Happy holidays from the Cypher Team. Here's our weekly market update.
- The key contention now is growth - especially in 2H23 and beyond, where the Market expects some weakness in the economy to force a rate cut while the Fed does not.
- Holiday low volume and lack of macro data release usually mean choppiness. For the crypto market, we want to see $BNB reclaim the lost key level sooner than later, while $BTC might remain range-bound for a while.
- Bad news (for the economy) are now bad news (for risk assets), as worse than expected home sales data and durable goods orders (i.e., a leading indicator of disinflationary forces) and cooler than expected personal spending data (i.e., a concurrent indicator of disinflationary) did not stimulate the market for a sustained rally. The Friday’s University of Michigan Consumer Sentiment data came out better than feared, but this indicator is just climbing out of the deepest trough ever. As we already pointed out last week, the key contention of the market is no longer inflation, but growth, of the lack of thereof as the result of Fed (over)tightening in 2023/24.
- The Fed and the Market continues to disagree on the growth trajectory of the U.S. economy in 2023. While market consensus on the terminal rate more or less coalesces on ~500bp in 1H23, what happens going forward becomes much more contentious as shown by the evenly spreaded out probabilities of meeting results in 2H23 going forward.?
- The Atlanta Fed’s GDPNow cast is a case in the point. The Dec. 23 update includes a significant uptick in its estimate of real gross private investment growth in 4Q22, which changes from -0.2% to +3.8%.?
- Uncertainty on the (dis)inflationary path remains historically heightened, as indicated by the spread between 75th percentile and 25th percentile in the aforementioned UMichi Consumer sentiment survey. Note that the long-term uncertainty stays relatively anchored compared to what happened in the late 1970s. The current level of long-term uncertainty (note that this applies to both inflationary crises and deflationary crises) is not seen since 1990 - and it is Powell’s imperative to make sure it does not get any worse.??
- The Market is still in a downtrend, and our previous price levels are still in effect to tell us so. Price action wise, holiday season low volume was conducive to a choppy week.
- BTC continues to trade range-bound, perhaps through the end of the year, as we do not see major marco data release until new year. Low holiday season volume also contributes to the chopping market.
- As we noted last week, $BNB broke down a key ~$250 level that it had not reclaimed yet on holiday seasons’ low volume. As concerns with Binance’s reserve dissipates, net outflow from Binance has more or less normalized to the same degree of magnitude c.f., other exchanges (Source: Nansen). I see $BNB price action as an important risk-on/off sentiment indicator. In the following 2-3 weeks, we need to see it convincingly closes above the lost ~$250 level - better if also w/ volume to confirm that we are out of the woods of the bank run on Binance. Until then, I believe taking bets on the long side should largely be off the table.
- Liquidity increases volatility in the market with the risk continues to screw towards the downside, but the panic seems to be coming to a hiatus. Also a reminder that the stablecoin outflow out of centralized exchanges has not been averted. On a positive note, however, the anomaly in USDT daily active senders seems to have been eclipsed (Source: Nansen).?
- Prices dropped, but adoption largely stays. 2022 has been a brutal year for risk assets across the board, crypto included. The one on-chain data I would like to call to attention is the resilience in DAU through metamask, which I believe is a proxy indicator for semi-casual Web 3.0 users. Volume dropped as a function of steep asset depreciation but net user retention holds up.
