Market Commentary – January 11th, 2023

Crypto Market

At the time of writing, Bitcoin is trading at $17,500 USD and Ethereum at $1,341 USD. Crypto markets are infamous for their volatility, however in spite of this, the holiday break was exceptionally quiet. Realized volatility over December for BTC declined to multi-year lows of 24.6%, of which there are very few instances with similar levels. However, all prior examples preceded much higher volatility environments on the road ahead, with most trading higher, and just one (Nov 2018) trading dramatically lower.

On-chain activity for Ethereum and Bitcoin remain low. Bitcoin inflow volumes to exchanges are currently between $350M and $400M/day, which are a far cry from the multi-billion dollar levels seen throughout in 2021-22.

Despite BTC being ~75% below record high prices set in 2021 and the lack of on-chain activity, long-term BTC holders have not been deterred. The percentage of BTC which has remained unmoved for over a year has remained high. At the beginning of 2022 it was at 57%, and increased to 66% by the end of the year.

BTC finally managed to peek above $17,000 on Sunday, while ETH and altcoins fared better. ETH rose 7% for the week, unaffected by news that crypto giant Digital Currency Group (DCG) is being investigated by the US Department of Justice over dubious financial transfers between itself and its subsidiary, Genesis Trading.

Macro

Last Friday’s non-farm payrolls beat gave stocks a great positive start to the year 2023 as US indices rallied in the first trading week of the year. The December nonfarm payrolls report showed the US economy added 223,000 jobs last month, slightly higher than the expected 200,000 jobs economists expected. In addition, wages grew slower than anticipated, increasing 0.3% on the month where economists expected 0.4%, which the markets cheered. 
Investors appeared to like opening the year with optimism as even the slowdown in the ISM services PMI was viewed as a positive instead of a negative as fears of recession were put on the backfoot. Experts chose to see this as a sign that the Fed’s past rate hikes was showing its impact instead of viewing it as a sign of economic slowdown.

US December CPI data will be released tomorrow at 8:30am est (Thursday January 12). The latest CPI reports released showed that inflation is slowing down both for the US as well as in Europe to the relief of market participants who feel that global central banks will have reason to slow down their rate hikes going forward. Investors are hoping that tomorrow’s CPI report will show a continuation of this trend.

Equities, Fixed Income, FX and Commodities

Equities

Last Friday saw the best gains for both the Dow and S&P since November 30 as every Dow component ended up. For the week, the Dow and S&P each rose about 1.5%, and the Nasdaq gained 1%. Investors may be speculating that inflation will continue to slow down in the coming months which could explain the recent optimism.

Fixed Income, FX & Commodities

Oil fell for the first trading week in the new year due to the effect of the surge in China’s COVID cases and fears of a global recession even in spite of a weaker dollar. Brent Crude fell 8% and the WTI fell almost 10% as the fear of demand destruction sent prices tumbling.

USD weakened after the jobs report sending DXY,  the US dollar index, back down to the 103 level after a brief rally earlier in the week which sent it above 105. Gold rose 2.4% because of the weaker dollar while Silver was pretty much unchanged.

New’s we’ve been reading

  • Digital Currency Group (DCG) founder and CEO Barry Silbert published a shareholder letter and Q&A on the firm’s operations and current financial position. Silbert attempted to describe the firm’s relationship with its portfolio companies, including Genesis, as well as failed crypto companies such as Three Arrows Capital, Celsius, and Terra (LUNA). Separately, Gemini terminated its loan agreement with DCG’s subsidiary Genesis, and ended its Earn program. Gemini Co-founder Cameron Winklevoss claims Genesis defrauded 340k Earn customers, and called for DCG’s board to remove Silbert as CEO. – link – @DCG
  • Toronto-based Coinsquare terminated its agreement to purchase fellow crypto trading platform Simply Digital from CoinSmart (NEO: SMRT). The deal, announced in September 2022, was a cash and stock purchase worth USD ~26M with a potential USD 20M cash, USD 4.9M stock earn-out for CoinSmart. – link – @CoinSmart
  • Coinbase (NASDAQ: COIN) is laying off 950 employees, representing ~20% of the exchange’s workforce. In a blog post shared this morning, CEO Brian Armstrong said the change is part of an effort to reduce operating expenses by ~25% compared to last quarter. Coinbase previously laid off ~1,200 employees last spring, and ~60 in the fall. – link – @Bloomberg
  • BlockFi said it expects to file information on its assets and liabilities in bankruptcy court tomorrow. The filing will also ‘disclose certain payments made by BlockFi to insiders and other parties prior to the bankruptcy filing.’ The company also claims it has contacted 106 potential buyers, and will seek approval for bidding procedures later this month. – link – @BlockFi

The fine print

Disclaimer

This confidential presentation has been prepared by Coinsquare Ltd., together with its respective affiliates  (the “Company”) solely for information and/or educational purposes. It shall not be construed as investment advice. Information contained herein does not purport to be complete and is subject to certain qualifications and assumptions and should not be exclusively relied upon for the purpose of making any investment or entering into any transaction in relation therewith. Neither the Company nor any of its representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this presentation by you or any of your representatives or for omissions from the information in this presentation. The information and opinions contained in this document are provided as at the date hereof and are subject to change without notice and, in furnishing this document, the Company does not undertake or agree to any obligation to provide recipients with access to any additional information or to update or correct the document. This document has not been reviewed or approved by any securities administrator in any jurisdiction. This presentation or the information contained herein is not to be given to any person other than the person or group that was provided with the presentation directly  by the Company or their advisors and is not to be reproduced in any manner whatsoever. Any further distribution or reproduction of this presentation in whole or in part, or the disclosure of any of its contents by the recipient, is unauthorized. Interested investors are not advised to rely solely on this document in forming investment decisions and are strongly advised to conduct further due diligence by requesting additional information from the company before making any such investment decisions. Unless otherwise noted, all figures expressed herein are in Canadian dollars. Coinsquare Wealth advisors cannot provide investment advice.

Forward-Looking Information

Certain of the information contained in this confidential presentation may contain “forward-looking information”. Forward-looking information and statements may include, among others, statements regarding the future plans, costs, objectives or performance of the Company, or the assumptions underlying any of the foregoing. In this presentation, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”,  “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. The actual results of the Company could vary from the forward-looking information contained herein, including as a result of such risks as a collapse in the market for cryptocurrencies, adverse regulatory developments and competition from other cryptocurrency custodians. Forward-looking statements and information are based on information available at the time and/or management’s good-faith belief with respect to future events and are subject to known or unknown risks, uncertainties, assumptions and other unpredictable factors, many of which are beyond the company’s control. The forward-looking information contained herein was developed based on assumptions related to, among other things, the continued growth of the cryptocurrency market, the company’s ability to obtain a license from the Alberta Treasury Board and Finance to operate a trust company or to receive a license from  the applicable securities commissions as a clearing agent, grow its market share and the viability of the Company’s intended future product offerings. The Company does not intend, nor does it undertake any obligation, to update or revise any forward-looking information or statements contained in this presentation to reflect subsequent information, events or circumstances or otherwise, except if required by applicable laws. The Company is a new company with no operating history; and it may not actually achieve its plans, projections, or expectations. Important factors that could cause actual results to differ materially from the Company’s expectations include, consumer sentiment towards the Company’s products and blockchain technology generally, litigation, global economic climate, equipment failures, increase in operating costs, decrease in the price of cryptocurrency, security threats, government regulations, loss of key employees and consultants, additional funding requirements, changes in laws, technology failures, competition, and failure of counter-parties to perform their contractual obligations. Neither the Company nor any of our representatives make any representation or warranty, express or implied, as to the accuracy, sufficiency or completeness of the information in this presentation. Certain information contained herein is based on, or derived from, information provided by independent third-party sources. The Company believes that such information is accurate and that the sources from which it has been obtained are reliable. The Company cannot guarantee the accuracy of such information, however, and has not independently verified the assumptions on which such information is based. The Company does not assume any responsibility for the accuracy or completeness of such information.

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