Asset Prices Fell Back, Recent Volatility IncreasedTokenInsight Weekly Market Review
Trading Analysis

Asset Prices Fell Back, Recent Volatility IncreasedTokenInsight Weekly Market Review

11 months ago

This week, TokenInsight takes a look at the increasing volatility in the crypto markets.

Asset Prices Fell Back, Recent Volatility IncreasedTokenInsight Weekly Market Review

Mục lục

  • Affected by the clear expectation of the Federal Reserve's debt reduction and the downward impact of the US dollar shock, the prices of mainstream cryptos all fell back this week.
  • Volatility is still low, but it has begun to show an upward trend.
  • Interest in crypto futures and ETFs has further increased among traditional institutions.
  • The influence of regulatory authorities on the crypto market has further weakened, but the adjustment of regulatory policies in some countries and the adjustment of fiscal and monetary policies in major countries will have a significant impact in the near future.

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New Uncertainty Is Being Priced

This week, macro factors are still the dominant factor in the crypto market. From the perspective of volatility, the historical volatility of mainstream cryptos began to rise slowly after hitting its lowest point on Monday, but the range is relatively small. Professional investors' expectations for Bitcoin are relatively stable, while the market expectations for Ethereum have been significantly lowered, and the recent stabilization of Ethereum price fluctuations may be the main reason.

It is worth noting that the volatility of mainstream cryptos has shown an upward trend this weekend. With the opening of the Jackson Hole Global Central Bank Summit, the convergence control of central banks on liquidity will significantly affect the expectations of investors in the crypto market, which in turn will affect the price of cryptos.

Judging from the term structure of the futures premium, due to the recent increase in market volatility and investors' concerns about the uncertainty of the scale of liquidity reduction, the futures premium for the next week and the next month has declined significantly. Among them, the front-month futures on the CME Exchange all showed a significant negative premium on Friday. At the same time, the futures premium for the current quarter on the major futures exchanges has also narrowed significantly. 

Although investors are still optimistic about the market's forward prospects, the forward futures premium expiring on June 24 of the following year on the Deribit Exchange, which provides annual futures, has declined to a certain extent. In addition, the forward skewness of mainstream cryptos has also declined due to macro factors. Derivatives markets are undergoing the process of incorporating new uncertainties into pricing.

Regulatory Impact Is Limited, and the Influence of Derivatives and Macro Factors May be Further Enhanced

This week, many major countries have made some moves in supervision, but most of them have shown their attitudes and their actual influence is far less than that of the second quarter.

  • Regulators in Britain, China, and other countries have once again issued risk warnings for crypto transactions, but they have not had a significant impact on the market.
  • SEC Chairman Gensler said the SEC will solicit opinions to determine whether digital customer interaction innovations adopted by financial companies should follow existing rules or whether new rules are needed.
  • Local cryptocurrency companies in India are asking the government to consider making the International Financial Services Center Authority (IFSCA) in Gujarat the regulator of all crypto transactions in India, because they believe that the new draft bill may give Bitcoin and other cryptocurrencies the status of commodities rather than currencies, and companies will be subject to local KYC compliance.
  • The regulatory attitude of small countries tends to be positive. El Salvador is continuing the process of legalizing bitcoin, and the Cuban government said that its central bank will set rules for encrypted currency and decide how to issue licenses to relevant service providers in Cuba, while making it clear that no illegal activities will be involved.

It is worth noting that Iran will lift the ban on cryptocurrency mining on September 22. Previously, Iran banned cryptocurrency mining for a short period of time due to excessive electricity pressure in the summer. It is expected that with the lifting of the ban, the progress of the recovery of computing power across the network will be further accelerated. Considering the strong correlation between computing power and asset prices, Iran's action is undoubtedly an important benefit to the market.

Traditional financial institutions have been more active in the crypto markets this week.

  • PayPal (PYPL. O) is expanding its cryptocurrency service to the UK. This is the first time since October 2020 that PayPal has expanded its cryptocurrency service outside the United States.
  • Traditional financial data service organizations are also considering incorporating crypto market data into the service atmosphere: MSCI's CEO recently said that the company is studying cryptocurrency-related products.
  • As Wall Street continues its push into cryptos, Citigroup is considering offering bitcoin futures trading to its largest customer base as the banking giant awaits regulatory approval to begin trading futures from the Chicago Mercantile Exchange.
  • Analysts Eric Balchunas and James Seyffart believe that VanEck and ProShares quickly withdrew their proposals for the Ethereum futures ETF, which is a good sign for potential bitcoin futures ETFs, because the US Securities and Exchange Commission (SEC) allows such applications to remain active. Bitcoin futures ETFs may be launched as early as October. At the same time, the SEC may approve multiple bitcoin futures ETFs to be listed at the same time to avoid forming a first-mover advantage.

For traditional institutions, whether ETFs or banks, the use of the purchase of futures to enter the crypto market investment has become a more common method. The entry of large amounts of funds will lead to the further enhancement of the impact of the derivatives market on the spot market and asset prices, and the effectiveness of derivatives-related factors predicting the market may further increase.

The impact of macro factors on the US dollar and crypto markets has increased significantly.

  • U.S. PMI data and initial jobless claims data performed poorly, but the GDP performance in the second quarter was slightly higher than the previous value, and its impact on the U.S. dollar also caused fluctuations in the crypto market.
  • Liquidity risks are rising again: George, the chairman of the Kansas Fed, said there was a "strong case" for tapering more quickly than last time. He argued that the Fed should start tapering this year because the economic recovery is progressing well and inflation is rising strongly, indicating an opportunity to reduce asset purchases, while Mr. Bullard said the Fed was agreeing on a plan to scale back its bond purchases and that there was little risk that Delta virus would delay the tapering of quantitative easing. He believes that the Fed should start tapering its bond purchases until the first quarter of 2022, before starting to shrink its balance sheet.

The Jackson Hole annual summit of global central banks on Aug. 27-28 will have a profound impact on the crypto market. The theme of this annual meeting is "Macroeconomic Policy in an Unbalanced Economy". Chairman Powell of the Federal Reserve will deliver a speech at the meeting. According to past experience, it is expected that the Federal Reserve may give clues to the reduction of bond purchases at that time. The market expects Powell to guide the market in the direction of the reduction of bond purchases during the annual meeting, and give a clear path for the reduction of bond purchases in subsequent meetings. The news of the reduction of bond purchases is beneficial to the strength of the US dollar. Considering the strong correlation between the crypto market and the US dollar, the good performance of cryptos in the near and medium term can be expected. However, the further impact of the liquidity contraction on the crypto market still needs to be continuously observed.

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