Chart(s) of the Week: The Merge Runs Into Macro Headwinds

• Key macro events coming up are the U.S. CPI print on 13 Sep and the Fed interest rate decision on 21 Sep. In our recent report Alpha Navigator, we highlighted that markets are still firmly in the grip of interest rate fears and that the probability of Fed rate hikes in the higher ranges has increased. Last week, the European Central Bank raised rates by a record 75 bps.

• Meanwhile, Ethereum’s The Merge draws ever closer, and is a potential positive idiosyncratic catalyst for crypto in the face of macro headwinds. The first step, Bellatrix, was launched on 6 Sep. The second (and final) step, Paris, is expected to occur between 10-20 Sep. 

• As ETH has already surged significantly from its June lows on the back of positive developments in The Merge, the key question is has it largely been priced in already? Also, any delays could potentially be detrimental given the high expectations. The BTC vs. ETH price ratio (BTC price divided by ETH price) has been driven to a low (close to the 2-standard deviation floor band) due to ETH’s outperformance. Check out Alpha Navigator for more analysis.

Fund Flow Tracker

• No notable changes in aggregated exchange balances for both BTC and ETH over the past week.

Derivatives Pulse

• Skews (put minus calls) dropped sharply for BTC over the past week. Implied vols for both BTC and ETH were generally flat during the past week. 1-month implied vol currently stands at 69.0% (vs. 66.1% a week ago) and 104.2% (vs. 103.2% a week ago) for BTC and ETH, respectively.

• ETH perpetual futures funding rates continue their negative streak, implying short positioning tilt remains.

• Asset managers’ net-long position in CME Bitcoin futures dropped to the lowest level YTD. Leveraged traders’ net-short position continued to reduce and is now also at the lowest level YTD.

• Leveraged traders are typically hedge funds and various types of money managers, including commodity trading advisors and commodity pool operators. The traders may be engaged in managing and conducting proprietary futures trading, and trading on behalf of speculative clients.

• The asset manager category consists of institutional investors, including pension funds, endowments, insurance companies, mutual funds, and those portfolio/investment managers whose clients are predominantly institutional.

• The dealer category consists of participants typically described as the “sell-side” of the market. These include large banks and dealers in securities, swaps, and other derivatives. The other reportable category consists of traders mostly using markets to hedge business risk, and includes amongst others corporate treasuries. 

Technically Speaking

• BTC’s recent bounce upward has it testing the 100-day moving average. Zooming out, it is still stuck in the consolidation range that has been in place since June.

Price Movements

As of 12 Sep 2022     Source: CoinGecko.com, Crypto.com Research

News Highlights

• The European Central Bank raised interest rates by a record 75 bps and signaled that further hikes are expected.

• Norges Bank, the central bank of Norway, said that its central bank digital currency prototype infrastructure is based on Ethereum technology.

• The Algorand Foundation said that it has a US$35M exposure to crypto lender Hodlnaut, which has suspended withdrawals from its platform.

• Mysten Labs, developer of the Sui blockchain, has raised US$300M at a valuation of US$2B. Investors include Andreessen Horowitz, Circle Ventures, and Lightspeed Venture Partners.

Catalyst Calendar

* Forecasts from CME FedWatch Tool; dates shown are for Eastern Time

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