Crypto for Advisors: Crypto Market – A Week in Review

Later on, Jason Leibowitz of Hashnote shares his expertise on market tendencies and the pursuit of returns in the “Ask an Expert” segment.

– Sarah Morton

You’re currently perusing “Crypto for Advisors,” a weekly digest from CoinDesk designed to simplify the world of digital assets for financial consultants. Why not sign up here so you can receive this informative newsletter in your inbox every Thursday?

Weekly Crypto Market Review

Lately, the digital asset market has remained relatively stable following the X space discussion between Elon Musk and Donald Trump where cryptocurrencies were not brought up. Bitcoin maintained an approximate value of $58,750, dropping by about 1% compared to its previous day’s price. The broader crypto market, symbolized by the CoinDesk 20 Index, followed a similar trend. Although the crypto community had high hopes and placed a 65% bet on Polymarket for “crypto” being discussed, the conversation never materialized during their two-hour talk that attracted more than a million listeners.

US Inflation Rate & Federal Reserve Outlook

At the upcoming Federal Open Market Committee (FOMC) meeting on September 18th, there’s a significant likelihood that the Fed will consider reducing interest rates due to the recent financial turmoil in the market. The current prediction is for a reduction of approximately 100 basis points by December’s end. Meanwhile, the Consumer Price Index (CPI) for July is projected to remain at 3.0%, while Core CPI year-over-year may decrease from 3.3% to 3.2%. Typically, the Fed will carefully analyze economic data before making any decisions, as they find themselves in a challenging position between providing more credit and combating inflation.

ETF Developments

The week saw successful hedge/bear plays targeting $54-58K puts, with funds adding exposure to Oct-Mar $60-65K calls on the rebound. While short-term put-skew shows caution, long-term call bulls remain strong, with the market awaiting Producer Price Index (PPI) and CPI data.

Despite the recent reduction in short-term volatility and skew, long-term call options and spreads have continued to rise rather than decrease. This indicates a growing confidence in purchasing upside opportunities, which is being financed through the sale of put options with a strike price below $45K. However, there remains a need for short-term protection around the price range of $48-50K.

Skew dynamics show elevated short-term put-skew, while longer-term calls trade at a premium.

As a crypto investor, I found myself focusing less on the FOMC meeting and JPow AMA this week due to the overshadowing impact of the Non-Farm Payrolls (NFP) report, which has sparked concerns about an impending recession. Looking forward, I’m eagerly anticipating the upcoming Producer Price Index (PPI) and Consumer Price Index (CPI) data releases, as they will offer valuable insights into current market trends. Meanwhile, it’s interesting to note that Bitcoin’s Dominance Volume (DVOL) stands at 57.45%, while Ethereum’s DVOL is at a slightly higher 72.92%.

Weekly Crypto Asset Flows

Investment in digital assets saw an inflow of approximately $176 million, with investors perceiving the latest price drops as chances to buy at a lower cost.

During the recent market adjustment, Ethereum experienced the largest advantage, attracting approximately $155 million in investments, increasing its year-to-date accumulation to a total of $862 million.

In essence, the cryptocurrency market might continue experiencing sideways movement and volatility, as investors anticipate the Federal Reserve’s potential rate cut in September. Regrettably, there seems to be limited positive news that could propel the market towards 70K quickly. It’s not uncommon to see investors gravitating more towards returns from staking or similar products rather than investing in ETFs.

– Xinghua Luo, Managing Director, Pioneer Asset Management Limited

Ask an Expert

Question: How has the distribution of cryptocurrency returns changed over the last year, and what are the main elements influencing this shift?

For the past year, there’s been a significant difference in the returns of cryptocurrencies, with coins like Bitcoin and Solana performing exceptionally well compared to others. This disparity is a change from previous market cycles where gains were more equally distributed. Factors driving this trend include macroeconomic factors such as tightening liquidity and increasing interest rates, which typically dampen the performance of riskier and less established assets. Moreover, the recent Bitcoin halving has also contributed to this pattern by decreasing its supply, a historical event that often leads to extended periods of bullish activity where Bitcoin surpasses other major cryptocurrencies in performance.

A key reason for the current dispersion is the move towards reducing reliance on lending as a major strategy for earning returns in crypto investments. In the past, the crypto market experienced a credit bubble due to excessive lending, which eventually burst, causing caution among investors regarding holding their assets outside of custodianship. To address this change in investor mindset, innovative investment funds have introduced safer yield-generating methods using derivative markets. For example, platforms like Harbor enable investors to gain returns from idle assets such as Bitcoin through options strategies, like covered call spreads, while keeping their assets secure under a custodian’s management. This method presents an inventive and safe option compared to the lending practices that characterized the previous market cycle.

How has the development of stablecoins and the search for high returns affected the current level of diversity in the cryptocurrency market?

The impact of stablecoins seeking returns and the pursuit of profit in the cryptocurrency market has substantially shaped its current diversification. Stablecoins serve as a dependable method of exchange and asset preservation within the unpredictable crypto world, enabling hassle-free trading and entry into DeFi applications. Nevertheless, even though stablecoins ensure stability, they usually do not return any income to investors.

These days, tokenized money market funds are proving to be significant players in the financial world. By investing in these assets, individuals can secure steady, risk-reduced earnings through direct access to returns from short-term U.S. Treasury Bills. Tokenized money market funds leverage blockchain technology’s advantages, such as quick transactions, transparency, and versatility, while reducing common risks linked with other token projects related to protocols, custody, regulations, and credit. The emergence of these assets brings a fresh layer of stability and yield possibilities to the crypto market, promoting portfolio diversification for investors.

Despite the advantages of stablecoins and tokenized financial markets, there’s a continually expanding segment of the cryptocurrency market looking for higher returns, especially among investors who have Bitcoin holdings that aren’t actively used. While lending was once a favored approach, the bankruptcies and fraud cases in 2022 underscored the significant risks associated with lending platforms. As the market recovers from these incidents, fresh companies are arising, promising more resilient, transparent, and secure lending environments. These new platforms assert they’ve learned from past missteps, leading to improved risk management techniques and promoting a broader distribution of risks across various cryptocurrencies.

A. What are some key points that investors need to keep in mind about the potential direction of diversification within the cryptocurrency market based on current patterns and influencing factors?

1) It’s important for investors to understand that the diversity in the cryptocurrency market is likely to remain in the coming times, as there are numerous factors at play shaping this space. The upcoming U.S. presidential election might bring regulatory changes, which could significantly affect investor sentiment and the overall performance of assets. Moreover, rapid technological innovations and varying rates of adoption across distinct blockchain networks will continue to result in disparate performances among different cryptocurrencies.

Investing in a variety of cryptocurrencies by choosing regulated and expertly-managed funds can assist in reducing risks and taking advantage of prospects across different types of digital assets. It’s crucial to conduct thorough research and have a deep comprehension of each asset’s unique qualities as you navigate the rapidly changing and fragmented crypto marketplace.

– Jason Leibowitz, head of private wealth, Hashnote

Keep Reading