Research Summary
The report discusses the impact of global central bank liquidity withdrawals on trading activity across all asset classes, including cryptocurrencies. It also highlights the rise in US Treasury bond yields, the performance of ETH futures, and the influence of fiscal spending on the US economy. The report further provides an overview of the crypto and traditional markets, financing rates, and notable crypto news.
Key Takeaways
Impact of Global Central Bank Liquidity Withdrawals
- Global Liquidity and Trading Activity: The report notes that the withdrawal of liquidity by G6 central banks has significantly affected trading activity across all asset classes, including cryptocurrencies. The total aggregate balance sheets of these banks have fallen by US$2.8T to $27.4T as of October 18.
- Effect on Crypto Markets: The impact of this liquidity withdrawal on crypto markets has been challenging to separate from other factors, such as regulatory scrutiny. However, the report suggests that the recent sharp adjustments in trading volumes for BTC and ETH have been primarily driven by the decline in global liquidity.
US Treasury Bond Yields and Fiscal Spending
- Rise in US Treasury Bond Yields: The report highlights that long-end US Treasury bond yields have continued to climb higher, with Fed Chair Jerome Powell taking a non-committal, data-dependent stance on monetary policy.
- Fiscal Spending and US Economy: Procyclical fiscal spending has been supporting a resilient US economy, as evidenced by stronger than anticipated retail sales, industrial production, and home sales data. However, it has also contributed to higher borrowing and heightened bond market dysfunction.
Performance of ETH Futures
- ETH Futures Open Interest: The report notes that ETH futures open interest on the CME has started to pick up over the past 10 days, reaching $421M as of October 18. This follows the muted market response to the launch of several ETH futures-linked ETFs in the US earlier this month.
- Options Market: In the options market, the 25-delta 1m skew for ETH has been retracing lower over the last 10 days, suggesting that market players may be unwinding their downside risk protection.
Crypto and Traditional Market Overview
- Market Performance: The report provides an overview of the performance of various assets, including BTC, GBTC, ETH, Gold, S&P 500, USDT, and USDC. It notes that BTC held on to the important $28,000 level despite an erroneous tweet regarding a spot bitcoin ETF approval.
- Financing Rates: The report also provides information on financing rates for traditional finance (TradFi), centralized finance (CeFi), and decentralized finance (DeFi).
Notable Crypto News
- Institutional News: The report highlights news about Bitcoin ETFs and the eligibility of Binance.US accounts for FDIC insurance protections.
- Regulatory News: It also covers regulatory news, including the stance of crypto firms on the ‘Major Questions’ Doctrine and the Federal Reserve governor’s views on future CBDC.
- General News: The report mentions news about Binance users withdrawing more than $500m in October amid regulatory woes and FTX settling customer property disputes to speed up bankruptcy proceedings.
Actionable Insights
- Monitor Global Liquidity: Investors should keep a close eye on global liquidity trends, as they can significantly impact trading activity across all asset classes, including cryptocurrencies.
- Consider Fiscal Spending Impact: The influence of fiscal spending on the US economy and its potential effects on borrowing and bond market dysfunction should be taken into account when making investment decisions.
- Track ETH Futures Performance: The performance of ETH futures and the options market can provide valuable insights into market sentiment and potential investment strategies.
- Stay Updated on Crypto News: Staying informed about institutional, regulatory, and general crypto news can help investors make informed decisions and anticipate market trends.
