Good Volatility with More Macro Uncertainty Factors: Weekly Market Review


This week, the macro market changes and the internal changes in the crypto market have jointly provided favorable support for crypto prices, but at the same time pushed market volatility to a high level. Due to the repeated impact of the epidemic, the US employment data is low, thus reducing the economic recovery expectations in short-term. The continued flood of liquidity is conducive to pushing up crypto prices, while the new Ethereum destruction mechanism in London Update provides more potential for further improvement in Ethereum prices.

The Fed's disagreement over the central bank's digital currency (CBDC) has reduced the impact of the policy on non-central bank stable currencies in the future, but the Fed's gradual hardening of monetary policy has brought new medium and long-term uncertainties to the market.

Higher Volatility: The Return of Market Confidence

This week, the volatility of cryptos remained at a nearly 30-day high. Bitcoin historical volatility rose to around the 85 moving average, while Ethereum historical volatility rose to around the 90 moving average.

It is worth noting that professional investors have generally raised market expectations this week.As of this Friday, the implied volatility of Bitcoin has risen to above 90, while the "London upgrade" affected the implied volatility of Ethereum has risen to above 115. At the same time, combined with the skewness data, it can be found that the options market expectations have fully recovered, with short, medium and long-term optimism being included in the pricing.

In the futures market, the situation is similar. The positive premium of futures product basis on the Deribit exchange continues, indicating that the optimism that began last week has significantly pushed up market expectations.

The high market volatility, on the one hand, is due to the recovery of confidence in the crypto market, on the other hand, the impact of macro risk aversion can not be ignored. However, from the perspective of volatility difference data, the change in bitcoin volatility this week is actually not significant, while the change in Ethereum volatility is more obvious (up more than 20%). Affected by both internal and external factors in the market, the volatility of mainstream cryptos will continue to be at a high level in the near future, but due to the recent macroeconomic uncertainty, external influences may once again dominate the trend of the crypto market.

Supervision Is Competing for Power, But Greater Uncertainty Comes from the Macro Economy

This week, the regulatory news is mainly positive. The differences between the Federal Reserve, the US SEC and other institutions on regulatory issues, as well as the goodwill information released by the supervision of Singapore and other countries, are conducive to the development and compliance process of the crypto market, while more large companies and institutions joined the crypto-related camp this week. However, the Fed's comments this week on reducing bond purchases and reducing the supply of liquidity may create some uncertainty.

The Federal Reserve, the US SEC and other institutions have different attitudes on issues such as supervision and CBDC, but they are relatively good for the market.

  • SEC Chairman Gensler made a series of remarks on the crypto market this week. Gensler said that bitcoin and other cryptocurrencies are speculative-grade assets, and protecting investors is the top priority of the cryptocurrency market. Without rules, cryptocurrencies will not be able to realize their growth potential. Therefore, if cryptocurrencies are widely used, corresponding rules need to be regulated. Regarding stable currencies, he said stable currencies may be subject to securities and investment company laws. As for the definition of tokens, he believes that "many tokens may be a kind of securities", while stock tokens, securities-backed stable currencies and all virtual products that provide exposure to underlying securities are regulated by the SEC. In terms of regulatory policies, on the one hand, Gensler said that encrypted currency trading, lending and decentralized financial platforms should be the top priority of regulation, and the SEC will "do its best" in regulating encrypted currencies, calling on the US Congress to give more power and resources to regulate the trading of encrypted currencies. But on the other hand, he also sent a positive signal to regulated crypto products such as Bitcoin ETF, looking forward to reviewing the relevant applications of Bitcoin ETF, but "not in a hurry to approve".
  • US Senate Finance Committee Chairman Wyden and Senator Toomey have submitted amendments to the cryptocurrency tax provisions of the infrastructure bill. The amendment proposes to exclude miners and software developers from the definition of crypto "broker", so that crypto companies including miners and software developers are excluded from the tax reporting provisions in the bipartisan infrastructure bill, alleviating the tax concerns expected from the crypto market.
  • The battle between the US Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) over the supervision of cryptos is becoming increasingly clear. As the US Securities and Exchange Commission (SEC) called for a wider scope of supervision of the cryptocurrency industry, Brian Quintenz, commissioner of the US Commodity Futures Trading Commission (CFTC), said that cryptocurrencies such as Bitcoin (BTC) should be regulated by the CFTC rather than the SEC. Emphasizing that cryptocurrencies are commodities and therefore fall under the jurisdiction of the CFTC, he said that the SEC has no jurisdiction over pure commodities or their trading places, whether these commodities are wheat, gold, oil or encrypted assets. Christopher Giancarlo, former chairman of the CFTC, also made a similar statement on Twitter.
  • Federal Reserve Governor Waller expressed skepticism about the value of the central bank digital currency. He believes that the central bank digital currency of the Federal Reserve may reduce the intermediary role of commercial banks, and even without the central bank digital currency of the Federal Reserve, the status of the dollar will not be affected. In addition, US consumers trust bank accounts and may not flee bank accounts for the sake of central bank digital currencies.
  • There is no doubt that the hesitation of U.S. regulators in the supervision of cryptos and the competition for supervision rights will lengthen the expectation of crypto supervision, which will create more favorable space for the development of the crypto market and the coordination between the future and supervision.

Singapore, Uruguay and other countries have released further goodwill towards cryptos.

  • As of this week, the Financial Supervisory Authority of Singapore (MAS) has received 170 applications for digital payment token (DPT) licenses from service providers. Recently, MAS has notified some applicants and is preparing to issue payment service licenses to them in accordance with the Payment Services Act. However, applicants who have received such notices from MAS do not yet hold a payment service license. If the applicant takes necessary measures to meet the requirements of MAS for licensed operations, the license granted to the applicant by MAS will be received subsequently.
  • Uruguay Senator Juan Sartori introduced a bill on Tuesday aimed at making cryptocurrencies legal tender in the country. Under the bill, cryptoassets will be recognized and accepted by law and applied to any legitimate business, will be considered an effective method of payment, and if the bill becomes law, the government will issue a "first license" to enable companies to trade cryptoassets on exchanges. The second license will allow "storage, holding or custody of cryptoassets", while the third license will be used to issue cryptoassets or utility tokens with "financial characteristics".

More large institutions are using cryptos as a means of investment and payment. On the investment side, JPMorgan Chase announced the launch of an internal bitcoin fund for its wealthy customers; on the payment side, Coinbase (COIN. O) announced the integration of Apple Pay and Google Pay, and can provide instant cashing services in the United States; Xiaomi's official retailer Xiaomi Portugal recently began to support the use of encrypted currency payment, becoming another large e-commerce company that supports encrypted currency payment.

The Fed's liquidity tightening is expected to continue to strengthen, which may affect the upward process of asset prices.

Brad Bullard, chairman of the St Louis Fed, said the recovery of jobs next summer would meet the Fed's conditions for raising interest rates. Core PCE inflation is expected to be 2.5-3 per cent in 2022. The Fed should shrink its debt at a fairly rapid pace this autumn and end its program in the first quarter of 2022. Daley, chairman of the San Francisco Fed, said the Fed would be able to taper its bond purchases later this year or early next year. Kashkari, chairman of the Minneapolis Fed, said that if the job market was as strong as expected in the autumn, the threshold for "substantial further progress" would be reached.

It can be predicted that due to the internal coordination of supervision in the United States and the end of supervision measures in other major countries, the negative impact of supervision on the market will gradually weaken in the near future. Although there is an increase in benefits from institutions and supervision, considering that the expectation of liquidity tightening and the expectation of monetary policy conversion have had a significant impact on markets other than the crypto market, the impact of macroeconomic expectations on the crypto market in the near and medium term will be strengthened again and needs to be evaluated and dealt with in a timely manner.





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