High for how long?

Bitcoin continues to trade within a narrow channel between $22.3k and $24.3k. Last week the Federal Reserve, the European Central Bank and the Bank of England all raised interest rates and bitcoin held its ground quite well in light of the announcements.

As we had highlighted a few weeks ago, the rally from $17k to $23k in a span of 10 days from January 10th to January 20th had placed bitcoin in an overbought condition as per the relative strength index indicator. The recent price stability around $23k over the last 2 weeks has allowed the RSI to come down from its “overbought” condition, and it is now almost back to its normal ranges. This creates a healthier technical setup for bitcoin’s next move.

Another point we wanted to highlight is that short interest for bitcoin remains at near historic lows on the Bitfinex platform, which has historically been a good gauge for overall short interest in bitcoin. This suggests that investors see limited downside left from here. Another implication of the lack of short interest is that this will reduce the chances of another sudden price rally for bitcoin. Typically, when we have seen large and sudden rallies, they have been accompanied by the liquidation of open short positions.

In terms of key technical support and resistance levels, we are still watching the 200-week moving average as potential resistance to the upside and the 200-day moving average as potential support to the downside. The 200-week moving average is sitting at $24,818 and the 200-day moving average is at $19,721.

Digital Asset Markets:

Yesterday afternoon Coindesk reported that Genesis and DCG had reached an agreement with its creditors.

The news was later confirmed by Cameron Winklevoss who also commented that Gemini would contribute an additional $100 Million towards Gemini Earn users. 

While the announcements use words such as “substantial for Genesis creditors”, Cameron Winklewoss went even further and said that the $100 Million pledged was a sign of Gemini’s commitment to helping Earn users get a full recovery of their assets.

In short, it appears that Genesis and its creditors are much closer to striking a restructuring deal to prevent a full bankruptcy. The news is structurally positive for the industry, as it appears that billions worth of assets that were thought to be lost will be back in the market soon. 

2. Binance to suspend USD Deposits and Withdrawals this week

As reported yesterday, Binance will suspend USD bank transfers as of February 8th. 

Binance CEO, known as “CZ”, confirmed the news on Twitter saying that it impacts only a small percentage of its clients. From CZ’s quote on twitter, it also appears that the move is due to Binance’s U.S. dollar banking partner. “While some banks withdrawing support for crypto, other banks are moving in. Some setbacks were expected from last year's incidents. Long term, keep building.” 

Binance is just the latest casualty of banking partner restrictions. Other companies in the industry have also reported changes to their buying/selling functions as a result of recent changes. 

It should be no surprise that banks with exposure to the crypto space are coming under pressure from their regulators. Among the many examples, back in January we reported about the FDIC’s statement to banking organizations about crypto-asset risks. 

Macro

All 3 central banks raised rates by the amounts that investors expected. The Fed raised by 0.25% to 4.75%, the European Central Bank raised 0.50% to 3%, and the Bank of England raised by 0.50% to 4%. 

As we look ahead for the remainder of 2023, U.S. investors widely believe that the Fed will “tap out” at 5.25% after two more 0.25% increases in March and May. Markets have gotten giddy on the thought that raises will not rise further. However, rates could remain high for a lot longer than many expect, and that’s also a problem. 

As you can see from the chart above, back in the early 2000’s, markets also rallied considerably as the Fed was reaching its terminal rates. However, the Fed kept rates very high for almost a year, and markets dropped precipitously right after. 

Nobody wants to rain on the rally parade, but keep in mind that interest rate effects are lagging, and take time. It’s like starting a locomotive engine, it takes a long time to get going, but once it does it becomes very hard to stop.

The Week Ahead  

The week ahead is loaded with Fed speeches and U.S. corporate earnings. 

On the Fed front, Chairman Jerome Powell headlines the list of 9 Fed member speeches throughout the week. Interestingly, Powell did not “talk down” markets during last week’s press release as he has in previous ones, and markets have rallied significantly since the December meeting. So far, investors have taken that as confirmation that the Fed is done fighting markets higher. Powell & Co. can quickly shatter those dreams with carefully selected words (& future actions).

On the Corporate Earnings front there are several reports that could be relevant for Bitcoin, like Robinhood, Paypal, Uber and more.

As always, here’s a summary of the events and data that could move markets in the week ahead:

Notice for Canadian Residents: As of January 4, 2023, Canadian clients will no longer be able to take out new B2X loans. As of February 1, 2023, Canadian clients will no longer be able to open a new BTC or USDC Savings Account, deposit BTC or USDC to existing Savings Accounts or earn yield on any existing BTC or USDC Savings Account balances.

Notice for U.S. Residents: Effective April 4, 2022, U.S. clients will no longer be able to earn interest on any newly deposited funds in their BTC and/or USDC Savings Accounts, where available; however, they will continue to earn interest on their pre-existing balances in their BTC and/or USDC Legacy Savings Accounts.

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