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  -  Weekly Wrap   -  Weekly Market Wrap #43, 2020

Week in Review

Winners & Losers

  • Bitcoin and Ethereum closed at the high end of their price range with strong positive correlations last week, driven by the news that PayPal is going to integrate crypto payments on its platform. It should be noted that ETH had a moderate negative correlation with the equity and bond market, and zero correlation with the gold market last week. We see further decoupling of its correlation with bitcoin over time.
  • Traditional financial markets await the US election; a final deal on the stimulus package for the U.S. economy and the response to the second wave of COVID infections in Europe. Equity markets fluctuated in a narrow price range, ending the week with a small negative return. 
  • Gold maintained a stable trend last week. The volatility index VIX presented a high standard deviation but ended with a near-zero return, echoing uncertainty and impact surrounding the US election. The index held negative correlations with crypto, equity, bond and commodity markets.

Macro, Technicals & Order Flow

Bitcoin

  • Our take last week was that if bitcoin could hold above $11,150, a break above $12,000 was likely. Not only did we see $12,000 arrive, but $13,000 followed soon after.
  • Bitcoin has formed an ascending triangle, which saw a small false break of the July 2019 highs at 13,200 on Sunday 25th Oct. Technically we’d expect price to retest the $12,500 prior resistance, however given strong fundamentals (PayPal, Fidelity releases and the balance sheet hedging occurring with Microstrategy, Square, Mode Global), we see the false break as a low liquidity Sunday move that will be followed by more upside this week.
  • The futures basis skew has gone wildly positive, further encouraging positive moves.
  • The only thing holding bitcoin back this week could be swings in polls leading up the US election and associated intermarket flows.

Ethereum

  • Ethereum is not following the same structure as bitcoin, forming a descending triangle with a bit of chop required to break Sep 2020 highs. However, we feel that ETH will still break near-term highs ($420) if BTC breaks out of its ascending triangle. 
  • The market is speculating that PayPal as the reason for the latest moves – but if this were the sole reason, we’d see ETH forming a similar if not more bullish scenario than BTC given its payment and smart-contract capabilities. 
  • Ethereum basis skew is bullish, although less so than the bitcoin basis.
  • Our view is that fundamentals around broader bitcoin adoption as an asset class is providing the foundation for these moves, with newsflow such as PayPal providing short-term triggers to up and down swings.

What to Watch

  • Will the move from PayPal accepting cryptocurrencies as a payment method drag cryptocurrencies out of their niche into real-world payments? Is this move setting up stage for PayPal’s future when fiat currencies go digital? How many new users will be attracted to PayPal in this increasingly competitive landscape?  
  • Chicago Mercantile Exchange (CME) has surpassed prominent retail platforms to become the second-largest bitcoin futures exchange by open interest last week. Is this a sign of increased institutional participation in the cryptocurrency? Will more institutions announce their involvement into cryptocurrencies this week? 
  • CME data revealed that institutions were going long with BTC while hedge funds were aggressively shorting BTC last week before PayPal’s announcement. What are the reactions of institutions and hedge funds after the PayPal news?

* Index used:

Bitcoin Ethereum Gold Equities High Yield Corporate Bonds Commodities
BTC ETH PAXG S&P 500, ASX 200, VTI HYG CRBQX


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Disclaimer

This document has been prepared by Zerocap Pty Ltd, its directors, employees and agents for information purposes only and by no means constitutes a solicitation to investment or disinvestment.

The views expressed in this update reflect the analysts’ personal views about the cryptocurrencies. These views may change without notice and are subject to market conditions. All data used in the update are between 4 Oct. 2020 0:00 UTC to 10 Oct. 2020 23:59 UTC from TradingView. Contents presented may be subject to errors. The updates are for personal use only and should not be republished or redistributed. Zerocap Pty Ltd reserves the right of final interpretation for the content herein above.