Market Commentary

Last week’s sudden rally is a reminder that there’s never a “good time” to sell your bitcoin. Ledn’s bitcoin-backed loans let you access the cash you need without having to sell your bitcoin. Learn more at ledn.io/borrow.

Announcement

We’re trying out a new format for our blog today with more bitcoin-focused content and actionable info! Feel free to let us know what you think by commenting below  We’d love to hear what you think and if there’s anything else you’d like to see in the BEC moving forward.

Bitcoin

Volatility is back! Bitcoin was up almost 22% last week and blasted north of its 200-day moving average for the first time since December 2021. 

From a technical perspective, the 200-day moving average has historically acted as support during bull-runs and resistance during bear markets. It will be key for bitcoin to hold above $19,511 in the days ahead for sentiment to remain bullish. 

The rally came on strong volume, also a good sign. A big driver was the large amount of short liquidations. And going one layer deeper, there are a few things going on in China that could be acting as a tailwind for bitcoin. We’ll address both of these and more below.

Macro:

1. Markets and Central Banks are playing the world’s biggest game of chicken. 

Markets are optimistic that the Fed will have to cut interest rates sooner than it plans to. However, the Fed is posturing and signalling that it has absolutely no plans to cut interest rates this year. 

In simple terms, markets are “too optimistic” - and are pricing in lower interest rates by Q3 2023. Fed Officials have been asked about this game of chicken and, in the words of Neel Kashkari referring to the market “they are going to lose”. 

The current macroeconomic backdrop is a menacing Fed. However, to put things in perspective, the Japanese Central Bank committed to doing whatever it took to defend its yield curve control and - having already spent much more than anticipated, is widely anticipated to abandon its yield curve control plans.

2. Gold & interest rates

Gold continued its impressive rally adding another +2.93% last week. The move comes on the back of Chinese demand and positive overall investor sentiment. 

As we covered in our last issue, China has bought over 60 tonnes for its reserves over the last 2 months - more on this next. And investors seem to be rotating out of the “long U.S. dollar” since its peak in October 2022, as bond yields and the U.S. dollar index have been dropping. w

This great chart shared by Lawrence McDonald on Twitter shows how gold prices have historically behaved once the Federal Reserve reaches its terminal interest rates and starts cutting. As you can see, gold prices have rallied significantly  the last 3 times that interest rates have peaked and began dropping. Interestingly, in all previous times there were also “build-up” rallies in gold prices leading up to the break-outs. Something to keep in mind as the Fed reaches terminal rates sometime this year.

3. China & the definition of “reserves”

There are two very interesting dynamics originating from China that are impacting global markets. The first one is its economic reopening and its plans to stimulate its economy.

Global equities and commodities have been rallying since the announcement a few weeks ago. And asset prices continue to benefit from the chats about future stimulus. 

Separately, the Chinese Central Bank has been sending strong signals to the market by aggressively buying gold as it continues to reduce its U.S. treasury holdings. This could continue to become a major narrative in 2023.

Digital Asset Markets:

1. Squeeze

According to Frank Chaparro at The Block, there were $392 Million in short liquidations on January 14th alone. This is consistent with data from CryptoQuant, which shows that liquidations in bitcoin futures were the highest since July 2021.

As you can see from the chart, these epic squeezes tend to reverse the short-term trend. It’s too early to tell if the rally will be sustained, but macro conditions are changing - with a tight U.S. Fed and a potentially envigored China trying to stimulate its economy.

2. DCG/Genesis 

The DCG/Genesis saga with its creditors continues with no concrete resolution in sight. Last week the Financial Times reported that Genesis owes more than $3 Billion to its creditors. The stalemate will continue generating headlines with the SEC deciding to charge both Gemini and Genesis last week. This will continue to make DCG/Genesis’ efforts to fundraise even more challenging.

3. Stablecoins to the rescue in Brazil

Open. Permissionless. Accessible. Crypto is supposed to be there when you need it, and that is exactly what stablecoins are doing in Brazil right now. 

As political turmoil has taken the country by surprise, Brazilians are rushing to stablecoins - with local exchanges reporting that over 50% of all Brazilian Real volume traded involves a stablecoin of some type. In times of stress, many seek refuge in the stability of foreign platforms. It’s no surprise, as through stablecoins they can quickly and seamlessly access services that are isolated from local unrest and managed at the highest of standards.

The Week Ahead  

As always, we wrap up with a summary of the events and data that could move markets in the week ahead:

Notice for Canadian Residents: As of January 4, 2023, Canadian clients will no longer be able to take out new B2X loans. As of February 1, 2023, Canadian clients will no longer be able to open a new BTC or USDC Savings Account, deposit BTC or USDC to existing Savings Accounts or earn yield on any existing BTC or USDC Savings Account balances.

Notice for U.S. Residents: Effective April 4, 2022, U.S. clients will no longer be able to earn interest on any newly deposited funds in their BTC and/or USDC Savings Accounts, where available; however, they will continue to earn interest on their pre-existing balances in their BTC and/or USDC Legacy Savings Accounts.

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