Week 50, 2023 - Weekly Market Outlook

Introduction

In this weekly market outlook, we examine the most recent updates in the cryptocurrency ecosystem. With an emphasis on Bitcoin and the macro environment, we analyze recent price action. We evaluate the global cryptocurency market cap, DeFi stablecoin flow and do a short review of the crypto market's biggest gainers and losers. Finally, we evaluate the performance of the Flagship Portfolio Vault.

Macro

The Federal Reserve, in its recent decision, maintained the benchmark interest rate at its 22-year high, a move widely anticipated by market observers. This decision comes alongside new projections from the central bank, indicating the likelihood of three rate cuts in the upcoming year. Jerome Powell, the Fed Chairman, suggested in a press conference that the current rates might be at or nearing their peak in this cycle of tightening. Despite discussions about potential rate reductions, the Fed hasn't ruled out the possibility of further increases.

Since July, the Fed has held the fed funds rate steady, ranging between 5.25% and 5.5%. This pause follows a series of 11 consecutive rate hikes starting in March 2022, aimed at curbing inflation. Recent months have seen a significant drop in inflation, fueling expectations that the Fed might soon lower rates. Such a move could reduce costs for consumers and businesses, although it would also decrease the interest rates on savings instruments like certificates of deposit, which are currently near their highest levels in decades.

Fed officials, in their remarks since the November meeting, have been cautious, emphasizing that it's premature to assume that monetary policy is sufficiently restrictive. They maintain readiness to increase rates further if inflation doesn't continue to decline. The challenge for the Fed is to decelerate the economy enough to control inflation without triggering a recession.

Fed officials are increasingly optimistic about achieving a "soft landing" for the economy, a scenario where the economy slows down enough to control inflation without leading to a recession. They forecast modest GDP growth and a slight increase in the unemployment rate, avoiding the severe downturns seen in previous cycles of rapid inflation and rate hikes. Powell acknowledged the strength of the economy in 2023 and expressed hope for continued growth, albeit at a slower pace, alongside progress in controlling inflation and maintaining a strong labor market.

Bitcoin

Bitcoin's market movements this week were characterized by relative stability in its range, with the price exceeding $44,000. With the window for the ETF approvals still open, but the deadline closing in, excitement seems to continue to build up and be priced in.

The U.S. Securities and Exchange Commission (SEC) is influencing Bitcoin Exchange-Traded Fund (ETF) issuers to adopt a cash redemption model for their ETFs. This development is highlighted by the recent actions of Invesco and Galaxy, who have updated their filings to reflect this change. The SEC's preference for a cash redemption model over the "in-kind" model, proposed by issuers like BlackRock, marks a significant shift in the approach to Bitcoin ETFs.

The core difference between the two models lies in how ETF shares are created and redeemed. In a cash creation model, an authorized participant deposits cash into the ETF, equivalent to the net asset value of the creation units. The fund then uses this cash to purchase the underlying asset, such as Bitcoin. This model offers more flexibility for fund participants but may lead to slightly wider spreads and potential tax inefficiencies.

Conversely, the in-kind model involves the deposit of a basket of securities that match the ETF’s portfolio composition. This method is generally more efficient as it avoids the costs associated with selling securities to raise cash. However, the SEC's push for a cash model suggests a preference for greater flexibility and possibly more control over the ETF's operations.

Top Gainers and Losers

As a top performer this week: Helium Mobile with over a 423.7% gain. There has also been growing hype around Helium and DePin on Solana.

The worst performing asset this week is Memecoin, MEME has no functions, no utility and no intrinsic value, no promise or expectation of any financial return, profit, interest or dividend.

Global Market cap

The total market capitalization of the cryptocurrency ecosystem has seen a growth in the past week, growing from $1.56 trillion to $1.68 trillion in the past 7 days. Over the last 3 day, we saw the market cap increase with over 5%. This could indicate that new money is flowing into the cryptocurrency ecosystem, contributing to a bullish market sentiment.

Stablecoin Flows

The total market capitalization of stablecoins has remains around its level at $127 billion. The Total Value Locked (TVL) of stablecoins in DeFi has risen to $94 billion for the last 7 days.

Flagship Portfolio Vault Performance

Over the past 7 days, the share price of the Portfolio Vault went from 39.27 to 39.49, which is a 0.56% increase.

Due to the recent rally and the fact that the Bitcoin ETF is largely accounted for, along with a slowdown in DeFi TVL and market cap during the rally, we have decided to remain bullish

If you’d like to access Flagship’s portfolio Vault, click here.