Commentary from the Desk: October 20, 2022

This week, upbeat company results from Corporate America and cheaper valuations, while crypto volumes remain healthy, with volatility in low mode.

The Macro Front

• The latest Consumer Price Index (CPI) print came in higher than expected last week. To recap:
  • The CPI climbed 0.4% in September from a month earlier marking an acceleration after two months of slower monthly growth;
  • Prices are now up 8.2% YoY, marking a slight slowdown from August—largely due to a significant drop in gasoline prices—but ahead of economists’ expectations of an 8.1% annual pace;
  • Core prices rose 0.6% in September, matching August’s pace and coming in well above expectations of a 0.4% increase;
  • The core index is now up 6.6% from a year ago—the fastest annual rate of growth since September 1982;
  • While the annual pace has slowed somewhat since hitting 9% in June, it remains close to its highest level in more than 40 years.
• Market reaction: Crypto and equities tumbled on this news, but sharply rebounded during the day with the S&P 500 closing up 2.6% after swinging more than 5% during a wild trading day. The benchmark clawed back more than 40% of the losses over a six-day selloff that took it to a two-year low. Bitcoin rose 1% to $19,369.94.
  • Market bets on rates now lean toward back-to-back 75 basis-point hikes at the next two Fed meetings (note: November 2 is the next FOMC gathering) and expect the central bank to push rates past 4.85% before the tightening cycle ends. The current rate is 3.25%.

The Crypto Front

Crypto volumes remain healthy, while volatility is low:

• BTC has traded between ~18 and ~20k for the last month, with BTC gaining strength over Ethereum and other alts in the same period of time:
  • ETHBTC currently at 0.0675 from .0726 one month ago;
• Much has been made of the recent muted price action, with an embedded conclusion that lower volatility represents a lack of interest in the digital asset space.
• According to our global head of trading Jonah Van Bourg, this analysis is deeply problematic, as it obfuscates the critical difference between trading volumes and price volatility. Yes, volatility is muted; but volumes, while certainly off the highs of the year, remain absolutely significant:
  • $50B worth of linear bitcoin derivatives clear on exchanges each day, and this figure excludes spot, on-chain activity, and any non-BTC-related trading;
  • Total economic activity in crypto is likely north of $100B/day, which is roughly 1/5th the figure for US equities;

In our view: recent volatility-driven concerns about the health of the crypto space likely stem from comparisons to the bear market of 2018, when volumes were dire. This time is different.

• An enormous amount of value is clearing at this price set, indicating equilibrium for a large and growing marketplace, not the price pattern of a stranded asset in its death throes.

In other crypto news, Aptos, the new project entering the Layer-1 game, founded by ex-Meta developers, launched mainnet this week:

• Aptos’s blockchain uses a programming language called Move that aims to make transactions faster and cheaper;
  • Worth noting: Move also powered the network of Meta’s cryptocurrency project Diem, which faced strong resistance from regulators and eventually sold its assets;
• Aptos has won investment from the likes of Binance Labs, with other supporters include Andreessen Horowitz and the venture units of FTX and Coinbase Global Inc.
• While there has been a fair amount of criticism regarding the launch, Binance and FTX plan to list APT today but minimal details regarding the token launch itself have been released.

ICYMI:

• $100 million mango markets saga, Caitlin Long calls out Fed (Decrypt)
• Banks are future access points for crypto market, execs say (Blockworks)
• EU financial services chief calls on US to create new crypto rules (FT)
• Japan to further relax crypto rules by easing Listings of tokens (Bloomberg News)
• Institutions ‘moving very, very fast’ into Crypto — Coinbase exec (CoinTelegraph)