The Nasdaq Crypto Index (NCI) closed Sunday (12/18/22) 4.5% below last week’s closing. The index’s negative performance was influenced by ether (ETH), down 7.2%, while bitcoin (BTC) fell 2.5%.

 

Coming out of a week where prices remained stable, investors prepared for the final Federal Open Market Committee (FOMC) monetary policy announcement in 2022 while continuing to monitor FTX fallout headlines.

After a customary Sunday night dip, crypto asset prices began rising in the early hours of Monday (EST). Digital asset prices would continue to trend upward until the early hours of Tuesday, at which point prices initiated a precipitous climb that lasted six hours.

Optimism surrounding the imminent release of US consumer price index (CPI) data sent prices soaring. The eventual publication of the Labor Department report showed investor confidence was well founded, sustaining upward momentum until briefly after market opening.  

November’s CPI data showed that prices rose a mere 0.1% (expected: 0.3%) during the month, decreasing the 12-month rate to 7.1% (expected: 7.3%), its lowest since November of 2021.

Less than an hour after markets opened, prices began to lose steam and then declined in the afternoon. All major US stock indexes closed in the green that day, as did most crypto assets—with ETH and BTC climbing about 4%—despite the modest correction that occurred in the afternoon.

On Wednesday, the FOMC announced a 50 bps rate increase to the Fed Funds rate, interrupting a series of four consecutive 75 bps increases. The hike took the benchmark rate to its highest level in 15 years (4.25% and 4.5%).

The announcement came as no surprise, in light of Fed chair Jerome Powell’s recent comments confirming that it would soon be appropriate to slow down the pace of rate increases. 

Nevertheless, markets were initially buoyed by the announcement, which took BTC and ETH to their respective weekly highs of $18,320 and $1,343 a couple hours before markets closed on Wednesday. 

However, macro optimism was short-lived, with prices returning to pre-announcement levels during the afternoon as result of Powell's hawkish comments that reiterated his commitment to continue the battle against inflation into 2023.  

This bounce may also have been influenced by the fact that crypto investors had become aware of some relevant news regarding Binance. The world’s largest centralized crypto exchange had registered $1 billion in net outflows (value of assets deposited minus value of assets withdrawn) during the previous 24 hours. 

Whatever was causing the unusually high rate of withdrawals seemed to be exclusively impacting Binance, as its negative outflow exceeded that of all other exchanges combined.

On Thursday, prices would continue to drop to then plummet on Friday afternoon on the back of news that Binance had gone through $6 billion in outflows from Monday to Wednesday. 

Binance CEO Changpeng “CZ” Zhao downplayed concerns in several media interviews. “People can withdraw 100% of the assets they have on Binance, we will not have an issue in any given day,” claimed CZ in a CNBC interview.

Additionally, Binance revealed that proof-of-reserves auditor Mazars had paused its work for the exchange and other crypto clients. Mazars later revealed that it had halted reviews “due to concerns regarding the way these reports are understood by the public." The company added that its reports “do not constitute either an assurance or an audit opinion on subject matter.”   

By Friday night, BTC and ETH had reached their respective weekly lows of $16,650 and $1,168. Crypto assets prices would then spend the weekend trading sideways around Friday’s lows. 

 

Looking ahead

 

This week's macro calendar will be headlined by US GDP figures on Thursday and the release of the personal consumption expenditures (PCE) price index on Friday. Both data points could help shape market expectations regarding macro conditions in 2023. Crypto investors will continue to monitor Binance’s outflows, although Bloomberg has reported that withdrawals have slowed since the first half of last week. 

 

More from Powell’s speech

 

Jerome Powell disappointed investors hoping the Fed chair would reassure them that the hike-related pain is over after several consecutive inflation readings showing prices were slowing down. 

Instead, during Wednesday’s press conference, investors were met with comments like “It will take substantially more evidence (that price stability has been achieved),” and “We’ve made less progress than expected on inflation.” 

If Powell is worried about tightening and its potential impact on the US economy, it certainly didn’t show during Wednesday's press conference.  

In any case, the Fed dot plot showed that FOMC officials expect rates to increase to just over 5% in 2023, which means we are likely to get two or three more rate increases (depending on size) before the Fed Funds rate finally stabilizes next year. 

If inflation figures continue to show price increases are slowing down on a 12-month basis, focus may begin to shift to labor market indicators, which have remained consistently strong despite  rapidly increasing rates.    

 

______________________________________

 

_{The information contained herein (“Information”) may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Hashdex Asset Management Ltd. (“Hashdex”) and its affiliates and subsidiaries (“Hashdex Group”). By accepting this document, you acknowledge and agree that all of the Information contained in this document is proprietary to Hashdex Group. While not explicitly referenced within this piece, Hashdex Group manages the Hashdex Nasdaq Crypto Index ETF, Hashdex Nasdaq Ethereum ETF, Hashdex Nasdaq Bitcoin ETF, Hashdex DeFi Index Fund, Hashdex Smart Contract Platforms Index ETF and other investment vehicles focused on digital assets (collectively the “Fund” and each a “Fund”) which invests in digital tokens. The Information is not an offer to buy or sell, nor is it a solicitation of an offer to buy or sell, interests in the Funds or any advisory services or any other security or to participate in any advisory services or trading strategy. If any offer and sale of securities is made, it will be pursuant to the confidential offering memorandum of the Fund (the Offering Memorandum). Any decision to make an investment in the Fund should be made after reviewing such Offering Memorandum, conducting such investigations as the investor deems necessary and consulting the investor’s own investment, legal, accounting and tax advisors in order to make an independent determination of the suitability and consequences of an investment.}

 _{Each Fund seeks to track a relevant index. The performance of each Fund will vary from the performance of the relevant index that it seeks to track. The Information is being provided to you solely for discussion purposes and may not be used or relied on for any purpose (including, without limitation, as legal, tax or investment advice) without the express written approval of Hashdex Group. Certain statements reflect Hashdex Group’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Hashdex Group’s views on the current and future market for digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance of Hashdex Group and the Funds may vary substantially from, and be less than, the estimated performance. None of Hashdex Group, the Funds nor any of their respective affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the Information or any other information (whether communicated in written or oral form) transmitted or made available to you.} 

_{Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of the Information or such other information. Except where otherwise indicated, the Information is based on matters as they exist as of the date of preparation and not as of any future date and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. Investing in financial markets, the Funds and digital assets, including Bitcoin, DeFi tokens, and Ethereum, involves a substantial degree of risk. There can be no assurance that the investment objectives described herein will be achieved. Any investment in the Funds may result in a loss of the entire amount invested. Investment losses may occur, and investors could lose some or all of their investment. No guarantee or representation is made that Hashdex’s investment strategy, including, without limitation, its business and investment objectives, diversification strategies or risk monitoring goals, will be successful, and investment results may vary substantially over time. Nothing herein is intended to imply that the Hashdex Group’s investment methodology or that investing any of the protocols or tokens listed in the Information or the Funds may be considered “conservative,” “safe,” “risk free,” or “risk averse.” Neither historical returns nor economic, market or other performance is an indication of future results. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Hashdex Group, and Hashdex Group does not assume responsibility for the accuracy of such information. Hashdex Group does not provide tax, accounting or legal advice. Certain information contained herein constitutes forward-looking statements, which can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” (or the negatives thereof) or other variations thereof. Due to various risks and uncertainties, including those discussed above, actual events or results, the ultimate business or activities of Hashdex Group or the Funds or the actual performance of Hashdex Group, the Funds, or digital tokens may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward- looking statements in making their investment decisions. None of the Information has been filed with the U.S. Securities and Exchange Commission, any securities administrator under any state securities laws or any other governmental or self-regulatory authority. No governmental authority has opined on the merits of the offering of any securities by the Funds or Hashdex, or the adequacy of the information contained herein.}