August 21 Bitfinex Alpha | Brace for more swings
In Bitfinex Alpha
Markets were left reeling last week as Bitcoin fell below the psychologically important $25,000 level. This latest downward spiral was accompanied by a hair-raising liquidation of $1 billion worth of futures contracts.
Before this pullback, Bitcoin had been enjoying an almost quiet market period, with historically low volatility levels, as bulls looked for the next catalyst to lift the market higher. But the winds were changing. The surge in open interest in the futures market signaled turmoil, and by the time the storm passed, a staggering $3 billion of open interest had been obliterated.
Motivations included a mix of lingering concern about interest rates continuing to rise following the release of the Fed's July minutes, the bankruptcy of one of China's largest real estate developers and reports of bitcoin sales by SpaceX. These concerns, combined with a highly leveraged market, have presented a perfect storm.
But while historical volatility has been sky-high, it is the rise in implied volatility – the market's crystal ball – that has raised eyebrows. This measure, which is still higher than historical volatility, indicates that traders are bracing for more choppy waters ahead, signaling potential seismic shifts in the cryptocurrency world. The effects of this change also reveal an upward trend in open Bitcoin options contracts. This could be a market hedge against further chaos or a smart bet on continued volatility.
Analyzing the minutes of the Fed's meeting, it is clear that policymakers are grappling with the decision to implement further rate hikes as they acknowledge the threat of a resurgence of inflation, and all eyes are now on Fed Chairman Jerome Powell's upcoming Jackson Hole speech on the economic outlook.
Economic data remains mixed. The retail sector showed unexpected activity, recording strong growth of 0.7 percent in July, indicating that consumers remain unafraid of the looming shadow of inflation. However, the housing plaza offers a more telling story; Homeownership aspirations are being put at risk by a spike in mortgage rates and prices, even as homebuilding rose 6.7 percent in July.
With builders lowering prices to attract potential buyers, the risk of mortgage interest rates looms large. Manufacturing, another important pillar, defied the odds with its rebound in July, especially in automobiles, where it rose 5.2 percent. However, the 16-month decline in the main economic indicator paints a picture of contrasts.
In crypto news, London-based Jacoby Asset Management unveiled Europe's first bitcoin spot ETF on Euronext Amsterdam, beating out the US, where similar efforts have faced regulatory opposition. On the other side of the world, CME Group recognizes the growing influence of cryptocurrencies in the Asia-Pacific region. Joining forces with CF Benchmarks, they are launching Bitcoin and Ether reference prices tailored to the region's busy trading hours. As the frontiers of cryptocurrencies expand, institutional interest increases, heralding a transformative era in global finance. Meanwhile, Ripple Labs is strongly opposing the SEC's attempt to file an early appeal in the unfolding legal drama. In the United States, Ripple says the SEC's appeal is premature and unfounded.
We also take a deep look at China and show how its economy is showing ever-widening cracks. Beneath its powerful position lie tales of real estate disaster, as seen in the dramatic fall of real estate giant Evergrande and the threats of a downturn in the economy. As factory prices fall and Beijing navigates stormy waters with policy shifts, the world waits with bated breath. The Dragon may be faltering, but it is still far from its final act. From trade discussions to markets, everyone is closely watching China's next steps.
Happy trading!
