Market Commentary – January 25th, 2023

Crypto Market

At the time of writing, Bitcoin is trading at $22,700 USD and Ethereum at $1,555 USD. The main story of last week continues into this week, being that cryptocurrency outperforming all asset classes by posting significant gains with BTC suddenly surging by more than 7% last Friday after a brief pullback in the middle of the week.

Negative headlines about yet another bankruptcy have not managed to kill investor appetite with investors shrugging off news of Digital Currency Group filing for Chapter 11 bankruptcy protection to reorganize its assets. 
The crypto market did however retrace a tad mid-last week to rid itself of excessive froth at the same time Global stock markets pulled back. A large proportion of traders began taking profits on their long positions. This profit-taking was the largest since February 2021 for BTC, and the largest since October 2021 for ETH.

Regular profit-taking, as prices move up, could rid the market of excessive speculative activities which is a necessary purge to sustain a rising trend. The impressive part of the price action for both BTC and ETH last week was that despite the large amount of profit-taking, prices did not retreat but merely consolidated for a number of days. This may show there is underlying strength in the market, which could mean that prices could continue to be on a rising trend.

Macro

Federal Reserve Vice-Chair Brainard (a respected economist) implied a slowing of policy rate tightening, but that US rates would stay high for some time. Similar language about the persistence of high rates is expected to make sure speculation in markets are controlled. Fiercer language is required to generate a moderate market reaction.

The US hit the debt ceiling, and US Treasury markets barely noticed. US House Speaker McCarthy declared a default would not happen and based on markets reaction it is unlikely to be any serious problem economically before the second half of the year.

UK December retail sales were weaker than expected. Anecdotal evidence suggests pub and restaurant spending may have been prioritized (not included in retail sales). December producer price inflation is due from the UK and Spain. The general expectation is for pricing pressures to slow in line with the global trend. Producer prices represent corporate pricing power and do not include things like  housing prices and used car prices in its data.

US CPI growth is 5.1% higher over the last two years, but five-year forward inflation expectations are essentially unchanged. There is a probability structural forces may keep the annual growth rate in consumer prices elevated for much longer and substantially higher than currently priced into markets.

Equities, Fixed Income, FX and Commodities

Equities

Tech season earnings have arrived with investors curious to see if forward guidance can show more growth to come given the recent layoffs happening in the sector. With fourth-quarter earnings revised lower across the board, there is plenty of scope for upside surprises this season. Microsoft’s strong results were an example of that. Microsoft’s results were good but forward guidance were negative resulting in them giving a sales warning for the next quarter to come. 

Fixed Income, FX & Commodities

After hinting to the markets in December that it would amend its yield curve control (YCC) range, the BoJ shocked markets by maintaining the scheme in its monetary policy meeting early Wednesday Asia time. This led the yen to an instant drop of more than 2% against its peers, sending the USD/JPY up 300 pips from around 128 to above 131. 
The weaker dollar is supporting precious metals, with Gold and Silver rising about 1% each, while Oil continues to inch higher as China’ reopening provides oil traders with optimism about demand for oil going forward. For the week, Brent and WTI Crude have each gained by about 2%.

New’s we’ve been reading

  • Bankruptcy filings cited by CNBC show that BlockFi had USD ~416M of assets tied to FTX and USD ~830M in outstanding loans to Alameda Research. Creditor committee advisor M3 Partners also released a presentation that showed BlockFi earned USD ~14M in trading revenue from retail clients between May and November 2022. – link – @CNBC
  • Genesis is looking to reach a deal with creditors over the coming days, or will be forced to have a mediator appointed to lead its negotiations. According to a statement made in the firm’s first day of bankruptcy hearings, it is exploring a sale and distribution to creditors, or restructuring and giving creditors equity in the pro-forma entity. Genesis owes its top 50 creditors over USD 3B. – link – @Bloomberg
  • The New York Department of Financial Services (NYDFS) released customer protection guidance for licensed crypto custodians. The regulator said it expects custodians to ‘separately account for and segregate’ clients’ crypto holdings from corporate balances, both on-chain and within ‘internal ledger accounts.’ The NYDFS also elaborated on limited use of customers’ crypto by custodians, sub-custody arrangements, and disclosures. – link – @NYDFS
  • The FBI said North Korean hackers Lazarus Group and APT38 were responsible for the USD ~100M theft Harmony’s Horizon bridge suffered in June. The enforcement agency added that the groups laundered USD ~60M worth of ETH through privacy network Railgun last week, with the intention of funding national ballistic missile and WMD programs. – link – @Reuters

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

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