China's border reopening and the 'pent-up" demand for travel

Macro Headlines Driving Western / Eastern Front…

As global offices trickle back in from the new year break, lacklustre volumes in public chain digital asset markets remain with attention floating toward China’s border reopening, implications for rebounds for global risk assets, improvements in Hong Kong’s domestic economy, cautiously optimistic views remain for global interest rates and taming of inflation trends.?

All “Digital” Eyes on DCG (Digital Currency Group)

The conglomerate, owners of Grayscale Trust and crypto brokerage Genesis. Genesis remains pressured after its lending arm halted withdrawals in November, citing exposure to FTX to the tune of US$175m. The majority of its assets are owned by global hedge funds, the market is actively adjusting for this situation. Contagion takes a long time to fully play out, and we expect that there are still some dominoes to fall in 2023. With that said, we are already seeing a renewed commitment to building better, more trustworthy solutions in the space and expect that trend to be a core theme of 2023??

Solana Rallies, Retain Momentum?

Solana had a good start to the year. Its native token rallied 37% over the past seven days, driven by a pickup of NFT trading volumes, mostly driven by NFT projects DeGods and its spinoff collection y00ts, bridging to Ethereum to try and attempt to dethrone other blue-chip NFT projects like Bored Ape Yacht Club. However, once initial trading volume fade, the price could follow and return to prior levels.

Increasingly positive signs from China could see the bulls leading the risk asset charge this new year’s opening week. Travellers began streaming into mainland China by air, land and sea on Sunday as Beijing opened borders that have been all but shut since the start of the COVID-19 pandemic. Over Chinese New Year, with huge pent-up demand for in the world's annual ‘great human migrations,’ we expect over 2 billion individual travel transactions to occur.??

Exhibit A: Onshore / Offshore Spot Yuan Recent Strengthening??

Additionally, 'Goldilocks' U.S. employment report on Friday was taken by investors as a sign that the Fed might win its anti-inflation battle without doing too much damage to the economy - U.S. and global stocks, risky assets and bonds all soared, which is likely to set the tone in Asia on Monday.

A relatively benign U.S. backdrop - economic activity and inflation cooling enough to fuel speculation that the US Fed can think about ending its hiking cycle sooner rather than later, is whetting investors' risk appetite.?

All “Digital” Eyes on DCG (Digital Currency Group)

U.S. authorities are reportedly investigating internal transfers from Digital Currency Group to its subsidiary Genesis. According to a report by Bloomberg, anonymous sources familiar with the matter say that prosecutors from New York are probing the transactions between DCG and Genesis, a crypto lending subsidiary of the firm, as well as what customers were told about those transfers. Another person close to the issue also tells Bloomberg that the U.S. Securities and Exchange Commission (SEC) is also investigating DCG.

Exhibit C: Grayscale BTC Trust Discount at 45%??

Investigations are still in their early stages, and neither DCG nor billionaire CEO Barry Silbert has been accused of any wrongdoing yet, the report says. A spokesperson for DCG told Bloomberg that the firm has never conducted business outside of the law.

“DCG has a strong culture of integrity and has always conducted its business lawfully. We have no knowledge of or reason to believe that there is any Eastern District of New York investigation into DCG.”

Silbert’s crypto empire started to face liquidity issues in November after it halted customer withdrawals, citing the downfalls of digital asset hedge fund Three Arrows Capital and prominent crypto exchange FTX. Later that month, reports surfaced that Genesis sought a $1 billion loan prior to the announcement that clients would be unable to withdraw their funds.?

Solana (SOL) Rallies, Retain Momentum?

After falling to the single-digit territory (~US$8) this was interrupted early in the new year when the price suddenly spiked higher after finding good support at $9.5, a ~37% price increase. The resistance is at $15, and SOL’s price reached $14 during this most recent rally.

Exhibit B: Solana jumps on single project NFT trading activity

Trading Volume: The volume exploded on Monday and remained high until Wednesday. The volume opened in red, and the price is falling, which could mean a pullback is likely as the initial rush of trading dissipates.

RSI: The daily RSI moved above 50 points quickly and reached almost 60 points. If bulls manage to keep it above 50, then the bias could turn bullish. However, we remain pessimistic on this case.

MACD: The daily MACD completed a bullish cross, and the histogram continues to make higher highs. Again, we remain pessimistic on a sustained breakout.

The digital asset industry's market cap is off more than 65% from record highs in November of 2021. Bitcoin and Ethereum are down over 60% year-to-date, and Macro drivers remain at the core of investors’ minds. Smaller players will run into liquidity issues during this prolonged bear market which will eventually lead to more bankruptcies, likely allowing patience for those larger, more globally compliant enterprises to win through in the longer term.?

Author: Kevin Loo, Managing Director, IDEG

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