17 Apr Bitfinex Alpha | Rate pause coming soon as BTC trading enters a lull
The Consumer Price Index (CPI) reading improved in March, albeit remaining obstinately high. The monthly rate of inflation decreased primarily due to a significant decline in energy prices. Excluding food and energy, core inflation persists. However, we think enough work has been done over the past year to allow for a pause in rate hikes. While we expect another 25 basis points on May 3rd, after that we expect a lull in further tightening.
Supporting this view is the fact that the Producer Price Index (PPI), or wholesale inflation, witnessed the largest drop in nearly three years. The significant decline in energy prices and trade services partially exaggerated the decline in the index, and although energy prices could spike again following the announcement of an oil production cut by OPEC+ earlier this month, there should be enough downward pressure elsewhere to allow the Fed to give the economy a breather from further tightening.
Indeed, a review of the last FOMC minutes, show that there was some concern that the stress on the banking system, following the collapse of two mid-sized banks, could negatively impact economic growth.
The Small Business Optimism Index too, indicates that small business owners in the US are grappling with elevated prices due to inflation. Concurrently, retail sales in March experienced the most significant drop in four months, demonstrating that business owners are witnessing a decrease in sales caused by the slowing US economy and the shift in consumer spending habits.
All this is feeding into the calculus of further interest rate hikes. The verdict by the market seems to be: tighten one more time for good measure and then let the economy run.
In the crypto markets, Bitcoin spot trading volumes have experienced a substantial decline since reaching a significant peak last month. Spot volumes on major exchanges amounted to approximately just $16.4 billion on 14th April, in stark contrast to the mean $70 billion reported at the same time in the previous month. Bitcoin futures and options volumes have also notably diminished in mid-April.
This waning in trading volume coincides with a transitional period in the market, as the spot buying rally in Q1 2023 has attenuated in recent weeks. A potential factor is BTC crossing the important $30,000 level, prompting larger traders to take profits or hedge their positions.
Despite the decrease in trading volume, long-term on-chain metrics remain propitious, suggesting a positive outlook for Bitcoin in the medium to long term. Key on-chain metrics, such as daily active addresses, addresses with a non-zero balance, and unique on-chain entities holding at least one BTC, all evince growing adoption of Bitcoin as a store of value and means of payment. One significant milestone to observe in Bitcoin’s cost-basis metrics is when the realised price crosses back above the long-term holder’s realised price, signalling a shift in market sentiment from bearish to bullish.
Alongside all these market dynamics, it has also been a busy week across the rest of the crypto industry including the succesful Shapella upgrade of the Ethereum network, which allows stakers to withdraw their Ether for the first time in 28 months.
FTX, the beleaguered cryptocurrency exchange, also faced scrutiny after a new report divulged internal control and security failures. The exchange is also contemplating utilising creditor money to recommence its operations, with its attorneys stating that the exchange could reopen in the near future. However, no final decisions have been reached yet.
Hong Kong continued its embrace of crypto with the territory’s Financial Secretary, Paul Chan, advocating the adoption of Web3 technologies, identifying it as a crucial area in the region’s budget planning.
Several employees of South Korean cryptocurrency exchange Coinone have been arrested for their alleged involvement in accepting bribes for listing specific crypto assets.
Twitter has entered into a partnership with social trading platform eToro to allow users to buy and sell stocks, cryptocurrencies, and other financial assets directly from the platform, expanding its “cashtags” feature.
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