Week 14, 2023 - Weekly Market Outlook

Introduction

With a short trading week ahead, I hoped the financial markets would finally get a much-needed break from the stress and uncertainty plaguing them for months. I was wrong. This week OPEC, the powerful organization of oil-producing nations, decided to cut the oil supply further. This could lead to higher gas prices and a higher inflation rate. As if that were not enough, rumors began to swirl that Binance Ceo CZ has been issued a Red Notice. This rumor has been debunked, but you never know in this space. On a brighter note, Microstrategy bought another 1,045 Bitcoin for $29.3 million, taking its total holdings to 140,000 BTC worth over $3.9 billion.

OPEC oil production cut

In an unexpected move, Saudi Arabia and other OPEC+ oil producers announced on Sunday that they would implement further oil output cuts of approximately 1.16 million barrels per day (bpd). Analysts predict that this decision will immediately increase oil prices, while the United States has deemed the move inadvisable.

These additional cuts bring the total volume of reductions by OPEC+, which includes the Organization of the Petroleum Exporting Countries, Russia, and other allies, to 3.66 million bpd. This is equivalent to 3.7% of global demand. The announcement was made a day before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia. It was expected to maintain the existing 2 million bpd cuts until 2023.

In recent weeks, oil prices had fallen to around $70 per barrel, the lowest in 15 months, due to concerns that a global banking crisis would negatively impact demand. However, crude prices later recovered to approximately $80, and further action by OPEC+ to support the market was not anticipated after sources downplayed this possibility.

OPEC+ has made announcements regarding production cuts in the past, but has yet to implement these commitments fully. As a result, traders will be closely monitoring for any signs of quota violations this time. However, even if the group adheres to the announced cuts, the surge in oil prices to its highest level since January will only be sustainable if the global economy can withstand the impact of increased energy costs. If it cannot, prices are likely to face downward pressure.

In theory, central banks should not react immediately to a rise in oil prices. They would only do so if there are secondary effects, such as businesses raising their prices or offering more generous wage increases to their employees. In reality, however, the current surge in oil prices is likely to make major central banks, including the Federal Reserve, the Bank of England, and the European Central Bank, more cautious.

If OPEC+ manages to permanently increase oil prices, the outcome could be higher interest rates for a more extended period, ultimately raising the risk of a recession.

CZ Red notice from Interpol

Recently, rumors have been circulating on Crypto Twitter that Interpol has issued a "Red Notice" for Changpeng Zhao, the CEO of Binance, one of the world's largest cryptocurrency exchanges. According to Interpol's website, a Red Notice is a request to law enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action. The notice is issued when a person is wanted for prosecution or to serve a sentence based on a warrant or court decision.

The rumors of a Red Notice started with a tweet by Cobie. Cobie is a crypto media personality who is also known as Jordan Fish. Cobie is the founder of the most-watched crypto podcast, UpOnly. In the tweet, Cobie shared a sequence of numbers and letters that were encrypted using the SHA-256 hash function.

However, CZ himself responded to the rumors on his Twitter account, stating that the news of a Red Notice was fake news. While CZ denied the rumor, Cobie is known as one of the biggest Crypto Twitter personalities, and his message might have merit. We will need to keep a close look at if this is true.

Microstrategy buys more Bitcoin

MicroStrategy acquired an additional 1,045 bitcoin worth around $29.3 million at the time of buying.

According to Saylor's tweet, the BTC was purchased at an average price of $28,016 per coin. MicroStrategy currently holds 140,000 BTC, worth a whopping $4.17 billion. The average cost of each BTC on its total holdings is around $29,803.

Market data

It's another choppy week for Bitcoin, and there has been more uncertainty regarding CZ. The price traded back to $27,200, quickly absorbed when Bitcoin rallied back up to $28,500.

Ethereum seems to be a much more interesting asset this week, with a decent breakout from previous weeks range. With this breakout, the price should reach about $2000. Any daily close below $1820 would show some signs of weakness and could trade much lower. Until it shows this weakness, keep trading the trend.

A potential sign of weakness would be getting rejected at this underside retest for Ethereum. If it can get back into the multi month range, Ethereum could trade as high as $2500. For now, it's best to hold a spot bag and not add these levels. If u do get a deep pullback, it is worth adding to the spot bag and potentially some leverage longs to the mix.

DeFi Market

With Ethereum giving us more momentum this week, it also means that DeFi is getting its time in the sun. We have a sea of green for DeFi projects, with the Bitcoin ecosystem actually being the biggest gainer in the last 7 days.

Bitcoin is reaching about $200 million in TVL, with the lightning network still showing significant dominance. While it shows dominance, it might be worth looking for the next winner in the Bitcoin Economy, and I believe a potential winner to be the Stacks Network, which recently underwent the Stacks 2.1 upgrade. If you want to learn more about the Stacks ecosystem, checkout our Stacks outpost. Don’t forget to follow the head of our Stacks outpost, Captain Jack.

The LSDfi Narrative

As the Shanghai update approaches and Ethereum breaks out of its range, the Liquid Staking Derivative (LSD) narrative gains traction, with unshETH emerging as one of the top performers. In just 1.5 months, unshETH amassed an impressive $32.6 million in Total Value Locked (TVL). The platform, which currently operates as a farming platform, allows users to deposit various types of LSD tokens and receive unshETH in return.

UnshETH could potentially initiate a new LSDfi narrative by accepting forms of staked ether. LSDfi refers to a novel class of DeFi primitives built on top of liquid staking derivatives, enabling markets on staking yields, validator monopolies, slashing risks, and even validator censorship.

A promising aspect of unshETH is the introduction of Validator Dominance Options (VDOs), which could challenge Lido's 31.24% monopoly over staked Ethereum. VDOs allow dominant LSD holders to write put options on their validator dominance percentage. If the dominance remains above the strike price at expiration, the seller retains the premium earned. Conversely, if LSD dominance falls below the strike price, non-dominant LSD holders earn yield. The $USH token incentivizes participation in the protocol, ultimately helping distribute market share among smaller LSD protocols and potentially revolutionizing the landscape of liquid staking derivatives.

As the Liquid Staking Derivative narrative evolves, unshETH's potential impact on the DeFi landscape could be significant. However, as the Shanghai update is released, price could take a short term fall.

Best and worst performers

Kaspa is once again in the top 5 gainer space. Kaspa is a proof-of-work layer-one, which implements the GHOSTDAG protocol. Kaspa is another layer-one that has gained recent traction. Another interesting token is the SXP. SXP is another Layer-1 blockchain that was launched on the Binance Launchpad. It seems that a lot of higher Beta layer ones are catching a bid.

Flex Coin is serving as the native token for the new CEX, OPNX. Short for Open Exchange, OPNX is a first-of-its-kind crypto exchange that will allow users to trade claims of a bankrupt crypto company. With no trust in centralized entities as well as the exchange being founded by former Three Arrows Capitals CEOs, this exchange is positioned poorly. That doesn't mean they would stay a loser if a bull market were to start. OPNX is first of its kind. I wouldn't deposit money in there. But I know some degenerates would.

The week ahead

This week was expected to be choppy, and that's precisely what we got. We have been ranging between $27,200 and $28,600 for the last three weeks. Due to the recent strength in Ethereum, Altcoins have finally caught a bid. The question is how long this new game of musical chairs is going to last. If you hold spot BTC or ETH, you are fine. If you have decent exposure, keep it but do have an invalidation. My invalidation is daily closes below $27,200, and this would indicate short-term weakness.

The only potential play I see coming is a short-term LSDfi narrative, and this could also fail as LSD first caught traction at the start of the year. The best play is to hold spot Bitcoin and Ethereum.