Article by

Picture of Elisha
Elisha

Other Topics

Market Insights

Market Update

Published February 14, 2023
4 mins read

Article by Elisha

Happy Valentine’s Day (and CPI Day) to all ❤️

We are now clearly in the post-FTX regime where BTC has a higher beta to macro news than crypto news.

The collapse of FTX, the most retail friendly crypto exchange last November, has led to a rapid shift in retail interest towards DeFi and NFTs, of which leverage is much lower and where BTC plays no part.

Instead there is growing institutional interest from TradFi, with CME now the second largest venue for BTC futures OI with a 17% share, and where these CME-trading institutions are largely macro-driven.

What is clear since FTX is that there has been a clear and concerted push from the US authorities not just towards the regulation of crypto, but also the restriction of the crypto industry.

The SEC’s goal now seems to be to restrict the size of the industry such that any misstep by them (like FTX) will not have future consequences.

In the case of Binance, killing their on and off-ramp banking channel earlier this month, and now their stablecoin channel as well, will severely impede its ability to facilitate large volume transactions in future.

Furthermore, the folks at the SEC seem to have mastered the act of dropping the dreaded “S” word every now and again, like their own version of nuclear deterrence.

With the “security” threat renewed once again, whether this is justified or not, the subsequent decline of ETHBTC to the year’s lows makes sense as only BTC has been given the all-important “security clearance” by them.

As the regulatory hammer is still out against the industry (possibly until the 2024 election), the upside on crypto’s market cap looks even more subdued from that perspective now.

Hence, today’s CPI print is crucially important to decide the extent of downside for crypto.

Macro markets have diverged significantly leading into the print – with rates and equities heading in opposite directions and BTC caught in the middle (Chart 1).

Chart 1

In the rates market, we are now pricing a 5.2% terminal rate followed by a 30bp cut by December 23, a monumental step-up from the 4.9% terminal and 50bp cut just 2 weeks ago.

Risk assets have clearly not adjusted to this increase in rate expectations, and we expect today’s print to bring all markets in line – whether it is an outsized equities sell-off (on a number higher than expected) or a rates rally (on a number lower than expected).

A high number for today however is now baked into consensus.

The consensus expectation now is:
– 0.5% m/m increase in Headline CPI
– 0.4% m/m increase in Core CPI
– 6.2% y/y increase in Headline CPI
– 5.5% y/y increase in Core CPI

In particular, the median forecast for headline M/M has settled at 0.5%, which is by a knife’s edge of just 1-2 forecasters! (Chart 2) This reduces the chances for an upside surprise on that basis.

Chart 2

However, we are still sticking with our call for an upside surprise, albeit with less certainty on a M/M basis now.

We think the January seasonal adjustments still do not fully take into account the strength of annual price adjustments – as seen from the seasonality of Jan CPI beats/misses – where 6 out of 7 past Januarys have seen a higher-than-expected CPI (Chart 3).

Chart 3

We believe a 0.6% M/M on headline and especially on core would be enough to scare markets (and the Fed), and trigger a revision higher to their dot plot at the March FOMC meeting on 22 March.

On a 0.6% M/M we would expect BTC to break 20k going into the March meeting.

On that basis, our view is BTC March puts look extremely cheap as a limited loss structure into today’s print, with March ATM implied volatility still hovering at complacency levels of <50 (Chart 4).

Chart 4

Latest Articles

Asia Color -

09 Dec 24

December 9, 2024
1 mins read

Asia Color -

05 Dec 24

a) For the front-end traders, they were frantically covering their short positions as the continued rally squeezed into their shorts b) Mid-tenor traders were relatively

December 5, 2024
1 mins read

Asia Color -

04 Dec 24

Reject modernity, embrace tradition. These 4 four words would have served you well in navigating (and profiting!) from crypto markets in the past week. Seasoned

December 4, 2024
1 mins read

Asia Color -

03 Dec 24

December 3, 2024
1 mins read

Asia Color -

02 Dec 24

BTC briefly touched 98k over the Thanksgiving weekend, driven by Saylor’s BTC investment strategy presentation to Microsoft. Microsoft’s shareholders are scheduled to vote on a

December 2, 2024
1 mins read

Asia Color -

28 Nov 24

BTC reclaimed the critical 95,000 level last night after PCE price index came in as expected. ETH was the main outperformer yesterday as it rallied

November 28, 2024
1 mins read

Exclusive insights tailored specifically for you.

Follow us to receive the latest developments in crypto derivatives.

Disclaimer

This information contained in this website is intended as a general introduction to QCP Capital and its activities as a Digital Payment Token (DPT) service provider and is for informational purposes only.

 

QCP Capital is not acting and does not purport to act in any way as an advisor or in a fiduciary capacity vis-a-vis any counterparty. Therefore, it is strongly suggested that any prospective counterparty obtain independent advice in relation to any trading investment, financial, legal, tax, accounting or regulatory issues discussed herein. This website is only directed at informed and qualified investors. Your entry to this website attests that you are fully aware that trading of DPTs is not suitable for the general public and that you are an informed and qualified investor, and are also fully cognisant of all technological and financial risk(s) associated with trading Digital Payment Tokens.

 

In the event you intend to onboard with QCP Capital to trade in DPTs, by onboarding with us you acknowledge that you are aware of any rules and/or regulations applicable to the provision of DPT and/or financial services, the high degree of risk involved and that in no event will QCP Capital or any if its directors or employees be liable for any injury loss, claim or damage (whether direct, indirect, consequential or incidental) arising either directly or indirectly out of, or in any way connected with, the site, or its use.

 

If you are located, incorporated, or otherwise established in, or a citizen or resident of certain jurisdictions, QCP Capital may be unable to, or otherwise reserve its right to refuse to engage in or establish a trading relationship with you. Please contact us if you believe you have received this notice in error. QCP Capital is not registered or licensed to operate in the states of Louisiana and New York and will not be able to establish a trading relationship with you if you are resident, incorporated or have your principal place of business in New York or Louisiana.

 

You also acknowledge that you understand that trading in payment token derivatives (“PTD”) are also not any less risky than trading in DPTs. PTD services are not regulated by the MAS and QCP Capital is as such not licensed under the MAS to provide PTD services. You should only trade in PTDs if you are an Accredited Investor and/or have sufficient experience and knowledge in trading PTDs.

 

Risk Warning on Digital Payment Digital Services
The Monetary Authority of Singapore (MAS) requires us to provide this risk warning to you as a customer of a digital payment token (DPT) service provider.

 

Before you pay your DPT service provider any money or DPT, you should be aware of the following.

 

Your DPT service provider is an exempt payment services provider pending licensing under the Payment Services Act (2019) to provide DPT services. Please note that this does not mean you will be able to recover all the money or DPTs you paid to your DPT service provider if your DPT service provider’s business fails.

 

You should not transact in the DPT if you are not familiar with this DPT. This includes how the DPT is created, and how the DPT you intend to transact is transferred or held by your DPT service provider.

 

You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens.

 

You should be aware that your DPT service provider, as part of its licence to provide DPT services, may offer services related to DPTs which are promoted as having a stable value, commonly known as “stablecoin”.