Taper is Approaching, Focusing on Macro Factors: Blofin Weekly Market Review


- This week, macroeconomic factors have had a significant impact on the crypto market. - Due to relatively stable market expectations, the volatility of mainstream cryptos decreased significantly this week, and the speculative activity of derivatives decreased, but the transaction activity in the spot market increased. - The impact of macroeconomic factors on the crypto market is concentrated in prices and does not affect volatility. The monthly retail sales rate in July was lower than expected, resulting in a short correction in the prices of mainstream cryptos. However, the good performance of jobless claims data at the beginning of last week and good information in the crypto industry stimulated investors' expectations to rise and asset prices to return to high levels. - Regulatory and security incidents have limited impact on the performance of mainstream cryptos this week.

Volatility Declined, While Market Expectations Remained

After the volatility of cryptos stagnated last week, the volatility of the crypto market declined significantly this week. As of this Friday, the historical volatility of Bitcoin has dropped to below 60, and the historical volatility of Ethereum has dropped to below 80. Judging from the annual data, the current volatility of mainstream cryptos is basically the same as that in the first half of April, which means that the market volatility may be close to the bottom, and caution should be exercised in shorting volatility strategies.

From the perspective of skewness, mainstream cryptos' neutral sentiment continues. However, it is worth noting that there has been a certain decline in forward skewness. Investors seem to be lowering forward expectations, and the rise in the probability of early marginal contraction of market liquidity is the main reason.

The market expectations of the options sellers have remained at a relatively high level in the near future, and there has been no major change. From the perspective of the futures market, market expectations are also relatively stable: mainstream crypto futures products in major futures exchanges (Deribit, OKEX, FTX) have maintained a significant positive premium of about 7% to 9%, and even CME, an exchange dominated by traditional market investors with conservative investment styles, has also seen a positive premium of more than 3%.

Macro Factors Still Dominate the Rhythm of Market

This week, regulators were more active than last week, taking frequent actions on transaction compliance, but did not have a significant impact on the crypto market.

  • Spain's National Securities Market Commission (CNMV) and the People's Bank of China have punished some exchanges for unlicensed operations, trading, publicity and other acts.
  • The Australian Securities and Investments Commission (ASIC) issued a notice warning investors not to trade cryptos on platforms that do not hold an Australian Financial Services (AFS) license, and pointed out that investing in crypto derivatives trading is too risky.
  • Some Fed officials also expressed concern about the risks of trading cryptos at this week's Fed meeting.
  • Iran's National Tax Administration (INTA) has put forward proposals on a new legal system for crypto trading, aiming to increase fiscal revenue through exchange compliance and taxation.
  • Regulatory action against Binance continues: Binance is banned from operating in the Netherlands for its violation of various Dutch laws, according to a statement issued by the Dutch central bank on August 18. The Dutch central bank is likely to take action against Binance, but details are not yet clear. In addition, traders seeking compensation from Binance for service disruptions during market turmoil earlier this year have received financial support to prepare for one of the largest legal battles to date against the exchange. They have filed claims totalling more than $20M dollars against the exchange and hope to unite hundreds more traders. Binance is aggressively hiring a compliance team to deal with the situation. Chief executive Zhao Changpeng said the priority was to "recruit people with compliance and regulatory experience". The company is also seeking regular meetings with US officials.
  • The US Treasury is preparing guidance to help define "crypto brokers", which could be published as early as next week.

Some practitioners in the crypto industry have welcomed the regulation. They believe that stricter regulation of cryptos may stimulate the demand for cryptos. At present, due to the fear of fraud, the lack of supervision fees has prevented some investors from using cryptos, because not all investors are willing to bear the risk of fraud, which is not protected by law. The regulatory clampdown may lead to wider adoption of cryptos, because it will strengthen people's investment. This will affect the price of cryptos in a "positive way".

Institutions are increasingly interested in investing in cryptos and crypto-related industries.

  • Last weekend data showed that net short positions in bitcoin futures reached their lowest level since mid-May. Traders were forced to exit short positions in bitcoin and Ethereum and began to build long positions. The clear signs of improved demand in the futures market indicate that institutional demand for cryptos is rising.
  • This week, Wells Fargo registered a private bitcoin fund.
  • Tech giants are beginning to lay out or strengthen their presence in the field of cryptos: Intel bought more than 3,000 shares of Coinbase for its first investment in the field of cryptos, while Facebook's crypto division has set its sights on third-party stable currency transactions.
  • crypto-related companies are widely favored: Bitpanda, the European crypto trading platform, raised $263M in a new round of financing and reached a valuation of $4.1B. 5 months ago, the company was worth only $1.2B. Bitcoin miner Iris Energy is expected to list on Nasdaq in the fourth quarter of 2021. Jefferies and Barclays have become joint bookrunners of London-listed miner Argo Blockchain.
  • Coinbase announced this week that it will reinvest 10% of its profits in cryptos and is already preparing to buy $500M cryptos. In addition, Coinbase has teamed up with Mitsubishi UFJ Financial Group to create a crypto exchange in Japan that allows customers to use accounts with Mitsubishi Bank to buy and sell cryptos.

On the macro-economic front, due to the spread of the epidemic again, the economic stimulus plan and liquidity supply have continued, which is beneficial to maintaining high prices of cryptos.

Affected by the epidemic, the New Zealand Reserve Bank (RBNZ)decided to cancel the interest rate hike plan this week and keep the interest rate low. As a hawkish central bank, the RBNZ's attitude shows that in order to fight the epidemic, it will not tighten liquidity for the time being. Considering that the attitude of major western countries is generally more moderate than that of the RBNZ, the liquidity tightening is expected to ease somewhat.

The number of first-time US jobless claims last week was 348K, the smallest increase since the week of March 14, 2020, and the fourth consecutive week of decline, indicating that employment growth was strong last month. The minutes of this week's Federal Reserve meeting pointed out that most people believe that a proportional reduction in the purchase of residential mortgage-backed securities and treasury bonds is beneficial. The decision to reduce debt has nothing to do with the timing of interest rate hikes, and the Federal Reserve may reach the threshold for reducing the scale of debt purchases this year.

Most participants pointed out that the spread of the Delta virus could temporarily delay a full economic restart. Recent inflation data have been affected by supply bottlenecks and labour shortages and are likely to be temporary. Rosengren, chairman of the Boston Federal Reserve, said he would support a reduction in bond purchases starting next month, as large-scale bond purchases are not suitable for the US. On the same day, Brad, chairman of the St Louis Fed, said he would prefer to reduce the scale of bond purchases in the first quarter of 2022. The Fed is expected to allow the balance sheet to be reduced after the reduction is completed, allowing market pricing to control long-term credit markets. The fourth quarter of 2022 is a reasonable time to raise interest rates.

Although the Fed Taper (tightening liquidity) is expected to advance, but the first phase of measures to reduce debt-based, only to tighten marginal liquidity, the near-term impact on asset prices is small. However, as the economy recovers, future scale reductions and even interest rate hikes will have a significant impact on crypto prices. Next week, PMI data from major developed countries, consumer confidence index and the new issue of US jobless claims will be released one by one, further judgment on macroeconomic trends will become the core factor affecting the expectations of crypto investors, and next week's monthly derivatives delivery will also push up market volatility together with macro factors.





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