Market Deep Dive: Markets await Powell’s take at Jackson Hole

The cryptocurrency market began the week on a positive note, showing signs of recovery on the weekend after the previous week’s sharp drop. Between Monday and Wednesday, BTC predominantly traded within the $25,750 to $26,250 range, only briefly testing the $25,400 levels on Tuesday evening before bouncing back. On Thursday, the previous day’s push towards $26,800 could not be proven, and the price plunged back down and has since been trading in the $26k range. As for, Ethereum: it has oscillated between $1,625 and $1,675 this week, momentarily reaching the $1,600 lower boundary and $1,700 upper boundary, and currently sits around $1,650.

On the macro side, following negative updates from China and Germany earlier this week, all eyes are on Federal Reserve Chairman Powell’s upcoming speech at the annual Jackson Hole symposium on Friday. The markets remain Fed-focused, and US equities failed to continue their positive trend from Wednesday, as hopes were running ahead of Nvidia’s earnings report that its results could boost momentum in AI/tech stocks. Despite Nvidia hitting an all-time high due to impressive results, it failed to elevate the broader tech and crypto sectors.

The overall market was influenced by concerns about the Federal Reserve’s upcoming monetary policy, particularly in light of recent rate hikes and the strong US job figures supporting the prolonged Fed interest rates.
In August, Tokyo’s Core CPI inflation rose 2.8% YoY (Japan’s CPI:2.6%), marginally beneath forecasts. However, excluding fresh food and energy, it remained at a 4% rate, a level unmatched in 40 years, suggesting persistent inflation issues and anticipated shifts in the Bank of Japan’s policy.

Early on Friday, Germany’s GDP showed no change in Q2 2023, although minor consumption growth, decreased exports, and an annual contraction of 0.2% compared to 2022 were in line with forecasts.

In other news from Wednesday: FTX is strategising to repay creditors in fiat by liquidating its crypto assets, initially valued at $3 billion in November 2022, but likely now worth 50-100% more. They are consulting Galaxy Digital to ensure value retention through sales, hedging, and staking; however, a judge’s approval is still needed first. This seems the most likely scenario, and the potential sales may start in September and could amplify market downturns, given the uncertainty surrounding the composition of over $1 billion of their tokens and typical seasonal market declines.

Last week’s volatility gone down, and the altcoin market remained more stable than during the sell-off in 2022. This might indicate that the drop was primarily due to long liquidations in BTC and ETH rather than a broader negative outlook on the cryptocurrency sector.

Relative to its historical volatility, the 30D volatility of BTC is still sitting at the very lower end, and further macro news, the Grayscale-SEC ongoing case, Binance uncertainties (Venus protocol exploit, potential liquidations, FUD etc.) or some stablecoin/altcoin news could be a catalyst for increased volatility during the remainder of this year.

In comparison to last week, the 30-day at-the-money implied volatility for BTC has decreased 11% to 38%, while the ATM volatility of ETH decreased 9% to 33%.

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