The year 2022 was a rollercoaster for crypto, or maybe it is more accurate to say that it was a freefall with some jumps. I expect a quiet holiday season ahead, and look forward to 2023. I already have some key questions lined up for the new year to answer.
Crypto and TradFi remain unchanged WoW, with some volatility picking up as we approached the FOMC, which then retraced following the hawkish statements by CBs. Indeed, even if the Fed went for a “soft” 50 bps hike towards a target rate of 425-450bps, I expect rates to stay this high for all the 2023.
Looking at the dot plots median projections for 2023: EoY is seeing a target rate of 5-5.25%, while the implied rate by the year-end for the FedFunds future price is at 4.25%-4.5%.
Chart 1: Dot-Plot
In line with this, the US 2Y Yield, which is one of the ways to price the Future Fed Target Rate is now at 4.272%.
Chart 2: US Yield and Fed rates
These numbers should be scary for many different reasons.
In the last years the cost of debt in many countries remained low despite increasing balance sheets (debt) due to lower interest rates (i.e. US debt avg interest rate: 2.07%). Another year of rates staying this high will increase the average cost of debt considerably as no CB can/will want to unwind the balance sheet that fast to keep the average cost of debt stable.
I think that the market is not really pricing these facts in yet, both in the digital asset space or in TradFi.
Looking ahead, noteworthy dates are as follows:
- Dec23: Nov Core PCE MoM (cons: 0.2%; prev: 0.2%)
- Jan4: FOMC Dec Meeting Minutes
Before turning our attention to crypto, I want to take a quick look at the USD.
It has been really crowded for the USD the entire year. DXY 30-day RV is 13.8% (a value last seen in 2008). Too many money managers are waiting on the sidelines with their bags. There is a great deal of volatility to the downside here. Nevertheless, looking at the chart, the 100-104 range is an area of consolidation. Should the markets keep being bearish we might retest new highs; otherwise, I am expecting a brutal (or lovely) rally towards the 90s. Bear in mind that DXY up (down) and risk assets down (up).
Chart 3: DXY
Now let us turn to crypto:
Most of the charts look bearish, and most eyes (and rumours) are still on DCG, Binance, and Alameda, etc.
DCG assets dumped in particular over the weekend, with $FIL leading the bloodbath (being down -31.48% in the last 7 days). I do not think this is the consequence of Genesis selling hard over the weekend, as they would have had something like 20-30% slippage, but rather due to speculation/market anticipation regarding the next DCG steps:
- DCG might try to repay the $1.5B loan to Genesis by selling many assets.
- In case of Chapter 11, DCG must first exhaust all liquid assets, which means selling.
In a letter to investors, Michael Sonnenshein said that they were considering a tender offer of up to 20% of the outstanding shares of the GBTC (i.e. $2B). This should place some pressure on the BTC spot price and would help the GBTC discount to recover a little.
Chart 4: DCG Fund Portfolio – a list of crypto assets that DCG has invested in
There is a great deal of noise regarding Binance and its BNB token. My bias here is that Binance is the „too big to fail“ in crypto. Nobody, or only few people, can speak about the healthiness of Binance, which is why I would focus on BNB.
BNB is not like FTT (FTX token).
BNB has utility, and utility creates value. FTT was nothing more than a financing method. BNB is 5th by market cap, with $39.87B, but here are my red flags:
- Despite being really liquid, very few OTC trading desks are actually providing liquidity on the token.
- It is a known fact that it is not decentralised: Binance controls it.
- It held up particularly well during 2022: it is down 51% YTD, but as a reference BTC is down 64% YTD. This is impressive considering that it is high beta.
Nevertheless, as long as BNB has not been accounted on Binance BS there should not be any huge direct issues in case of a drop in the BNB price. Nevertheless, one might expect that a drop in price would cause issues for Binance operations.
Looking at the BNBUSDT chart:
- We are forming an ascending XABCD pattern, where we could retest Jul22 lows at $183 with a consolidation at $200. Resistance at 290-300 before $320. On the downside, support is at $122-148.
- RSI below 40 and ascending (bullish).
- 30-day RV at 72% in line with the 90-day rolling mean.
We at Crypto Finance AG offer trading and custody on BNB and all the BEP20 tokens, so please do not hesitate to contact us.