Market deep dive: Sentiment in the crypto space was positive this week

On Monday, Powell commented that inflation was “much too high”, that the labour market was “extremely tight”, and that the FED “may have to move faster”. This resulted in a small sell-off in crypto and stock markets. This was then followed by a prompt recovery, with ETH outperforming BTC, and – quite surprisingly – momentum stocks outperforming value stocks.

With inflation soaring, the market is now pricing a 50bps rate hike for the May FOMC meeting as the most likely scenario. This is a move that the FED has not made since 2000.

More than a month has now passed since the start of the war in the Ukraine, and even though there are no signs of a slowdown (Biden just announced new sanctions, and Putin has demanded that “unfriendly” countries pay for gas in ruble instead of USD), the markets seem to have already adapted to the new situation, with the VIX trading close to its long-term mean, and with VIX futures in “normal” contango.

General sentiment in the crypto space was positive this week, with news of a milestone crypto trade, where Goldman Sachs was the first major US bank to trade an OTC non-deliverable BTC option as principal with Galaxy Digital. The Luna Foundation Guard announced plans to back Terra$ with BTC worth up to $3bn to make the US dollar peg more resilient in case of a severe market downturn in LUNA. And former cryptocurrency skeptic Ray Dalio’s Bridgewater is planning to back an external crypto fund.

The week has been particularly good for Layer 1 blockchains. Most noteworthy is ADA$, which is up 37% over the past 7 days, as well as ALGO$ (+21%), SOL$ (+20%), and XLM$ (+13%).

With the big quarterly expiry today (73k BTC and 733k ETH options) with a total of over 5bn USD notional value outstanding, we might see some extra volatility around the fixing window.

At the time of writing, BTC$ is trading above 44k, and ETH$ is just above 3.1k. The upward momentum is intact, but general market consensus is that we need to see fresh yearly highs in BTC$ and ETH$ to start a (true) new bull market.

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