Week 17, 2023 - Weekly Market Outlook

TLDR

• Miscommunication occurred with Bitcoin transactions linked to Mt. Gox and the US government
• US economic indicators, such as a lower-than-expected GDP growth of 1.1% and a higher-than-predicted PCE price index increase of 4.2%.
• Bitcoin and Ethereum performed well in the crypto market.
• The DeFi sector had a mixed week.
• Looking ahead, Bitcoin has held its support, but the traditionally poor-performing month of May

Introduction

As usual, it was an eventful week in the crypto industry.

There were false rumors of Mt Gox wallets and the US government Bitcoin being sent to Centralized exchanges. People believe that Jump Crypto deposited millions of BTC due to the Mt Gox news causing some fear in the market. Lastly, some Macro data could cause some concern. This article delves into recent events, DeFi market data and some market insights.

Did Mt Gox, the US government and Jump trading cause a dump?

Mt Gox and the US government

Bitcoin nosedived roughly 7% in just one hour on April 26, falling from $29,850 to $27,789, which media outlets reported was due to a false alert by Tier10k, a notable news outlet. This alert was sent because it was reported that Bitcoin owned by the US government was being moved to a centralized exchange.

Attaching a tweet to a graph makes it clear that the warning didn't cause the sudden drop in the market. The tweet was posted at the lowest point of the market drop. DB tweeted because he got a warning from Arkham Intelligence, which tracks market data.

Arkham Intelligence said it didn't send the wrong information to some users, even though there were claims that it triggered a false warning about Bitcoin transactions worth more than $10,000.

Arkham Intelligence suggested that DB set up the warnings himself. DB figured out that some Bitcoin accounts were making transactions based on the labels he put on them. DB then posted a public tweet that accounts linked to the US government and Mt. Gox, a Bitcoin exchange, were dealing in cryptocurrencies. This led to allegations that Arkham Intelligence made a mistake.

But Arkham Intelligence denied doing anything wrong. It said it investigated and found that the warnings were sent correctly. The company suggested that the event that caused the warning might have been some unusual activity on the blockchain.

Jump Trading

Arkham Intelligence posted on Twitter about Jump Trading, a broker-dealer, and its behaviour in the market. According to the post, Jump Trading moved $26.6 million worth of Bitcoin to different exchange deposit accounts.

The post also said that the main deposit was to Binance, with Jump Trading moving $23.7 million worth of Bitcoin to accounts on the top exchange platform. On top of this, they sent another $2.18 million worth of Bitcoin to OKX and $720k worth of Bitcoin to Bybit.

Jump Trading is a registered broker-dealer and among many well-known exchanges, including the CME Group and the New York Stock Exchange.

Some argue that Jump Trading moved millions of dollars worth of Bitcoin to several exchanges, which could mean it was the reason for the recent sell-off. I disagree; the size of Bitcoin is minimal and could not have caused this cascade, which came from over-leveraged traders getting absorbed.

Macro: US GDP and Core PCE

The economic data presented indicates a weaker than anticipated growth, alongside a higher inflation rate. This has potential implications on multiple fronts; it could affect your savings, investments, loans, and even job prospects, as it might influence Federal Reserve's decisions on interest rates which permeate through every aspect of the economy. Understanding these economic shifts is crucial as it allows you to better navigate your financial decisions in a changing economic landscape.

Gross domestic product, or GDP, is a way to measure all the products and services a country makes in a specific period. In the first three months of this year, the GDP grew by 1.1% per year. This is not as good as what economists thought would happen, as they thought it would grow at 2% yearly. In Q4 of 2022, the GDP grew at a rate of 2.6%. A lower than expected GDP matters to risk assets because stronger economic growth tends to translate into higher corporate profits and investor risk appetite, which is positively correlated with risk assets.

Financial markets might be changing because of how much personal consumption expenditures (PCE) price index has increased. The PCE is a way to measure inflation, or how much prices are rising. The Federal Reserve pays close attention to this measure. The PCE jumped 4.2%, which is more than the 3.7% that was predicted.

The combination of people spending less and prices rising more, along with the lower-than-expected GDP growth, makes the economic growth for the first quarter of this year look less exciting. The big increase in inflation is mostly responsible for the flattening of the yield curve (meaning the difference between short and long-term interest rates is becoming smaller) because the higher PCE numbers are bad for short-term interest rates.

These numbers could change what the Federal Reserve decides to do at next week's meeting. It is expected that they will increase interest rates by 25 bps. I will pay close attention to what the Federal Reserve says to determine how long interest rates will stay high and when they might start to lower them again.

Crypto holders should pay attention to this economic data as it could significantly impact the crypto market. The anticipated increase in interest rates by the Federal Reserve could potentially strengthen the US dollar, which traditionally has an inverse relationship with crypto. If the dollar strengthens, we may see a decrease in the price of crypto as investors could shift towards traditional assets.Moreover, a lower-than-expected GDP growth rate could signal an economic downturn. In such scenarios, investors might seek safety in more traditional assets, putting downward pressure on cryptocurrencies.

Crypto Market data

During last week's complex pullback, Bitcoin retraced to $26,700. After losing $28k-$29k, I turned slightly bearish. Now that we have reclaimed that essential level, it should go to $32k. Losing that $28k level again will make me think that $25k is back on the table. If $25k does come, you buy it and don't think about it. At that point, it comes down to whether it can hold the 9-month range breakout. If it fails to maintain the breakout, it returns to sub $20k.

Last week, Ethereum was not as exciting as Bitcoin, and Ethereum is still not very interesting until we clear $1982. If we can break above $1982 and hold above it, I would buy some spot ETH. Buying at $1982 means I would sell between $2300 and $2500.

The Top

Last week, I spoke about it being the potential top because of the amount of froth in the market. The market proceeded to drop 10%. While I'm not sure that exact price was the top, we are getting close to the top. Looking at the recent price action, the amount of open interest and liquidated leveraged longs were insane. Over 10% of open interest was wiped out in 1 hour. Open interest refers to the total number of outstanding derivative contracts that have not been settled. Seeing such a drop in open interest shows that there are levels of degeneracy that I have not seen since November 2021. YET Bitcoin is trading at the same price before the wipeout.

While the price is back at previous highs, open interest isn't even halfway there. This shows a somewhat healthy market. On Thursday, there was a relentless spot bid supporting the market. As long as this mystery buyer keeps buying spot Bitcoin, we trade higher. I will monitor this momentum closely because it could get ugly going into May if this buyer disappears.

The DeFi Sector

With Ethereum taking a back seat this week, it also means that DeFi wasn't the strongest. We have a mix of red and green in DeFi, with Arbitrum and Cronos being one of the most significant gainers of the week.

Arbitrum, for a brief moment, passed its November 2021 TVL high. This is great to see, as on-chain participation for Arbitrum is back to its old levels. The issue is still that many unknown projects have had parabolic gains. This goes back to my argument that the market is filled with froth.

Cronos’ TVL has been beaten down in the last few months. In the previous bull market, a few people argued that Cronos was undervalued because they compared it to the Binance smart chain. When looking at the current TVL level, it is down close to 99%. I recommend keeping an eye on Cronos. The reason is that Cronos is connected to CEX Crypto.com. If a bull run occurs, most people flow towards centralized exchanges first, and then they explore the world of DeFi. Cronos being directly connected to a CEX is great for user acquisition.

The Narrative

There isn't a narrative that currently has any mainstream attention. For some, this is a bad thing. For me, this is the perfect scenario to find a sector within the space that could do well in the future.

Currently, I'm looking at two different potential narratives. The growing Bitcoin Economy and Asia will bring the next bull market.

While Bitcoin was not originally designed for DeFi and NFTs, developers have found innovative ways to build new applications and financial products on top of it. Read more about it here.

Asia has emerged as a critical player in the global crypto market, with several leading crypto projects and emerging trends shaping the future of finance. Asia is leading the charge in exploring the potential of this disruptive technology. So keep an eye on Asian crypto projects.

Best and worst performers

There is no narrative regarding the top gainers of the week. What interests me on this list is IDEX. IDEX is the first hybrid liquidity Decentralized Exchange (DEX) that provides a high-performance order book and matching engine blended with Automated Market Making (AMM) security and liquidity. The team behind IDEX just released their Layer 3. The basic premise behind Layer 3 is simple; push even more of the activity off-chain to reduce the cost of transacting without significantly affecting the security of transactions. By implementing their Layer 3 solution, IDEX can scale much more efficiently.

There isn't any narrative when it comes to the losers. Seeing Voyager on here is not surprising. The reason is that Binance.US has called off its $1.3 billion deal to buy its assets. Binance.US is not going through with the purchase due to the regulatory climate in the US. It will be interesting to see who steps up to buy Voyager.

The week ahead

Bitcoin has somewhat held its support, which is an extremely bullish reaction. Last week, we outlined two scenarios. It seems that Bitcoin is following the first scenario, holding support and potentially heading to $32K.

The upcoming week will be exciting to watch. May is notably one of the worst-performing months for Crypto. It's where the saying "Sell in May and Go away" originated. When looking at the chart, I don't get that same sentiment; the chart still looks good. If you are looking for intraday trades, I am buying all dips till $28k. Below that, and it's not looking good.

This upcoming week is the FOMC meeting. It is rumored that this 25 bps hike will be the final rate hike, and I don't think it should be. The FED has said they plan to hike rates depending on their data. The FED's favorite inflation metric just came in hotter than anticipated. The core PCE came in at 4.2%, while it was expected to be 3.7%. To say that the hiking cycle isn't the smartest take. The end of the hiking cycle will be data-dependent. If inflation remains higher than expected, expect the FED to raise rates further.