At the time of writing, Bitcoin is trading at $24,560 USD and Ethereum at $1,686 USD. The digital asset market experienced its first significant pullback since the rally throughout January, retracing from a weekly high of $23.3k to a low of $21.5k up until yesterday, Wednesday Feb 15th. According to Glassnode, the pullback from the local high signalled a point of high unrealized profit for new buyers. As markets started this new week with renewed risk on sentiment, Bitcoin was able to reclaim $24,000 USD and make new 2023 highs.
There was significant regulatory news coming out of the United States last week, such as the SEC issuing a fine to Kraken for their staking services, legal action by the SEC against Paxos for issuing the BUSD stablecoin, as well as several actions against crypto banking partners and payment providers. This may have contributed to the pullback we saw in price which has now been reclaimed. At this point, details of the SEC’s allegations against Paxos remain unclear. The BUSD stablecoin has unique characteristics, i.e. its issuance on BNB Chain. It remains to be seen to what extent these characteristics have impacted the SEC’s motives. Unless the SEC formally charges Paxos, and further information is provided, it may be difficult to draw conclusions about possible implications beyond Paxos’ unique arrangement regarding BUSD.
Recent weeks have also seen the somewhat surprising introduction of NFTs hosted on the Bitcoin blockchain in the form of Ordinals and Inscriptions, with over 69k Inscriptions already created. As a result, there has been a significant uplift in Bitcoin network activity, and rising fee pressure.
Early last week on Tuesday, Fed Chair Powell again reiterated the same thing he said in the post Fed meeting press conference, emphasizing that more rate hikes may need to be done even though the economy is showing signs of disinflation. Market participants however, decided to take it as a dovish signal, with stocks and crypto bouncing higher after the speech.
With more Fed speakers taking to the media to speak hawkishly over the week, traders are beginning to buy into the higher rate narrative, as can be seen in the marked increase in expected fed fund rates. Terminal rate expectations have now risen to 5.16% from 4.9% just a week ago, and the 10-year Treasury yield has climbed to 3.743% as at the close of Friday, from 3.65% at the start of the week. The CPI data released this past Tuesday showed the 7th straight deceleration in inflation (annual pace) but at the high end of all analysts’ expectations.
Yesterday’s US retail sales also showed consumers’ shifting consumption. Spending in bars and restaurants fell less than normal in January, so seasonal adjustments flattered the data into boosting nominal retail sales. As consumer preferences change, investors may need to re-examine their assumptions about parts of the economy.
US January producer price inflation is likely to accelerate a little compared to December (many firms raise prices at the start of the year), but the yearly change has been for disinflation. The better than expected, otherwise investors may start feeling risk off again.
Equities, Fixed Income, FX and Commodities
Last week, stocks bounced higher to start the week after the market took Fed Chair Jerome Powell’s speech as a dovish signal. However, a series of earnings disappointments sent stock prices lower again by mid-week. Shares of Alphabet led the declines after its AI bot Bard produced an inaccurate response during the tool’s first demo. As a result, the Dow ended last week lower by 0.17%, while the Nasdaq and S&P lost 1.11% and 2.41%, respectively, in their worst week since December. However, after Tuesday’s CPI report markets are having a positive reaction and are attempted to bounce back to its 2023 highs.
Fixed Income, FX & Commodities
While the dollar was stronger, Gold only lost 0.02%. Silver however, gave back a bit more, losing around 1.3% over the week. At the start of this new week, the dollar has continued its upward trajectory and may continue to put on more strength ahead of the January CPI data that will be due out on Tuesday. As a result of the dollar’s strength, precious metals have started the new week around 0.3% lower.
Oil was the outlier last week, putting in its best week since last October, after Russia announced that it will cut output by 500,000 barrels per day in March. This amount would translate to around 5% of its regular output. The news sent the WTI rising by around 8.63%. However, with the current dollar strength, oil has started this new week pulling back by around 0.7%.
News we’ve been reading
- Ethereum scaling layer-2 Polygon set March 27 for the beta launch of its zero-knowledge Ethereum Virtual Machine (zkEVM) mainnet. The network uses ‘zero-knowledge proof (ZK) rollup tech,’ which aims to increase throughput, reduce fees, and reduce latency by batching a large number of transactions and posting them to the base network for additional security. – link – @Polygon
- A number of former FTX and Alameda executives and insiders received subpoenas from the exchange’s US bankruptcy administrators. Those subpoenaed include Caroline Ellison, Gary Wang, Nishad Singh, Sam Bankman-Fried, and Bankman-Fried’s father Joseph Bankman. Bankman-Fried is required to produce requested documents by February 17, while the others are required to do so by February 16. – link – @CoinDesk
- The IMF said El Salvador’s government should reconsider its plans to increase exposure to BTC. In a statement published Friday, the agency added that the country’s embrace has yet to materialize and contains risks such as legal and ‘fiscal fragility.’ The IMF has been critical of El Salvador’s BTC strategy since the nation adopted the asset as legal tender in 2021. – link – @Reuters
- The SEC plans to propose rules to make qualification requirements of ‘qualified custodians’ more strict, according to sources cited by Bloomberg. Check out this guide on understanding T1 basics in Canada. The report describes the proposal as an effort to make it harder for crypto firms to obtain the designation and restrict the ability to work with investment managers. – link – @Bloomberg
The fine print
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