Apr 27
High inflation has also hit the crypto market
The week of 18–25 April was a week of sideways movement for the crypto market, with occasional bursts of short-term volatility. The total cryptocurrency market capitalisation index started at $1.86 trillion and bottomed out the following day at $1.768 trillion. By the middle of the week there was a recovery, reaching a local high of $1.933 trillion.
By the end of the week, however, another drop off occurred, reaching a second local bottom at $1.735 trillion. The latest drop could come on the back of expectations of the forthcoming FED meeting at which a 0.5 percentage point key rate hike is possible.
The price of the “first cryptocurrency” had much the same trajectory this week. Bitcoin started around the 39 800 level, then found the “first local bottom” at 38 800. Then we could see a rise to 42 860, and then a “second bottom” at 38 360. Thus, the decrease at the end of the week was 3.6%, but we should point out the strong volatility during the week, which is caused by the high level of uncertainty in the markets.
Etherium had a similar chart with a typical “double bottom” structure, but the volatility was slightly lower. The starting point was 2980, followed by the first local bottom at 2890. This was followed by a rise to 3170 and then a second local bottom around 2800. Further movement will largely depend on whether the price finally consolidates below 3000.
News
Twitter is on the verge of closing a deal to sell the company to Elon Musk for $46.5 billion. The move would unite the world’s richest man with the influential social network. According to media reports, the deal could be completed as early as Monday. The DOGE exchange rate rose 9 percent on the news (there is speculation that the entrepreneur may integrate the cryptocurrency into the social networking interface).
Blockchain security company CertiK has raised an additional $60m just two weeks after announcing an $88m Series B3 round for a total valuation of $2bn. According to the company’s CEO, the latest round of funding is being driven by investor demand. SoftBank Vision Fund and Tiger Global are the only participants in the round. This is SoftBank’s first investment in a blockchain security company. CertiK’s valuation doubled in just three months as the rise in cryptocurrency hacks highlighted the need for security.
Kraken has become the first crypto-exchange to be licensed to operate a regulated digital asset platform in Abu Dhabi. The exchange will allow its more than 8 million users worldwide to invest, trade, fund and withdraw virtual assets directly in dirhams. Previously, Binance and FTX entered the UAE market.
Venture capital titan Andreessen Horowitz (a16z) is diving deeper into the crypto sphere and launching a new academic lab to address the research challenges facing the rapidly evolving digital asset industry. A16z Crypto Research, will be led by Tim Roughgarden, a renowned game theory expert and professor at Stanford and Columbia University. He was hired by a16z as a research adviser last year and will now take over as head of research. The new lab will focus on identifying and solving fundamental research problems that stand in the way of mass cryptocurrency proliferation and will also assist some of the fund’s portfolio companies.
Market situation
Derivatives market activity is declining, but is at levels significantly higher than before the bull market period of 2020–2021. High inflation has also reached the crypto market — at an average level of more than 7–8% the yield from the funding rate collection between perpetual Bitcoin futures and quarterly futures of 3% is no longer as interesting for investors.
Although the market is rather volatile in the short term, in the longer run the level of volatility is still declining. In such a situation it could be interesting to buy semi-annual options with a 0.2 delta — after an initial refinancing rate hike period, the first results of central bank policy could be assessed by the end of the summer. In case actions have a positive effect, this fact could be a strong growth driver for the market.
The underlying Open Interest concentration of 48 000 calls and 30 000 puts reflects the importance of the current 40 000 level for bitcoin. At the moment, put options are for the most part used as insurance rather than a method of directional trading.
Over the past week, the main trading activity was in monthly and quarterly options (with an exercise date in June). The predominant trading volume of call options at 48 000 and 60 000 levels was formed due to lower premiums as the bitcoin price fell in the second half of the week, and an interesting opportunity to buy expected volatility for less money than before.
Globally, the cryptocurrency market continues to be in a consolidation phase. Bitcoin stocks on exchanges are declining and volatility is falling due to the acquired high correlation with the traditional finance market, but overall interest and liquidity levels remain well above pre-covid levels, creating a potentially strong base for future growth.
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