The numbers are looking positive, with Bitcoin currently at $21,800 and Ethereum at $1,621.89. The global crypto market cap is at an impressive $1.01T, showing a 3.30% increase from the previous day. Additionally, the total crypto market volume over the last 24 hours is $43.89B, which is a 4.22% increase. In terms of DeFi, the volume currently stands at $3.02B, making up 6.87% of the total crypto market volume in the last 24 hours. Stablecoins also have a strong presence with a volume of $40.18B, which is 91.55% of the total crypto market volume. To top it off, Bitcoin's dominance in the market is currently at 41.51%, showing a small increase of 0.03% over the day
MACRO The focus of the week was on central banks and monetary policy. A Bloomberg report suggested that the European Central Bank (ECB) is considering a 25bp interest rate hike at its March meeting, after a 50bp hike in February. This news boosted the idea of a "pivot narrative" with money markets starting to price in new cuts in deposit rates after mid-year. However, some members of the ECB board opposed the report, with ECB President Christine Lagarde stating that there will be several rate hikes ahead and no support for a downshift to 25bp immediately.
The Bank of Japan (BOJ) also had its meeting this week, with speculations of a change to its yield curve control program. However, the BOJ kept interest rates stable and announced that it sees more downside risks to growth, and will maintain a dovish stance with a ramp-up of market operation tools. In the US, economic momentum continues to be weak, with a recent trifecta of bad news on soft PPI, retail sales, and industrial production. This has led to a decrease in interest rates, but hawkish comments from ECB members have led to rates returning up. In the credit market, there has been a softening in new issues, particularly in investment-grade names, while cash markets have tightened vs CDS. The equity market is divided between weak macro data and stable liquidity.
The Federal Reserve is nearing the end of its current policy tightening phase, with policymakers becoming increasingly cautious about the effects of already implemented policy. This is leading to a more two-sided approach to risk management and a greater emphasis on incoming data.
Vice Chair Brainard's recent speech, titled “Staying the Course to Bring Inflation Down” at the University of Chicago, has been described as dovish, as she argues that prices are trending lower, wage growth is decelerating, and margins are likely to compress further, removing any possibility of a 1970s-style inflationary situation given that the full effects of tighter policy have yet to fully hit. Brainard does not believe labor markets need to meaningfully weaken to get inflation back to target.
Brainard highlighted that the drag on U.S. growth and employment from monetary policy is likely to increase in 2023 due to transmission lags from the rapid, large swing from accommodation to restraint in 2022. She pointed out recent declines in average weekly hours, temporary-help services, and monthly payrolls growth suggest tentative signs that labor demand is cooling. Despite constrained supply, wages do not appear to be driving inflation in a 1970s-style wage–price spiral. Brainard also discussed that rents based on new leases are decelerating sharply and will show through to average rent over time.
Brainard indicated that evidence from market- and survey-based measures suggests that longer-term inflation expectations are well anchored, while year-ahead measures have recently declined but remain elevated. She believes that the price trends in core goods and nonhousing services, the tentative indications of some deceleration in wages, the evidence of anchored expectations, and the scope for margin compression may provide some reassurance that the U.S is not currently experiencing a 1970s-style wage–price spiral.
Brainard is of the view that a continued moderation in aggregate demand could facilitate continued easing in the labor market, supporting the idea that a soft landing is possible. She concluded by saying that the Fed is close to stopping its rate hikes.
The market remains volatile, capped by technicals, and more range-bound due to optionality/positioning and internal/external rotation. It is important to maintain risk discipline in this tactical trading environment. As the earnings picture becomes clearer and further data reinforces the inflation/policy outlook, market conditions may change.
The Fed's monetary policy outlook does not mean "risk on," as it is predicated on growing recessionary fears which will cap sentiment/participation for some time. However, it should allow risk assets to find some support, especially for equities that could benefit from expanding multiples despite weaker earnings
CRYPTO ROUNDUP
“As we allege, Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the price of the MNGO token, which was purchased and sold as a crypto asset security, in order to borrow and then withdraw nearly all available assets from Mango Markets, which left the platform at a deficit when the security price returned to its pre-manipulation level,” said David Hirsch, Chief of the Crypto Assets and Cyber Unit. “As our action shows, the SEC remains committed to rooting out market manipulation, regardless of the type of security involved”
US government seizes $700 million in assets and cash belonging to SBF.
China has enabled smart-contract functionality for its central bank's digital currency, the digital yuan, on Meituan, one of China's largest e-commerce apps. This is the first time smart-contract functionality has been tested on a mass retail scale. Users who use certain keywords in their orders and merchant names will be eligible for a daily prize divided among them. As of the end of 2022, digital yuan accounted for 0.13% of the total circulation of the Chinese renminbi. The People's Bank of China's Digital Currency Institute announced in September that it was working to increase smart-contract functionality and later rolled out a function that prevents payees from taking prepaid funds falsely
The Banking Department supports the development and innovation of the crypto industry in a safe and compliant manner, adhering to all relevant laws and regulations. It encourages chartered entities, money transmitter licensees, and other potential crypto industry applicants to contact the Department to discuss their activities and will provide feedback as appropriate. 🔗
Conclusion of the study
"BIS" (The Bank for International Settlements) has released a study that systematizes the technical and financial functionalities provided by DeFi protocols, outlining the various types of crypto assets used and focusing on specific DeFi protocol categories providing financial services such as exchanging, lending and borrowing. The study explains how DeFi protocols can be assembled into complex financial constructs and provides possible investigation and measurement methods to understand the risks associated with these developments. It highlights the need for novel methods to identify, investigate and understand the risks of increasing the integration of crypto assets with the traditional financial sector. 🔗
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@ethereum @VitalikButerin @lightclients @mhswende @elbuenmayini @teamipsilon @alexberegszaszi @yperbasis @ethnimbus @dimahledba So that was it for this week 😄 The CL call, ACDC, is scheduled next Thursday 14:00 UTC, and the next ACDE will happen the week after, on Jan 19, 14:00 UTC as well. See you there!
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