The cryptocurrency market has been holding steady, with Bitcoin just under $28K before the market saw red on Monday. At the time of writing, BTC has been trading at $27,483. However, Bitcoin isn't the only cryptocurrency experiencing a decline.
The second largest cryptocurrency, Ether, has fallen under $1,600, with its losses in the past week now at 8% as it exchanges hands at $1,590. The crypto market cap also dipped by 1.8% to $1.11 trillion.
In fact, among the top 100 cryptos, except for stablecoins, no crypto asset is in the green right now, while RLB is the biggest loser, with a 10.3% drop in the past 24 hours.
Currently, the Crypto Fear and Greed Index stands in the neutral zone with a reading of 50 out of 100. This is consistent with last week's score. However, it shows a slight recovery from last month when the index indicated fear with a reading of 41 out of 100.
Given these market sentiments and the Bitcoin price being stuck in a range, the market remains indecisive. It could be said the market is in a consolidation phase, awaiting triggers for its next move.
On a positive note, the US Consumer Financial Protection Bureau (CFPB) is examining how the Electronic Fund Transfer Act (EFTA) can be applied to cryptocurrency platforms, an initiative intended to enhance consumer safeguards within the market. The regulations under EFTA require electronic fund service providers to notify users about their responsibilities regarding unauthorized transfers.
On another note, forecasts from blockchain analytics platform Elliptic anticipated a surge in the number of funds laundered through decentralized exchanges (DEXs), cross-chain bridges, and coin swaps, reaching an estimated $6.5 billion by the end of this year and projecting to rise to $10.5 billion by 2025.
Recent on-chain analysis by Elliptic also uncovered that criminal actors, including the well-known hacking group Lazarus from North Korea, have successfully laundered roughly $7 billion of illegitimate crypto via DEXs, cross-chain bridges, and coin exchange services.
Investors Rushing for Safe Haven Assets
The crypto market's lack of movement comes amidst geopolitical uncertainty. A prime example of this tension is the situation in the Middle East, as the ongoing Israel-Hamas conflict keeps investors on the edge and sets the tone for what's likely to be a volatile start of the week.
The Israeli shekel fell on Monday morning, more than 1.6% against the USD, to a low of Shk3.9581 at its weakest since 2016. This prompted the Central Bank of Israel to take action, as it said on Monday that it would sell up to $30 billion of foreign currency holdings to shore up the shekel. The bank said it wanted to “moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets.”
While traditional markets are reacting to geopolitical uncertainties, the crypto market's dip might be an indicator that, despite its decentralized nature, it's not immune to global events. Some investors might be perceiving cryptocurrencies as too risky amidst geopolitical turmoil, pulling back to more established safe-havens.
And amid this backdrop, the US dollar is proving its mettle as a traditional safe haven. The geopolitical uncertainty has prompted a stronger move into the dollar, which has fortified its position against most major peers. “Anytime there is international turmoil, the dollar strengthens,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
On Monday, the DXY index jumped to 106.545, inching closer to its 2023 high of 107.4 from last week. Last year, late in Sept., the US dollar hit a multi-year high at nearly 115.
It is expected that the instability in the Middle East can add to the USD's already stellar performance in recent months. “The path of least resistance over the very short term is dollar strength on lower risk appetite,” said Jason Wong, a currency strategist at the Bank of New Zealand in Wellington, who also noted that given the scope of the dollar's rally, “there's a reasonable chance it fizzles out relatively quickly.”
A Bloomberg gauge of the US currency has advanced 2.1% this year, heading for a third annual gain, which would also be the longest run since 2016. The US dollar has been benefitting from the Federal Reserve's aggressive interest-rate increases along with resilience in the US economy. However, it's a holiday for the US bond market on Monday, with cash trading to reopen on Tuesday.
Another asset getting a boost is gold, which is also seen as a hedge against international turmoil. Gold prices jumped to $1,850.730 per ounce early on Monday. But at the same time, holdings in SPDR Gold Trust, the largest gold-backed ETF, dipped slightly.
Gold's latest uptick in price comes after late last month, spot gold prices were trading around $1,947 per ounce only to drop to about $1,810 earlier this month. Gold prices are still off of its 2023 high of $2,065, during which it came close to hitting its peak.
Meanwhile, oil prices jumped more than 3%, reversing their recent fall and adding to concerns around elevated inflation and overall bearish sentiment. Brent crude oil is currently trading at $87.21 per barrel, while WTI crude is at $85.63 a barrel.
This was due to Iran's involvement in the Israel-Hamas conflict as the Wall Street Journal reported that Iran helped to plan the Palestinian terror group Hamas's attack on Israel, as told by senior members of Hamas and another Iran-backed group, Hezbollah. Iran is an oil producer, and while US sanction continues on Iranian oil, the country's supply has increased in recent years.
“Whether this is a massive market moment or not depends on how long it lasts and whether others are sucked into the conflict,” said Brian Jacobsen, chief economist at Annex Wealth Management, of the situation in Israel. “It's most critical to see how Saudi Arabia reacts,” he said.
The potential prolonging of the ongoing conflict, along with the OPEC+ production reduction agreement, may lead to sustained upward pressure on crude oil prices and contribute to a persistently elevated inflation rate. Last year, following the Russia-Ukraine war, oil prices also soared as high as $120 a barrel before falling to just above $70 a barrel this year.
Saudi Arabia, a major oil producer, said it would make cuts of million barrels per day in July, a move agreed by other members of Opec+, in an attempt to shore up flagging prices. Opec+ accounts for around 40% of the world's crude oil, and as such, its decisions can have a major impact on oil prices.
So, the outbreak of military conflict in the Middle East is expected to further add to the woes of global financial markets, which are already suffering from elevated interest rates.
Inflation Data in Focus
Rising geopolitical risk would not only see increased interest in assets like the dollar and gold but will also boost demand for the US Treasuries, which have been sold off aggressively.
After touching an intraday peak of 4.8% on Friday, which was the highest since August 2007, the 10-year US Treasury yields are currently sitting at 4.795%. Last week, the 30-year-long bond also breached the 5% mark for the first time since August 2007, and on Monday is at 4.96%.
According to investment banking giant Bank of America's analysts, the sell-off in the US Treasuries seems overdone.
“Bonds oversold: Treasuries trading >5% below 200dma; note oversold sell-offs all coincided/foreshadowed “events”: Oct '87 crash, May '94 Tequila crisis, Jun '99 internet bubble, Mar '21 crypto pop, Oct '22 Nasdaq pop,” BofA analysts said in a note.
This risk-off sentiment was also seen across European peripheral bonds, with Italian 10-year yields above 5% for the first time since 2012 and Spanish 10-year yields above 4% for the first time since 2013. Meanwhile, Japanese 10-year yields jumped above 0.8%, something not seen in a decade.
Last week, the market saw a surprise United States employment data that diverged from policy tweaks by the Fed. A robust jobs report showed a 336,000 job growth in September, much higher than market expectations and fortifying the Fed's stance on maintaining its monetary tightening cycle.
Moreover, average hourly earnings rose by 0.2% during the reported month, the same as August, and advanced by 4.2% over the 12 months through September. The US unemployment rate also came in at 3.8%, matching the prior month.
Strong jobs data indicates a potential rate hike, and according to CME FedWatch, traders are also expecting a 30% likelihood of another rate hike this year by the US central bank.
Now, this week, several key risk events will be in the focus. On Wednesday, the minutes from the latest Fed decision, which saw the FOMC keeping the rates unchanged at 5.25%-5.50% range, will be released. Another key risk event on the same day is the release of the US Producer Price Index (PPI).
The next day, on Thursday, US inflation data for September will be in focus. Since bottoming at 3% in June, inflation has increased by 3.7% in the twelve months to August. Core inflation, which excludes energy and food prices, meanwhile eased to 4.3% in August for the same period, down from 4.7% in July.
On Thursday, the UK GDP for August will also be released. Meanwhile, Friday will see inflation data, both CPI and PPI, out of China as well as the University of Michigan's (UoM) preliminary consumer sentiment survey alongside the UoM's inflation expectations.
SBF Trial Picking up Steam
The ongoing trial of Sam Bankman-Fried (SBF), co-founder of the bankrupt crypto exchange FTX, continues to unravel, revealing startling insights week after week. Last week was no exception, shedding light on the alleged embezzlement of funds.
Gary Wang, once a close ally and co-founder of FTX, provided a captivating testimony against SBF. In a surprising twist, Wang confessed to his own involvement in deceptive practices with customer funds, which led to the downfall of the exchange. Delving into their history, Wang and SBF weren't just business partners – they shared bonds from their days at a math camp and later as roommates at MIT.
Continuing his testimony, Wang, the Department of Justice's fourth witness, implicated several FTX and Alameda executives. He accused Caroline Ellison and Nishad Singh, among others, of engaging in wire fraud, securities fraud, and commodities fraud.
In another dramatic revelation, Wang, who has pleaded guilty to fraud, detailed how, under SBF's directive, he altered the exchange's code. This manipulation allowed SBF's hedge fund, Alameda, unauthorized access to a staggering $65 billion line of credit.
Taking a firm stance, the Department of Justice declared that the crypto regulatory landscape's ambiguities would not influence this case. On Sunday, the prosecutors added that they aim to prevent SBF from leveraging the recent fundraising activities of artificial intelligence firm, Anthropic as a defense against the DOJ's charges.
Adding another layer to the intrigue, the DOJ suggests that Anthropic's $500 million investment in 2022, which remains unsold, might have roots in misappropriated customer funds. As this unfolds, Anthropic is reportedly in discussions to secure an additional $2 billion in funding.
Upcoming Token Unlocks
This week is poised for heightened activity in the crypto domain, with several projects introducing new tokens into the market, as highlighted by TokenUnlocks. The lineup kicks off with PENDLE, rolling out 55.48K tokens as part of their weekly liquidity incentives.
By Wednesday, we can anticipate a release of 214.29K 1INCH tokens. These are earmarked for the team, key investors, and the VC group.
Thursday will see a significant unlock from Aptos, releasing a hefty 4.54 million APT tokens valued at $22.76 million. Breaking it down, 1.33 million of these belong to the Foundation, while the remaining 3.21 million are set for the community. In tandem, 149.72K EUL tokens, with a valuation of $385K, will be introduced, targeting community-selected markets.
Rounding off the week, Friday has NEAR on the roster, prepped to unveil about 155K tokens as epoch rewards. Concurrently, Sweat Economy is on track to unlock a considerable 2.95% of its circulating supply, translating to 227.15 million SWEAT tokens with an estimated worth of $2.25 million. This batch is distributed among Sweat Co. Ltd., the core team & advisors, as well as participants of the seed and private rounds.
While Bitcoin, Ether, and other cryptos have largely traded sideways over the past week, there are potential catalysts on the horizon that might influence the market direction this week. For Bitcoin specifically, the $28,000 level remains a crucial resistance point to watch as we transition into this new week. Meanwhile, within the broader crypto narrative, the ongoing trial of SBF captures significant attention, with its implications potentially exacerbated by the anticipated token unlocks affecting certain tokens.
The overarching theme right now is geopolitical uncertainty. Its impact on both risk and safe-haven assets is undeniable, though the exact effects on the markets in the upcoming days are still up in the air. However, one pattern emerges with clarity: as investors gravitate towards safe-haven assets in the face of a strengthening dollar and US treasury yields reaching decade highs, we might witness heightened volatility across various markets.