Inflation Peak

Crypto Market Week in Review (16 December 2022)

Markets

This week the markets were in a modest risk-off mood. Stocks declined and bonds advanced, as the markets digested the US inflation data and the central banks' news. US inflation was below forecasts for the second consecutive month, although details of the CPI report were less encouraging with used cars and airfares explaining much of a difference with the consensus. Still, inflation has probably peaked (even if it remains at a multidecade high). This supported bonds but less so stocks, as the markets slowly awaken to the idea that a further inflation slowdown will be associated with a recession.

US core CPI (%)

Bonds' strength this week defied a warning from the US Federal Reserve that it plans to hold rates at a high level longer than the market expects. At this year's last monetary policy meeting, Fed Chair Jerome Powell did his best to convince the market about higher rates for a longer time frame but failed to do so. The bond market seems to be almost sure that further rate hikes will constitute a policy mistake and will be reverted soon. The bond market’s confidence in a coming economic deterioration may be a negative sign for risk assets.

Both Bitcoin and Ethereum were slightly up since the last Friday's close, outperforming most risk assets. The most important crypto story of the week was a Reuters article discussing a criminal investigation against Binance. “The investigation began in 2018 and is focused on Binance's compliance with U.S. anti-money laundering laws and sanctions”, Reuters said. That caused outflows from Binance, but Binance was able to cope with client withdrawals (at least so far). Binance’s coin (BNB) lost just 9% since the last Friday.

The implied volatility of both Bitcoin and Ethereum (as measured by DVOL indexes) was little changed during the week and remained near all-time lows. Ethereum options open interest at Deribit failed to recover after the November expiration and fell to pre-Merge levels.

Ethereum options open interest

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