Digital Assets Update - 2.11.22

Market Overview Crypto Markets by Nauman Sheikh, Head of Treasury Management


Since the October 13 market lows post the CPI print, equity indices are up between 9-11%, BTC is up by 13% and ETH is higher by 32%. The Core CPI came in at the highest level since 1982 and after an initial dip post announcement, the markets caught a strong bid. Given the rally on a worse than expected number, it was clear that all risk assets were positioned for a technical rally with a dearth of marginal sellers. Positioning in equities, bonds and crypto was at extreme defensiveness and sentiment indicators at extreme bearishness.

Alleged Fed leaks in the press last week of possible "recalibration" of rate settings aka "pivot", added further fuel to the market. The US$, arguably the most overcrowded trade in the market, quickly sold off and treasury bonds saw a massive short covering rally across the curve. Crypto also saw a wave of short liquidation cascades that further sent prices higher. Oct 25 and 26th each saw over $600mm in shorts being liquidated and this weekend we saw another $450m in shorts being liquidated. Crypto majors are now trading near resistance levels, but we clearly have not seen a break out of the range just yet. Realized and Implied volatility in the majors saw a brief spike on the spot rally, but was quickly sold back down to 1 year lows, hardly a signal for a continued pump.

So what now ? This is a very important week for economic indicators, results of which would dictate where markets go from here. We have ISM numbers on Tuesday, FOMC and ADP employment numbers on Wednesday and non-farm payroll on Friday.

Expectations from the FOMC is for a 75bps hike. More importantly however will be their forward guidance and whether there is any recalibration in the Fed's outlook. The higher than expected Sept core CPI release in mid-October was anchored by the stickiness of shelter. Since then, housing data has only further deteriorated as has manufacturing data.

A number of central banks globally, including BoE, BoC and RBA have already blinked and softened their stance. The question now is whether the Fed acknowledges some of the deteriorating fundamentals and tweaks theirs. A great risk-on setup that could extend the bear market rally would be a Fed that acknowledges some weakness in Wednesday's FOMC meeting, followed by softer payroll data on Friday.



NFT Markets NFT Markets by Matthew Linares, Senior Analyst

The week ending 10/27/2022 saw a positive trend in Non-Fungible Tokens (NFTs) momentum and Ethereum (ETH) price. As of Thursday 10/27, ETH prices are trading up over 22% from the week lows on Monday 10/24.

Polygon NFT volume saw a sharp increase due to the popular social media platform Reddit releasing its second batch of NFT’s that gained popularity. According to Dune Analytics within the first 24 hours of release, Reddit Collectible Avatars had over $1.5 million in secondary sales on the NFT trading platform Opensea. During this time over 4,000 NFT’s were traded. One rare piece called “The Hands #1” sold for 30 ETH, slightly over $45,000.

The pandemonium around Reddit NFT’s nearly outshined another collection release as DC comics began its weekly issue of comic books on October 27th. The NFT’s will be sold on DC’s own exchange nft.dcuniverse.com on the Palm Blockchain. They will utilize blockchain technology to assign rarities and grading. This release will be the first DC Collectible Comic sold as an NFT for $9.99. This marks one of many web2 companies taking the plunge into web3 with an NFT launch.


This week Apple also began to clarify its rules and guidelines around crypto and NFT’s in its App Store. Apple specified what apps are allowed to do within their ecosystem. They said on Monday that apps may facilitate “transactions or transmissions of cryptocurrency on an approved exchange.” But the app can only be offered in countries or regions where it has licensing and permission to operate a crypto exchange. “Apps may not use their own mechanisms to unlock content or functionality,” Apple also outlined rules for NFTs, which can be a digital representation of a real-life asset such as artwork and are usually purchased using cryptocurrency. Apple confirmed that any sort of trading of NFT’s must conform to Apple’s in-app payment mechanism which means Apple can take up to a 30% cut of these in-app payments.



LATEST NEWS:

Curated by Sam Eisner, Associate

WELCOME : Hundreds of institutions and prominent individuals have invested directly in crypto, adopted the value thesis, or started building technology to support digital assets since Wave started tracking this metric in late 2020. Now the rise of the Metaverse, Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), and Decentralized Autonomous Organizations (DAOs) is driving mainstream adoption of blockchain technologies everywhere we look. We’re continuing to keep track of it every week here:

  • Warner Brothers and Eluvio introduced a Web3 movie experience with the Lord of the Rings virtual “movieverse” in mid October.

  • Coinbase has announced it will waive fees for converting between USDC and fiat currencies, with the hopes of garnering adoption.

  • Last week Cash App began offering users the ability to send and receive BTC via the Bitcoin Lightning Network.

  • Reddit NFTs surged upwards of 799% as traders celebrated the project's widespread adoption to millions of new users.

  • On October 20, Interpol, the global police organization, revealed its metaverse project aimed at providing law enforcement worldwide with the experience of working with the burgeoning technology.

  • Tether recently announced that the USDT token will be available at more than 24,000 ATMs in Brazil due to an integration between Smartpay, a third-party crypto tech company, and Tecban, an ATM provider. The program is set to be available in roughly 1,000 cities.

  • Google announced it will launch a cloud-based node engine for Ethereum projects, and stated it will maintain the primary responsibility of monitoring node activity and restarting it during outages.

  • Twitter is testing NFT Tweet Tiles. The new integration will allow users to buy and sell NFTs in marketplaces on Ethereum, Solana, Polygon, and other blockchains via tweets.



REGULATORY ROUNDUP: We're living through the era of regulatory recognition of digital assets. The legislation, litigation, and regulation happening today will dictate the entire future of our industry, and we have a historic chance to shape those changes by staying informed and exerting political influence.

  • The Markets in Crypto-assets regulation (“MiCA”), which broadly applies to CeFi organizations providing crypto services to EU residents, was approved by the European Council in early October. It’s expected that MiCA will be ratified in the Official Journal in Q1 2023 with most regulations due to apply 12-18 months from then.

  • The Monetary Authority of Singapore released two consultation papers on stablecoins and crypto service providers in late October. Some of the proposed regulatory measures include reserve requirements for stablecoin issuers and refined licensing conditions.

  • According to an announcement posted Oct 20, the Commodity Futures Trading Commission (CFTC) brought 82 enforcement actions in the fiscal year of 2022, a staggering 22% of which were filed against crypto-related entities.

  • On October 21, the UK Parliament has approved amendments to the Financial Services and Markets bill to include crypto.

  • On Tuesday October 25, 2022, Rishi Sunak became Britain's Prime Minister following Liz Truss’ controversial exit from office. Sunak has already publicly expressed his desire to turn the “UK into a Crypto Hub

  • Hong Kong released plans to legalize retail crypto trading in the hopes of attracting more crypto and Web3 firms. A mandatory licensing program for crypto platforms is set to be enforced next year.


DISCLOSURE:

The opinions expressed herein are those of the author alone and do not represent Wave Financial, LLC or any of its affiliates. The author may hold investment positions in some of the assets discussed.


Nothing in this email or linked information should be interpreted as an offer or recommendation to buy, sell or hold any security or other financial product. Wave is federally regulated by the US Securities & Exchange Commission as an investment adviser. Registration with a federal or state authority does not imply a certain level of skill or training. Additional information including important disclosures about Wave Financial LLC also is available on the SEC’s website at www.adviserinfo.sec.gov.

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