Devil’s Bargain

Crypto Market Week in Review (04 November 2022)

Markets

This week the markets were in a risk-off mood. Stocks dropped as the S&P 500 lost about 4% since the last Friday’s close. Bonds declined moderately. The key weekly event was a regular monetary policy meeting of the Federal Reserve. The Fed hiked the rates by 0.75% but hinted that further rate increases were likely to be more gradual. The markets initially rallied on the publication of the meeting protocol, but the subsequent press conference of Chair Jerome Powell reversed this trend. Jerome Powell focused on the US labor market strength and said that “we have ways to go” and that the ultimate cycle high of the rate might be higher than previously expected. “This is a devil’s bargain,” said a portfolio manager at Federated Hermes cited by Bloomberg. “Size of rate hikes will likely fall, but the terminal rate is likely higher -- the implication is a greater number of smaller rate hikes. That is not dovish.” See more Wall Street reactions at https://finance.yahoo.com/news .

Interestingly, in October gold fell for the 7th consecutive month, making its worst monthly losing streak in 50 years. Technicians may see a double top in the long-term chart.

Gold price (USD)

Jerome Powell did not scare cryptocurrencies which remained resilient to broader market moves. Bitcoin slightly declined, but largely outperformed the S&P 500 since the last Friday’s close. Ethereum corrected less than 1% after the previous week’s 20% rally. The star of the week was Dogecoin, which continued flying on the back of Twitter news and was up about 50% since the last Friday. It’s difficult to draw serious financial analysis regarding memes, but such a powerful Dogecoin rally suggests a return of speculative interest in crypto.

Implied volatility of both Bitcoin and Ethereum remained very subdued and was near this year's lows, but interestingly, the volatility curve inverted in the short term. Bitcoin implied volatility for 7 days became higher than for 30 days (for longer tenors it still has an upward slope). We wonder if this is a regime change or just a reflection of a near-term news pack. The US employment data is due this Friday, the US inflation data will be released next week, and the US mid-term elections take place next week too.

Bitcoin 7-day and 30-day at-the-money implied volatility

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