‍Macro y news

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Relevant data for this week:

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Crypto market news:

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In this newsletter we will start analyzing high impact news for the crypto ecosystem. The contagion effect after the FTX bankruptcy is still going on, these are the main news of the past week:

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• SEC says crypto exchanges are not considered "safe".

• Crypto․com suspends payments via Silvergate.
• Silvergate probably would be unable to file its annual report with the SEC by the March 16 deadline.  These rumors caused the stock to plunge 60% in a single session.

• Silvergate has suspended activity on its payments network, SEN, that allows cryptocurrency firms with accounts at the bank to send each other fiat currency,

• Coinbase suspends payments via Silvergate.

• Coinbase delists BUSD due to "liquidity concerns".

• $200 million longs liquidated in minutes Thursday night

• Regulators warn banks of crypto "liquidity risks"
• Kraken ends key transactions with Signature Bank

• FTX confirms $8.9 billion in missing funds
• Binance used customer funds for its own purposes in a move similar to FTX scandal, Forbes report.
• US senators have sent a letter to Binance requesting “all Binance and Binance subsidiary balance sheets from 2017 to the present.
• Tether and Bitfinex banked with fake documents, shell companies. Company executives discussed ways to evade bank scrutiny, documents show, WallStreet Journal

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Is a new liquidity crisis looming in the crypto ecosystem? The reader should be reminded that Silverbank and Signature bank are key players in the crypto ecosystem, the main connection between fiat and crypto. There are already many news and rumors about Binance, an unregulated and audited exchange that has 90% market share on Bitcoin spot and almost 70% market share on bitcoin derivatives.

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According to a report from Forbes, Binance used customer deposits for its own undisclosed purposes. Apparently, the largest crypto exchange in the world reportedly transferred $1.8 billion in stablecoin collateral to hedge funds which subsequently left its investors exposed, based on on-chain data from August 17th to early December. 

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These investment firms include Alameda Research, the trading arm of FTX. Essentially, this means that more than $1 billion worth of the stablecoin known as B-peg USDC, were left uncollateralized despite Binance's claims that they were 100% backed. These movements are quite similar to those carried out by FTX short before its demise.

The intensity of efforts to ringfence the entire U.S. crypto space and isolate it from the traditional banking system have ratcheted up significantly. Specifically, the Biden administration is now executing what appears to be a coordinated plan that spans multiple agencies to discourage banks from dealing with crypto firms. It applies to both traditional banks who would serve crypto clients, and crypto-first firms aiming to get bank charters. It includes the administration itself, influential members of Congress, the Federal Reserve (FED), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Department of Justice (DoJ). 

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With Silvergate's network dead, Signature is the only main fiat offramp remaining. It shuts down, and all minor offramps will immediately exit stage left in order to not get crushed by the liquidity stampede. From Turing Capital we will be very attentive to the evolution of all these events.

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Silvergate is systemically important to the crypto industry. The Bank for International Settlements’ Basel III bank monitoring report for February 2023 indicates that 61.7% of total, worldwide, crypto asset prudential exposures were “almost certainly” held by Silvergate. All these issues, as the reader will imagine, have a very high impact on the ecosystem and are certainly quite ignored by the general public.

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Macro news:

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1. Inflation persists, bond yields skyrocketing, US yield curve deeply inverted

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This week, we have seen inflation data from France, Spain, Germany and the Eurozone. Neither YoY nor MoM inflation is improving. 

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The market is already taking a 50 bps hike by the ECB almost for granted. Central banks have a lot of work ahead of them. Risk assets are still refusing to accept this reality, while fixed income markets are already doing so.

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German inflation expectations over the next 5-10 years has risen to the highest level since 2012, as per 5yr 5yr forward breakeven rates.

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We also remind the reader that in the US during the last month the following points were made:

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November CPI "revised" higher

December CPI "revised" higher

January CPI above expectations

January PPI above expectations

January PCE above expectations

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The stress along all the yield curve this week has been severe. The Us treasury 10-year yield rises to 4%, highest since November 2010 and the US. 2-year treasury yield rises to 4.893%, highest since 2007.

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Market futures now see four rate hikes as the base case!

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There is currently a 40% chance rates rise to 5.75% by july. There is now a 13% chance of rates rising to 6% or higher.

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Just 1 month ago, odds of rates rising above 5.50% were at ZERO!

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Rate cuts start in Feb 2024 w/ an expected Fund Funds Rate of 4% at year-end 2024.

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2. China Reopening, inflation exporter

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If China continues to surprise upside on the growth front, it will lead to flare-up in inflation again.

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Q2-23 will surprise many on the inflation front. 

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Get ready for "Higher for longer" 

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China manufacturing PMI Feb: 52.6 (est 50.6, prev 50.1) 

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China non-manufacturing PMI Feb: 56.3 (est 54.9, prev 54.4)

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3.  Real estate sector, ticking bomb

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After limiting investors' redemptions from their flagship real estate fund, Blackstone just defaulted on a $562 million bond backed by offices and stores.

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The real estate market does not work at 7% mortgage rates, full stop.

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Housing affordability in the US is near all-time-lows, per Goldman Sachs

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4. Economic activity continues to deteriorate: softlanding or stagflation in sight?

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US manufacturing production, a coincident indicator, is contracting at a 1.9% annualized pace, a level generally not seen outside of recessions.

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US Manufacturing PMI(feb) actual: 47.3 vs 47.8 previous; est 47.8.

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ISM Manufacturing +0.3pt to 47.7 in Feb

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New Orders 47.0 (+4.5pt)

Production 47.3 (-0.7pt)

Employment 49.1 (-1.5pt)

Supplier Deliveries 45.2 (-0.4pt)

Backlogs 45.1 (+1.7pt)

Inflation 51.3 (+6.8pt)

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5. Central bank liquidity continues its downward course, risky assets are addicted to liquidity

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US Quantitative Tightening  has been offset by TGA & RRP, but the effect is diminishing. Liquidity is getting tight, slowly but surely. ECB Quantitative Tightening began last week and it will last until June.

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The divergence between global liquidity and the risk asset benchmark is becoming very noticeable. The reader will see that the falls in liquidity have been accompanied by falls in risky assets since December 2021, when the Fed began its monetary tightening program

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Cryptos: spot, derivatives and “on chain” metrics

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The market on Thursday night experienced significant declines, probably due to the news about Silvergate and Binance. Lets go deep analyzing the market´s structure

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Bitcoin 27/02/23

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Bitcoin 06/03/23

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The market after crossing the entire main value area and testing the relevant previous highs has retraced and corrected as we expected to the value area High. After this retracement, there has been no more demand  continuation, establishing the $25,000 as a strong resistance for the market.

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After rejecting the $25,000 level, the market has re-tested the value area, specifically the value area high (VAH). It is in this area where demand must react strongly to avoid canceling out the recent demand strength. As we will see in lower timeframe charts, the $23,000 zone is now key.

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$25000 as strong resistance was reflected in the order book, in this case of binance spot, btc/usdt. It shows a large wall of limit orders in the $24300 to $25,000 area that were in place prior to Thursday's drop.

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Bitcoin 27/02/23 (low timeframe)

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Moving down the timeframe to analyze this area in detail, we observe how the market has failed in bearish imbalance but at the same time has failed in bullish imbalance. This bullish failure has left a potential distributive structure. Buyers in the short term should hold the market above the prominent VPOC of $23,000. Any break and test inside this level could trigger significant selling, clearly the level to watch.

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Bitcoin 06/03/23 (low timeframe)

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The loss of the VPOC of $23,000 has been violent and a break and test scenario below it is the most likely scenario and would result in a search for the lower high volume node of $21,000. This zone is established as the last buyer control zone, it is clearly the danger zone.

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In the big picture, the euphoria at the beginning of the year is dissipating and makes us cautious. We are at a delicate moment, effective bearish imbalance and bearish continuations, or failure of imbalance and rotation to accumulation. A long scenario with guarantees would require a clear consolidation above the VWAP. On the other hand, a break below $20.500-$19.500 would trigger a bearish scenario again. This is undoubtedly a key moment.

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We observe a strong inflow of Bitcoins on the exchanges, which could potentially exert selling pressure.

Note the high inflows on the exchanges prior to last Thursday's fall. We will closely monitor this metric during this week to validate the proposed scenarios.

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Analyzing Binance perpetual futures we clearly observe a loss of buying momentum and a very noticeable market selling pressure (delta) during the last two weeks. 23000$ are important, but in this chart we see the importance of 20500-21500 as the last support. For long continuations we want to see this selling pressure subside in the $23000 area and ultimately at the 20500-21500$ support. Seeing this selling pressure after rejecting $25,000 and approaching the $21,000 support puts us on alert, not exactly what we want to see for long continuations

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The skew, which measures the difference between the IV (implied volatility) of OTM puts and the IV of OTM calls is moving away from the buying and greed climax zone, the market seems to be starting to demand puts and selling calls. The skew reaches the levels of early February, where the short term falls ended, break or rejection? We will find out this week.

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skew 27/02/23

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skew 05/03/23

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The time structure of volatility is unchanged.

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27/02/23

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06/03//23

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Last and not least, it appears that bitcoin has broken its short-term correlation with the SPY/ QQQ after the abrupt break of the $23000 VPOC.

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Classic markets

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27/02/23

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06/03/23

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The market has resisted at 3950 points and after the words of Bolstic (member of the Fed) the market has started a gamma short squeeze with a completely vertical movement but with low volume.  A change of long bias should require a break and consolidation above the gamma call wall of 4030-4065 points.

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Despite the rally at the end of the week, we still believe that the damage has been done. The bullish imbalance above the 4150-4200 area was a failure returning the price to value (3960 VPOC) with poor real demand response. Powell as always will be the one who decides everything and this week he speaks twice.