Bullish New Year

Crypto Market Week in Review (13 January 2023)

Markets

The markets started a new year in a very bullish regime. Both stocks and bonds strongly advanced since our last publication issued on December 30. A key factor behind the rally was US ISM Services Index for December published on January 6. The index fell sharply in December and reached a contractionary territory (below the 50-point threshold) for the first time since May 2020, missing the consensus forecast by a large margin.

US ISM Services Index

The bad news about the US economy was a big and durable positive for the markets because the weaker economy will force the Federal Reserve to abandon a monetary tightening sooner.

SPDR S&P 500 Trust ETF (USD)

Cryptocurrencies were on a bull run too. Bitcoin rose 14% since December 30, with Ethereum rallying 18%. Many altcoins were even stronger. Grayscale Bitcoin Trust (GBTC) outperformed Bitcoin by far, skyrocketing by 27% since December 30 and reducing the discount to its net asset value to about 40%.

In other notable news, S&P downgraded Coinbase's credit rating from BB to BB- on January 11, arguing “that weakened trading volumes in the aftermath of FTX's collapse will continue to pressure Coinbase's profitability.” Interestingly, S&P pointed out the increased significance of Circle’s USDC to Coinbase financials. “With approximately $44 billion in market capitalization for USDC, USDC's position as a prominent stablecoin provides Coinbase with sizable and growing interest income” – S&P said.

The implied volatility declined for Bitcoin and remained little changed for Ethereum. The volatility curve of Bitcoin slightly inverts in the short term. We wonder if the market anticipates an acceleration of the current rally or its sharp reversal.

Bitcoin 7-day And 30-day At-the-money Implied Volatility

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