Last week greatly relieved the broad market indices. BTC and Alts (Total3) inched above S&P 500 and Nasdaq. Fed laid the seeds for this year’s challenging environment last year, and now per their meeting minutes released on 4th Jan 2023, 2:00 PM EST, further affirmed the hawkish and nimble approach the Fed will take this year. While the market for this year expects a pivot, multiple data streams such as wage inflation, unemployment data, and consumer inflation numbers will continue to dominate Fed’s movement this year.
The year, though, started with a good move to the upside in BTC, but a big threat we previously mentioned has just aggravated in the first week. Essentially Gemini CEO Cameron Winklevoss has issued an ultimatum to the Grayscale CEO regarding the repayment of the Earn customer’s funds that were lent to Genesis trading. While the Fed’s hawkish comments have kept the environment gloomy, next week will come with the next CPI print. And as seen last year, the event will create volatility in a short time. Coincidently India is set to announce similar data next week.
The Genesis of Gemini's problems - 8th Jan and Creditor's situation
As mentioned in previous outlooks, Digital Currency Group and Grayscale are highly delicate due to their exposure to Genesis trading. But this week, another lead has made it extremely critical for the company to come up with a sustainable plan as Gemini’s Cameron Winklevoss slams crypto exec Barry Silbert over frozen funds of the company’s Earn program. This exposure was made public and clear in the market, but the severity of events has turned too high in a brief span. As the Winklevoss Twins at Gemini’s herald are being sued for funds locked on the Earn account product, it’s not just their pristine reputation but $ 900 million worth of deposits of everyday users/ customers
The legality of the Earn program is in separate jeopardy due to its interest-bearing nature. Still, the lockup is due to the money that Genesis and, in turn, the Digital currency group owe to Gemini. Cameron Winklevoss over Twitter gave a soft ultimatum of 8th Jan to the DCG CEO Bary Silbert. While this is very volatile for the ecosystem, actual volatility is yet to occur. The legality today denotes that it’s a decision of Gemini’s creditors Vs. Grayscale’s GBTC investors.
While a leveling Private equity play can help diffuse the situation, the corners need to be cut precisely. With varied allegations and statements coming out for Genesis and DCG’s previous shady moves, it’s becoming very evident that huge liquidation, whether in the form of 600k BTC from Grayscales’s GBTC or some other tranches or form of the firm, is highly probable.
The Grayscale Bitcoin Trust (GBTC) has long traded below its NAV, or net asset value, which reflects the value of its Bitcoins (BTC/USD). And particularly over the past few months (and weeks), this discount has grown even wider. We can see that GBTC has reached a record-low discount to NAV. There is only one way for GBTC holders to get out of their positions: selling.
Minutes from the December meeting of the Federal Reserve were released on Wednesday. They show that policymakers there are still committed to fighting inflation and expect that interest rates will stay high until more progress is made. At a meeting, policymakers raised the benchmark interest rate by another half of a percentage point and said it was essential to keep a tight stance as long as inflation stayed too high
A year ago, the FOMC noted that the Fed Funds rate would be only 1%. By the end of 2022, they thought inflation would be 3%. Their plans are just a show to make it look like they have control and get people to feel a certain way. The data show that the Fed’s tightening affects the number of jobs created and wage growth. Also, businesses are no longer in a constant state of replacing everything. Fewer people are giving up, and the recovery from the pandemic is becoming more stable.
When non-farm ADP/Unemployment data is robust, cryptocurrencies tend to go down, and vice versa.
Today’s ADP Payroll data is due for release, and two Fed policymakers are scheduled to speak later in the session. Any hints here about the extent of policy tightening are likely to be closely watched, with risk possibly shifting to the upside if any dovish tones appear. Amazon was likely to come under oversight after the retail juggernaut announced it would reduce 18,000 jobs as part of a cost-cutting effort. Compared to the levels previously mentioned, these job cuts are significantly higher. This action demonstrates how seriously Amazon is taking the current economic difficulties.
The FOMC meeting minutes were modestly hawkish, showing concern that markets may have a (dovish) misperception, which could complicate lowering inflation. According to yesterday’s FOMC meeting minutes, officials said they will still expect a 50bp hike in February and a final range of 5.25-5.50%. The Fed hasn’t precisely stayed true to its principles in many previous instances. Three to four additional rate increases in its 2018 minutes for 2019. Instead, three cuts were made. Everyone, except the Fed, thinks inflation is dropping like a rock. They had already said that if it happened, they would lower rates. Either that, or they’ll hurt the economy so much that they have to lower rates. Rate cuts are coming in either direction, which is suitable for overall risk-on assets in the latter half of the 2023 year.
Another contributor to the volatility is set to emerge next week as the next CPI data is scheduled for the 12th of January.
After peaking in July, the CPI has seen a good drop during the last few releases, and a further decline in the same should be expected. While bullish in the short term, risks of other inflationary pressures haven’t been eliminated yet. The chances of a double-dip recession are on the rise. The immolation of it might happen unexpectedly but will take time to emerge finally.
Bitcoin returns were 1.5% for this week. The Alpha Blue Chip Focused Strategy returns were 9.07% during the same period ( 29 DEC – 5 JAN ). The Top Cap Digital Assets Strategy and Arbitrage and Balanced Opportunities Strategy returns were 5.42% and 2.34%, respectively.