Week 19, 2023 - Weekly Market Outlook

TLDR

• Crypto market faces regulatory changes
• UAE Royal Group invests in digital currencies
• US inflation slows down
• Bitcoin and Ethereum prices fluctuate
• BRC-20 tokens cause congestion

Introduction

The crypto market has witnessed significant recent developments and fluctuations, largely influenced by macroeconomic factors and regulatory changes. Market liquidity is transforming. From stricter regulations imposed by the US government on digital currencies to the shifting investment strategies of major trading firms like Jane Street and Jump Trading. Additionally, the actions of prominent players, such as the UAE Royal Group's strategic investments and the emergence of BRC-20 tokens on the Bitcoin network, contribute to the evolving landscape. In this article, we will delve into these recent events, examine their implications for the DeFi sector, and provide insights into the market dynamics and potential narratives that may shape the future of cryptocurrencies.

Market Liquidity is changing

The US government is getting stricter with rules for trading crypto. Market makers have to think about what this means for them. Two big trading firms, Jane Street and Jump Trading, are changing how they work with cryptocurrencies. They're not stopping completely, but they're making changes to fit with the new rules.

Jane Street has stopped buying and selling some types of cryptocurrencies on certain US trading websites. They do this to follow the new rules and avoid legal problems. Jump Trading is also changing its ways, and they're doing this to manage its risk and avoid any problems with the new regulations in the future.

These decisions show how companies are being careful with the new rules. While crypto can be profitable, the unclear rules can also be risky. So, these companies are choosing to follow the rules instead of trying to make a quick profit. When companies like Jane Street and Jump Trading make changes, it helps shape the future. How well the industry can handle these rule changes could play a big part in whether it will be successful in the long run. As the industry continues to evolve, its ability to handle rule changes will depend on the collaboration between regulators and market participants to ensure a balance between investor protection and innovation.

UAE Royal group buys crypto

The Royal Group, a company controlled by a top royal family member in Abu Dhabi, expects the US stock market to drop. They're betting billions of dollars that US stocks will drop because people are worried about a possible recession, which means the economy might slow down.

At the start of the year, the Royal Group became less bullish about stocks. Instead, they moved more money into short-term US government bonds, known as Treasuries, and this is usually seen as a safer investment. The company, led by Sheikh Tahnoon bin Zayed Al Nahyan, also put more money into commodities and digital currencies like Bitcoin.

Last year, the Royal Group made money on some of their investments in the US and changed the list of US stocks they wanted to buy. They plan to invest more in the US when stock prices get better and when the US Federal Reserve suggests that it may lower interest rates.

The Royal Group owns parts of many different companies, and it's difficult to know how much all their assets are worth. A group that keeps track of wealth funds worldwide estimates that the Royal Group's holdings are worth about $170 billion.

Recently, the Royal Group has been investing more in developing countries. But with less money available in many markets, the Royal Group is becoming a big player in global finance. They're using their investments to help the oil-rich country of Abu Dhabi depend less on oil and more on other types of businesses.

Despite concerns about a possible recession, the Royal Group hopes to take advantage of the uncertain mood in the market. Even though the value of stocks has been steady since the start of April, the S&P 500 has gone up about 5% this year.

US Inflation

Prices for consumers went up 4.9% compared to last year. This is less than the 5% increase seen in March and much less than the 40-year high of 9.1% June 2022. This is the smallest yearly increase since April 2021. From one month to the next, prices increased by 0.4%, after a smaller increase of 0.1% in March.

The recent report on inflation has good and bad news for people shopping and filling up their cars with gas. Gas prices went up by 3% in April alone. On the other hand, the cost of groceries has gone down for two months in a row. The price of used cars rose 4.4% after dropping for nine months. The cost of renting a place to live is still increasing, but not as fast as before.

There were also signs that inflation, or the general price increase, was slowing down. The cost of airline tickets fell by 2.6% in April, and hotel prices went down by 3% after increasing for four months.

Even though inflation is only going down a bit at a time, the Federal Reserve indicated last week that it might stop its strong efforts that have raised a key interest rate by 5% over the past 14 months. Officials at the Fed think that the failure of Silicon Valley Bank and two other banks will likely make it harder to get loans, which could slow down the economy and inflation. This means the central bank might have to do less.

Crypto Market data

Bitcoin is finally breaking from its 8-week range of $26,700-$30,500. There are a couple of scenarios that could play out here. Based on sentiment and the current open interest favoring more downside, I would buy some crypto. That does not blindly mean buying right now. I see two possibilities to get crypto exposure.

1. We break below and then reclaim $26,700. This would invalidate the bearish breakdown and be quite bullish. I would target about $30,000 as the first take profit.
2. Buying $24,000- $25,000. I have spoken about the 9-month retest for the last two months. I still stand by this. Buy the 9-month retest; if it doesn't hold, you can buy Bitcoin below $20,000. Buying below $20,000 is one of the best cases.

It is crucial to note that these scenarios are hypothetical and can be changed because of different information.

Ethereum broke above $1982 for a couple of hours on a Saturday. Ethereum looks very weak, and the chart looks even worse. Until $2000 is reclaimed, I plan to buy Ethereum at $1450 or $900. Till then, Bitcoin looks like the better chart.

BRC-20 Frenzy

BRC-20 tokens are a new kind of asset that is made and kept on the Bitcoin network. They let users create and trade tokens on the Bitcoin network by writing data onto satoshis, the smallest piece of a Bitcoin. An anonymous person who analyzes data on the blockchain, named Domo, created the BRC-20 token standard in March. This was done to allow tokens that can be replaced with each other to be made and moved on the Bitcoin blockchain.

More than 14,300 BRC-20 tokens have been issued on the Bitcoin blockchain since the standard was launched, according to blockchain data tracker BRC-20.io. Memecoins, including ORDI and PEPE (not to be confused with the Ethereum-based PEPE memecoin), have grown to a market cap of over $350 million.

The meteoric rise of BRC-20 tokens and Ordinal inscriptions on the Bitcoin network has led to significant congestion, skyrocketing transaction fees, and processing delays, which reflect the growing interest in the digital asset ecosystem. Despite these challenges, the enthusiasm surrounding the expanding Bitcoin economy is evident.

The DeFi Sector

With Ethereum taking a back seat this week, it also means that DeFi could have been better. The strongest chain has been Kava. Kava seems to be the biggest winner because of some new projects launching on Kava.

Toreus is a lending market built on the Kava Co-Chain that uses the Geist model, allowing users to earn interest on their crypto assets. The lending market is powered by the Kava Community and secured by Tendermint Consensus. Toreus is up 78% this week.

Mare Finance is a lending and borrowing platform on the Kava blockchain that allows users to earn rewards by supplying and borrowing crypto assets. It is a decentralized, non-custodial liquidity market protocol on Kava. You can Farm Mare on Kava and Equilibre, and Mare has $28 million in TVL.

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.

A sector that has not gotten much love is Real World Assets (RWA). RWA refers to tokenizing traditional financial instruments of value, such as stocks, precious metals and credit. RWAs are a vital building block for crypto’s long-term vision of “the tokenization of everything”.

RWA could be the next sector within the crypto space to be the next narrative, and it could take some time before it is recognized as the next narrative. In the meantime, to learn more about RWA, check out our articles about RWA.

Best and worst performers

Ladys, is the Milady Meme coin. Ladys is up this week because of Elon Musk. Elon recently tweeted about Milady causing the NFT floor to 2x in a couple of hours. But it also caused the Ladys to skyrocket to a $100 Million Market Cap.

There isn't any narrative about the losers; the coins on this list are just random coins. Seeing Liquity on here is interesting because it is a very solid project. Liquity could be a great project to pick up for your long-term portfolio.

The week ahead

As mentioned, Bitcoin has broken down from its 8-week range. When an asset breaks out of its range, it usually takes a while to find balance again. We will be waiting for that balance to take place. That balance might take place at $24,000-$25,000. Till then, there is no point trying to catch a falling knife. The only person that cares about catching a falling knife is a degenerate gambler. Please wait for the knife to fall and then pick it up. The chances of you hurting yourself are smaller. The same goes for trading. Wait for the market to present an opportunity. Till the opportunity presents itself, it's best to wait from the sidelines. It's also great to start researching new narratives and projects. You can read those here.