Market Deep Dive: Navigating Volatility and Economic Developments in Digital Assets and Global Markets

In light of the upcoming news and the FTX liquidation plan announcement, this week started off quite volatile, with both BTC and ETH hitting their weekly lows around the $24,900 level and ETH around the $1,530 mark on Monday evening. However, the price rebounded quickly during the week and in the absence of volume, higher open interest spurred BTC and ETH to surge, reaching $26,800 and $1640, respectively. Currently BTC and ETH hover around $26,600 and $1,630.

All in all, the crypto market is still struggling to find a direction and without further catalysts such as the approval of a Bitcoin spot ETF, the transformation of the Grayscale Bitcoin ETF, or disclosures of Bitcoin holdings by major companies, it is rather complicated to recognize a clearer trend on the medium-term side.

On the macro side, on Wednesday, the UK unveiled its July GDP figures, presenting a contraction in their economy. The numbers came in at -0.5% MoM, underperforming forecasts of -0.2% and exhibiting a 1% decline from the prior month’s 0.5%. Moving to the US, the inflation narrative continued to be in the spotlight. August’s CPI data revealed a 3.7% YoY increase, slightly overshooting the forecasted 3.6% and up by 0.5% from July’s 3.2%. In contrast, the core CPI maintained its stance at 4.3%, in line with expectations but softening from the earlier 4.7%. This contrary dynamic between Core CPI and CPI complicates the Fed’s future inflation analysis, especially with rising oil prices hinting at a potential uptick in the coming CPI.

On Thursday, all eyes were on the ECB Meeting with a shortly before 93% anticipation of that the ECB would keep its interest rates unchanged. Defying market expectations, the ECB elevated interest rates to historic levels (+25 bps; Main Refinancing Rate to 4.5% and Deposit Facility Rate to 4.00%), signalling its tenth straight hike in response to persistent high inflation. After the announcement the euro dipped to its weakest since May to $1.063. Amid growing concerns about the region’s economic growth traders momentarily see a less than 20% likelihood of another rate hike soon. In the US, the S&P 500 and Nasdaq experienced uplifts, after August numbers saw a predictable bump in core PPI (MoM: act. 0.2%, exp. 0.2%), a better than estimated increase in PPI (MoM: act. 0.7%, exp. 0.4%, while Retail Sales surged by 0.6% MoM, surpassing the predicted 0.2%.

Today, China displayed stronger-than-expected growth with both Industrial Production (YoY: act. 4.5%, exp. 4.0%) and Retail Sales (YoY: act. 4.6%, exp. 3.0%). This momentum was further reinforced by the People’s Bank of China’s recent decision on Thursday to lower the reserve requirement for banks, signalling renewed efforts to stabilize its post-pandemic economy.

Important economic events next week include the release of the EUR CPI YoY figures on Tuesday, followed by the UK CPI YoY numbers on Wednesday. The key focus next week will be on the FOMC meeting and the Fed interest rate decision announcement on Wednesday, specifically the dot plot, which will indicate whether the FED intends to sustain higher rates for an extended period or consider easing by 2024.

A brief look at the crypto volatility landscape reveals that BTC’s and ETH’s 30-day at-the-money implied volatility has slightly increased to 37% (+2% WoW) and 31% (+1% WoW) respectively. On the longer time frames one saw a rise in BTCs volatility, while also the volatility BTC-ETH options widened in the longer term (ETH volatility lower than BTC). Watching BTC’s and ETH’s 25-delta skewness one notes that the 7-day expiry is still negative whereas the 30- to 180-day range has turned positive pointing out a bullish signal on the medium term.

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