Crypto Daily News from ZBG Exchange

1. Market Wrap: Crypto Pullback Deepens; Expect Higher Volatility

Analysts expect higher volatility ahead of Friday’s month-end expiry.

Cryptocurrencies were mostly lower on Thursday as bullish sentiment wanes. Stocks were also lower as Federal Reserve Bank of Dallas President Robert Kaplan mentioned during an interview on CNBC that he would like to see tapering of bond purchases announced in September.

Bitcoin was trading around $46,000 at press time and is down about 4% over the past 24 hours. Technical charts suggest the pullback could stabilize between the $42,000-$45,000 support zone.

Traders will be monitoring Friday’s month-end option expiration, which could be a source of volatility. “The moderate volatility in BTC price this morning is likely due to an estimated $1.8 billion of monthly BTC options set to expire tomorrow,” wrote FundStrat in a newsletter on Thursday.

“The current max pain level, according to the derivatives exchange Derebit, is at $44,000,” FundStrat wrote.

For now, digital asset manager StackFunds wrote in a Thursday report that further consolidation is expected around current levels before the next upside push.

Latest Prices

Bitcoin (BTC) $47,000, -3.6%

Ether (ETH) $3,120, -3.09%

Traditional markets:

S&P 500: 4470, -0.58%

Gold: $1,793, +0.11%

10-year Treasury yield closed at 1.35%, compared with 1.347% on Wednesday

Bitcoin whales selling

Large bitcoin holders, often referred to as whales (addresses with 1,000–10,000 BTC), have been distributing their holdings, according to blockchain data. Smaller bitcoin holders (addresses with 1–1,000 BTC), however, have been adding to positions, which could mean that retail investors have fueled the recent bitcoin rally.

The fact that large holders are in profit taking mode is an “unfavorable situation and leans bearish,” crypto research firm Delphi Digital wrote in a blog post.

2. A16z Details Its New Approach to Crypto Governance

Perhaps the most powerful force in DeFi governance is promising to lift the veil on its internal procedures.

Following a pair of controversial votes in the governance forums of the Uniswap exchange, venture capital giant Andreessen Horowitz (a16z) said in a blog post Thursday it will “open source” its decentralized finance (DeFi) delegation procedures.

Titled “Open Sourcing our Token Delegate Program,” the post lays out how a16z selects the individuals and entities it chooses to delegate its considerable voting heft to.

Given the size of the DeFi ecosystem — now rivaling mid-sized American banks at $146 billion in total value locked (TVL) — and the considerable governance token reserves controlled by a16z, this effort towards transparency sheds light on policies that have the power to shape an emerging financial vertical.

The a16z post shares a draft of the 1,500-word legal agreement intended to ensure delegate independence, shows a full breakdown of current a16z delegates and their voting power and explains a16z’s conceptual approach to delegation.

DAO voting and delegation will be managed by a new, four-person team led by a16z partner Jeff Amico. Former 0x engineer Alex Kroeger announced last week he’d also be joining the team.

The a16z Protocol team will be perhaps the first-ever third-party professional protocol politicians with a purview that will comfortably rank a16z among the most powerful voices in DAO governance.

The Protocol team will select the entities that will receive “well over half” of a16z’s voting powers, and also choose how to vote with the remaining percentage — ultimately commanding a pot of tokens that can single-handedly sway governance proposals.

3. Bitcoin Eyes 200-Day Moving Average Support as $2B Options Expiration Nears

The max pain price for Friday’s bitcoin options expiry is $44,000.

Bitcoin is again experiencing moderate price turbulence heading into the monthly options expiration.

The cryptocurrency is trading at about $47,000 at press time, representing a 4.4% drop on the day. The decline has reversed Wednesday’s 2.7% gain and exposed bitcoin to the widely tracked 200-day moving average (MA) line located at $46,040

“What we are seeing is typical pre-expiry price volatility,” said Philippe Bekhazi, CEO at XBTO Group. “[The] market generally rebounds after monthly settlement.”

A total of 42,500 option contracts worth roughly $2 billion are set to expire on Friday, according to data provided by Skew. The dominant crypto options exchange Deribit will settle the majority of open interest at 8:00 UTC.

Data since January show bitcoin tends to move toward the “max pain” point in the lead-up to an expiration and sees a solid directional move in days after settlement. In traditional market theory, that behavior results from option sellers, mostly institutions, manipulating the spot market to push prices closer to the strike price at which the highest number of open options contracts expire worthlessly, yielding maximum losses — or maximum pain — for option buyers and minimizing losses for the sellers.

History seems to be repeating itself, as the max pain point for Friday’s monthly expiration is $44,000, according to Deribit. The options market has also flipped bearish for the short term, with the one-week put-call skew reporting positive values at press time. That’s a sign of short-term puts, or bearish bets, drawing higher demand than calls. The one-month skew is neutral, while the three- and six-month skews are still trading negative, indicating a long-term bullish bias.

4. How Bitcoiners Should Watch the Fed’s Jackson Hole Symposium

Fed Chair Jerome Powell is expected to address whether the U.S. central bank will taper its $120 billion-a-month of bond purchases.

When Jerome Powell steps up to the podium Friday at the Federal Reserve’s annual economic symposium, held virtually this year but traditionally near Jackson Hole, Wyo., he’s likely to deliver a speech that has had many revisions in the past two months.

While many market participants expect the Fed chair to announce a date and pace for tapering it’s $120 billion a month of bonds purchases, the dominance of the Delta variant of Covid-19 makes such a pronouncement less certain, some economists say.

“I was expecting him to maybe announce plans for tapering but the increase in the Delta variant makes it less likely,” said David Beckworth, a former international economist at the U.S. Treasury Department.

“We know for certain there’s more caution but the economy is still growing rapidly, inflation is high,” said Beckworth, now a senior fellow at the Mercatus Center at George Mason University. “I think you can make a case for why they might still go ahead and taper.”

Some crypto analysts see tapering as an obstacle for bitcoin speculation, since quantitative easing is generally thought to give investors the liquidity to invest more in riskier assets. Because of macroeconomic uncertainty created by the course of the pandemic, bitcoiners may be able to continue to count on quantitative easing staying at the same pace or tapering at a slower pace than might have been expected a few months ago — when coronavirus-related restrictions looked to be nearing an end, as vaccines became more widely distributed.

“I would have more confidently said he was going to signal something more concrete than the committee has if this were maybe two months ago,” said Steven Kelly, a research associate at the Yale Program on Financial Stability. “I assume he’s ripped up a couple drafts in the intervening weeks given the state of the Delta virus and the fact that the conference itself has moved online due to disruptions.”

It’s possible that Powell will wade into the issue of stablecoins — digital tokens linked to government-issued currencies such as the U.S. dollar — and financial stability given that the issue came up in last month’s Fed meeting minutes. But given the importance of monetary policy at Jackson Hole, it’s unlikely that crypto will come up in the speech, Beckworth said.

Powell will also likely review what the central bank has learned so far with the implementation of its flexible average inflation targeting framework. The framework came at a good time because it allowed the Fed to respond to 2020′s inflation misses, but this past year has also made it more difficult to assess the success of the framework since most of the high inflation is supply-side inflation and not inflation across all prices, Beckworth added.

In last month’s Fed meeting minutes, officials at the central bank expressed an interest in delinking quantitative easing from interest rates, which could give the Fed more flexibility to maneuver without causing a “taper tantrum,” wherein market expectations for the Fed funds rate go up because investors expect interest rate hikes to follow, Kelly said.

Because most inflation has been driven by supply chain bottlenecks, the Fed won’t feel much pressure to taper in response to inflation headlines. Powell has characterized the elevated inflation rate as “transitory.”

“There’s a reason they do these purchases in the billions and trillions, is because it takes so much of it to have an impact,” Kelly said. “Even with hundreds of billions of dollars of QE we’re talking about, maybe a 100 basis points impact — if you’re lucky — on the 10-year yield.”

General inflation is subdued, said Stanford economist Erik Brynjolfsson. “The 10-year real yield is negative 1%,” he said. That’s the nominal yield on the U.S. government bond, minus the inflation rate.

“What that tells us is that people are willing to lend money to the US government at negative real interest rates, so there’s no real evidence of the economy overheating by that metric,” Brynjolfsson said.

With the $1 trillion infrastructure bill making its way through Congress, the pressure on the Fed to maintain economic growth may be eased, Brynjolfsson added.

“When the government spends money, it makes a huge difference as to whether that’s spent on investment like infrastructure, or whether it’s spent on current consumption, like payments to individuals,” Brynjolfsson said. “If it’s spent on investment, then that means that productivity is going to grow, capacity is going to grow, and inflation is going to go down. If it’s spent on consumption, then you don’t have more supply, and you don’t have more output.”

At the moment, it’s unknown when lower unemployment will lead to more general inflation and the Fed, policymakers, and Congress will want to test how far they can push the economy, Brynjolfsson said.

“For most of the past decade, the Fed has missed by having an unemployment higher than what their target was, and also having inflation lower than what their target was,” he said. “Both of those point in the same direction that the Fed has been too tight.”

5. Anchorage Hires Former Wells Fargo Digital Assets Executive for Banking, Capital Markets

Chapman will connect banks to Anchorage’s trading, custody and lending products.

Crypto bank Anchorage said Thursday it has hired former Wells Fargo blockchain executive Ken Chapman to be its director of banking and capital markets products.

“My primary role is going to be helping Anchorage address the overwhelming demand they’re receiving from banks for their services, including custody, trading and lending,” Chapman said. “I’m also going to be helping banks look at a different paradigm for settlement using blockchain as a rail.”

Chapman led digital assets and blockchain initiatives for the capital markets team at Wells Fargo for two years. He has also worked for Bank of America, BNY Mellon, investment firm Bridgewater Associates, JPMorgan and UBS.

Chapman said he envisions most banks setting up lending facilities for customers to take out loans against crypto collateral in the future. In addition to providing trading and custody services, banks will be looking for a federally chartered institution to partner with, he said. In June, Anchorage began offering ether-backed loans through Massachusetts-based BankProv.

“Anchorage is the first digital asset company to receive a federal charter from the OCC,” Chapman said, referring to the Office of the Comptroller of the Currency. “This is the same charter that other banks like BNY Mellon … I am moving from a traditional bank to a digital asset bank, but it’s still a bank.”

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August 27, 2021