Glassnode shows ‘the supply of Ethereum in smart contracts. rose by nearly 270,000 ETH’ between March 13th to 20th. This represents 0.22% of the total ETH supply in circulation, worth approximately $200 million.

Analysts estimate that as much as half of Ethereum's total supply could be staked after the upgrade. Ethereum is already the largest proof-of-stake blockchain in the world with a market cap of over US$200 billion. The upgrade is set to mark the true completion of the network's transition to proof-of-stake, a goal that the Ethereum community has been working towards for several years.

Trade ETH now on BTC Markets

XRP price surges in anticipation of a court ruling.

In anticipation of an upcoming court ruling, XRP has seen a surge in price amid the ongoing legal battle between Ripple and the US Securities and Exchange Commission (SEC). The SEC alleges that XRP is a security, and that Ripple should have registered it with the agency, while Ripple argues that XRP is a currency and should not be treated as a security.

The lawsuit, which will soon be ruled on by a judge in the Southern District of New York, could set a significant precedent for the cryptocurrency sector. The implications of the case and the potential outcomes are far-reaching. If the court rules in favour of the SEC, it could have significant consequences for the crypto industry, as it would establish a precedent for how cryptocurrencies are regulated in the US. Conversely, if Ripple wins the case, it could provide greater clarity for other crypto companies and help to legitimise the industry in the eyes of regulators.

The outcome of the lawsuit could also have an impact on the adoption and price of XRP, as well as potentially influence how other cryptocurrencies are viewed by investors and regulators.

Trade XRP now on BTC Markets!

Crypto news

Banks told to report on crypto exposure.

The Australian Prudential Regulation Authority (APRA) has asked banks to report their daily exposure to cryptocurrency-related start-ups, aiming to manage risks effectively. This request includes start-ups offering cryptocurrency trading, exchanges, or wallets that are not regulated by the Australian Securities and Investments Commission (ASIC).

The increased regulation and scrutiny from APRA and other regulators around the world are seen as positive steps for the crypto industry by market participants. It is viewed as a step towards legitimising cryptocurrencies, making them more accessible to mainstream investors.

Hong Kong cultivates crypto hub.

Hong Kong has been aiming to establish itself as a major crypto hub despite the Chinese government's crackdown on the industry. The city has a thriving financial market and a tech-savvy population, making it an ideal location for crypto-related businesses.

In recent years, Hong Kong has seen a surge in cryptocurrency trading, and there has been a significant increase in the number of blockchain start-ups and crypto-related businesses setting up shop in the city. Hong Kong's government has been supportive of the crypto industry, with officials actively promoting the use of blockchain technology in various sectors.

One of the key initiatives to establish Hong Kong as a crypto hub is the proposed licensing regime for crypto exchanges. The government has been working on a regulatory framework that would allow crypto exchanges to operate legally in Hong Kong. This move is expected to attract more crypto-related businesses to the city, providing a boost to the local economy.

In addition to the proposed licensing regime, Hong Kong has been promoting the use of blockchain technology in various sectors, such as finance, logistics, and healthcare. The city has also been hosting a series of blockchain and crypto-related events, such as the Hong Kong Blockchain Week, to showcase its capabilities and attract more businesses to the city.

Scam Watch

Each week, we walk through ASIC’s list of top 10 signs of a potential crypto scam.

Last week we focused on scammers pressuring people into transferring crypto from their current exchange or wallet to another website. This week, we’ll look at scams where people are asked to pay for a financial service with crypto.

Scammers may ask victims to pay for something with cryptocurrency to steal their money. One common method is through phishing scams, where the scammer poses as a legitimate company or service and requests payment in cryptocurrency.

Another method is through investment scams, where the scammer promises high returns on investments in cryptocurrency and asks victims to send money in exchange for tokens or coins. Once the victim sends the cryptocurrency, the scammer disappears, and the victim loses their money.

Scammers may also use cryptocurrency in ransomware attacks, where they encrypt the victim's files and demand payment in cryptocurrency to unlock them.

Here's an example of a common crypto scam:

Let's say a scammer reaches out to you via email or social media, claiming to be a representative of a legitimate company such as a cryptocurrency exchange (like BTC Markets) or a tech support service. The scammer tells you that your account has been compromised, and you need to take immediate action to secure it.

The scammer then instructs you to transfer your funds to a specific crypto wallet address or purchase a certain amount of cryptocurrency and send it to them to "verify" your account. Once you make the transfer, the scammer disappears, and you never receive any service or support in return.

This is a common tactic used by scammers to steal money from unsuspecting victims. It's important to always be cautious and verify the authenticity of any requests for payment or personal information before taking any action.

To learn more, visit ASIC's website.

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Prices are accurate as of 11:00 AM AEDT, on 23/03/2023.