Bitfinex Alpha | Stable BTC Price Belies Sharp Increase in On-Chain Activity

The difference in views on monetary policy between what the Fed is indicating and what the market is predicting is stark. As the Fed raised rates last week by an expected 25 basis points to bring the federal funds rate to between 5-5.25 percent, it warned that while a pause was possible, it would not hesitate to raise rates again if inflation did not subside sufficiently. 

The market, however, is forecasting as much as 75bps of cuts before the end of the year, and as a result, asset prices are perhaps more stable than they should be, despite clear concerns about parts of the banking sector and recent data indicating a softening in the labour market.

Indeed, it is almost as if the market has faith that the Fed will continue to shepherd the economy successfully, despite its own protestations that it may need to take more drastic action if inflation does not subside. The introduction of emergency lending facilities and the looming 2024 presidential election have given some confidence to the market that the banking sector will remain stable and the Fed itself will be under pressure to maintain a healthy job market.

As year-long tightening measures take hold, US job openings dropped for the third consecutive month in March, and layoffs have increased to their highest level in over two years. This is good for the Fed’s ongoing efforts to combat inflation; however, US manufacturing also continues to contract, with the latest data marking a sixth consecutive month of declining manufacturing activity. Factors such as weak demand, excess inventories, and a shift in consumer spending patterns have contributed to the fall.

Crypto markets – like traditional markets – have also been stable, though bullish indicators abound.

Bitcoin network transaction fees have reached a 2-year high due to increased meme coin enthusiasm and a rise in BRC-20 token transactions. The BRC-20 token standard, similar to Ethereum’s ERC-20, has gained rapid prominence since its introduction in March.

Bitcoin network statistics also approached all-time highs, with the number of daily Bitcoin transactions exceeding 680,000, surpassing previous records set during the 2017 and 2021 bull markets. 

Further, the Bitcoin network’s hashrate reached an all-time high of 420 exahashes per second, signalling miner confidence in the future value of Bitcoin. Finally, non-zero BTC balances have hit an ATH of 46 million.

Adding to the bullish scenario we see for BTC, is the likelihood that market volatility will be subdued for the short term. Following the Fed rate hike last week, liquidations were remarkably low at only $34 million, while funding rates persist in being largely neutral. Further, the 25 percent delta skew for BTC options expiring from seven through to 180 days is mostly all close to zero, indicating that investors are not paying premiums for either put or call options.

Historical trends, however, indicate that such a quiet market scenario does not last long. Liquidation-induced volatility is expected soon, potentially continuing Bitcoin’s year-to-date uptrend. Too much of equilibrium between bulls and bears always leads to one side being the aggressor soon enough.

The usually reliable MVRV (Market Value to Realised Value) Z-score indicator also supports a bullish thesis. With a score of 0.7, it has not been deterred too much by the recent rejection at $30,000 and is indicating that investors are still more likely to purchase and accumulate.

All this is happening against a full crypto news agenda. In the last week, Cross River Bank, well-known for its Fintech and crypto customers, received a cease-and-desist order from the FDIC over alleged fair-lending violations. The bank claims the order will have no significant impact on growth. 

MicroStrategy reported a net income of $461 million due to a one-time tax benefit from Bitcoin’s price rise. The company now holds 140,000 BTC; shares in the company are up by 118 percent this year.

A lawsuit alleges Coinbase executives engaged in insider trading, avoiding $1 billion in stock losses. Coinbase has so far dismissed the claims as “frivolous.”

Global crypto adoption took another leap forward as Bhutan partnered with Bitdeer Technologies Group to launch a $500 million green crypto mining fund. The partnership aims to set up a 100-megawatt, carbon-free digital mining operation in Bhutan.

Finally, the White House proposed a new Digital Asset Mining Energy tax on crypto mining, seeking 30 percent of mining firms’ energy costs. The tax could raise up to $3.5 billion in revenue over a decade. The IRS is also planning to issue new crypto tax guidance within the next year and seeks feedback on a proposal to tax NFTs as collectibles.

Happy trading!

Leave a Reply

Your email address will not be published. Required fields are marked *