Week of Tuesday November 9th to Monday November 16th
Market Commentary 💬
Bitcoin 🟠
Bitcoin closed last week higher by +3.16%, closing right above the top line of the bull-flag formation that we had highlighted last week. So far into this week, we have seen positive continuation to the upside, and a lot of this could be stemming from continued activity in the bitcoin ETF space.
The bitcoin ETF world has been incredibly active since the first-ever application. Last week there were two noticeable events.
First, the SEC issued a notice requesting comments on GBTC’s application to become a spot ETF and list on the NYSE. The request for comments does not mean that the fund will get approved, but it is a step in the right direction. The SEC has started the clock and will now have to make a decision on the Grayscale Bitcoin ETF application. The approval would come, potentially, on December 24th this year. It could be an exciting holiday season!
For further context on the pending spot bitcoin ETF applications, the SEC has also issued requests for comments for the VanEck spot bitcoin ETF application. The request for comments for the VanEck application was issued in June of this year, and the fund could hear a decision this week (November 14th).
An application for a futures-based short bitcoin ETF was also withdrawn by Direxion last week - signalling that the SEC maintains its conservative stance on more exotic bitcoin ETFs for now. It looks as though the next milestone will be the spot bitcoin ETF.
S&P 500 📊
As many predicted, the Fed started tapering last week. What’s interesting is that the price action so far does not seem consistent with previous tapering efforts. All major equity indices are at all-time highs, even the Russell 2000 and the yields on 10-year and 30-year U.S. treasuries are dropping precipitously.
The S&P 500 soared to yet another all-time high last week, closing +1.79% higher at 4,694. The Dow Jones also reached a new all-time high, closing higher by +1.42%, and the Nasdaq roared to another all-time high at +3.21%.
The most insightful market action from last week was probably the Russell 2000 small cap index decidedly rallying to a new all-time high.
The move can be interpreted as optimism for small companies tapping into the labour market. A tight labour market has been a big constraint for small cap companies to join the large-cap rally. An improving labour market, combined with equity markets digesting tapering news positively, could result in a new broad-based rally for U.S. equities.
The U.S. bond market reacted surprisingly to the tapering announcement. The yield on the 10-year note dropped by -6.80%, and the yield on the 30-year note dropped by -2.88%.
The price action suggests that bond markets got ahead of themselves, and are currently adjusting expectations.
To illustrate, the 10-year treasury yield has rallied by 77% in the last year. The current move could be seen as a readjustment of interest rate expectations.
Looking beyond the current tapering, current price action could also suggest that the bond market sees a low probability of the U.S. being able to raise interest rates in a meaningful way, even after the tapering of bond purchases finishes.
While things look positive in equity markets, there is a risk of an external negative event that could drive markets lower. Investors may not be willing to “bid” in the midst of the Fed gradually rolling back its “easy money” policy stance.
Gold 🥇
Gold prices benefited from the moves in the bond markets. The drop in yields on U.S. treasury bonds compressed the real returns for the bonds, which typically favours the gold markets. This helped gold finish higher by +1.90% last week.
The U.S. dollar was essentially flat, helping gold and most commodities.
Checking in on oil prices, last week they dropped for the second consecutive week.
The next catalyst for gold and other commodities could be this week's Consumer Price Index reading in the U.S.
DeFi 🔄
It was an action-packed week in the DeFi world. Ethereum reached a new all-time high on Monday, Nov 8th of $4,795.
Meanwhile, Solana broke to another all-time high, it is up this year by a whopping 17,000%, surpassing Cardano and Tether to become the 4th-biggest crypto by market capitalization, worth over $75 billion. Also, this week the Solana Breakpoint Conference is taking place in Lisbon, Portugal, the short term excitement for SOL doesn’t seem to be fading.
On the flip side, the DeFi index is doing well, but not as well as layer 1 protocols like ETH and BTC. This underperformance could still be attributed to DeFi exploits. The total amount of funds stolen in DeFi attacks has reached $680 million so far this year, and more than 70 exploits have taken place in the DeFi landscape; according to The Block’s Data Dashboard.
It looks like DeFi activity continues to evolve - however, the growth is not accruing to DeFi tokens (which are the main components of the DeFi index). For example, look at COMP. While it did go up ~4% last week, it is far, far away from its all-time highs.
Difficulty Commentary ⛏
The next difficulty adjustment is expected to occur in about 4 days, it would bring difficulty up by +3.22% to 22.35 TH. The steady increase in difficulty, since the China mining ban, continues taking place, and we are now only ~10% away from seeing an all-time high in the network’s hashrate.
The mempool remains the same - just like the past few weeks, the cost of broadcasting a transaction to the Bitcoin monetary network is still very low.
What's ahead for the week 📰
This week we’ll get a temperature check on US inflation data. Now that the Fed has officially started to taper down its bond buying program, investors will continue to keep an eye on inflation.
Inflation seems to be “the term” nowadays around market participants’ outlooks and discussions. It would be interesting to see how this will affect Bitcoin over the short term.
On the other hand, Bitcoin is primed to be upgraded this week with Taproot, a much awaited software update which will add privacy, security and smart contract features to the network.
As always, we wrap up with a summary of the upcoming economic data, important events, and earnings reports for the week:
Tuesday:
8.30 AM EST - Producer price index
Wednesday:
8.30 AM EST - Initial jobless claims
8.30 AM EST - Consumer price index
8.30 AM EST - Core CPI
Friday:
10.00 AM EST - Job openings
Sunday:
Block 709632 - Taproot activates 🥕
It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account.
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