Last Hike?

​​Crypto Market Week in Review (05 May 2023)

Markets

This week the markets turned into a risk-off mode. Stocks dropped due to financials and energy being particularly weak. Short-term and mid-term US Treasuries advanced in price terms (with lower yields), but long-term bond prices were slightly down.

The weekly news was dominated by the central bank policy meetings. The Federal Reserve expectedly increased the rates by 25 bp but signaled a possible pause. The Fed is uncertain about a future rate direction because it’s not clear whether current rates are sufficient to reduce inflation to the target. "With our monetary policy, we're trying to reach and stay, for an extended period of time, a level of policy, a policy stance, that's sufficiently restrictive to bring inflation down to 2% over time," the Fed Chair said. The money market is basically sure that this hike marks the end of the tightening cycle. Historically, the last hike has usually been a great opportunity to buy the 10-year US Treasuries and similar securities. The European Central Bank too increased the rates by 25 bp, but both the ECB and the market expect higher rates in the coming quarters. Many top experts suggest that such a monetary policy divergence is bearish for the dollar.

The markets were driven by renewed worries about US regional banks rather than the expected actions of the central banks. On Monday First Republic Bank was seized by the US regulators, its assets were sold to JP Morgan and, critically, all depositors were safe. However, shareholders were wiped out and so shares of its peers plunged to a new low.

SPDR S&P Regional Banking ETF (KRE), USD

Crypto outperformed most risk assets. Both Bitcoin and Ethereum were largely flat since the last Friday. The token of Lido DAO (which enables Ethereum staking) dropped 9% to the lowest level since early January.

The implied volatility remained subdued. Both Bitcoin and Ethereum DVOL indexes were little changed since the last Friday. Ethereum DVOL index continued hovering near the all-time low. However, the volatility market may start to see something interesting, as the short-term implied volatility rose compared with the longer-term one, turning the volatility curves flat from a normal upward slope for both Bitcoin and Ethereum.

Bitcoin 7-day, 30-day and 90-day at-the-money implied volatility

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