Major event warning

Previous

• ⭑⭑⭑ Unemployment Rate 3.4% vs 3.6% expected
• ⭑⭑⭑ U.S. Private Nonfarm Payrolls 443k vs 190k expected
• ⭑ January had 102,943 job cuts, the highest reduction in workforce in January since 2009, when 240,000 jobs were cut

2-13 Monday

• ⭑ Japan’s QoQ GDP growth of 0.5% expected

2-14 Tuesday

• ⭑⭑⭑ CPI MoM & YoY
• ⭑⭑ FOMC member speaking could give insight and direction, especially after CPI numbers

2-15 Wednesday

• ⭑⭑⭑ Core Retail Sales 
• ⭑⭑⭑ NY Manufacturing Index PMI 
• ⭑⭑ GBP CPI 10.3% expected a slight decrease from 10.5% last month

2-16 Thursday

• ⭑ Initial jobless claims
• ⭑⭑ Building Permits
• ⭑⭑ Philly Fed Manufacturing -7.4, a slight increase from last month’s -8.9
• ⭑⭑ Producer Pricing Index 0.4% expected will be less important because of CPI earlier in the week 

Summary

Many regulatory headlines surrounding the crypto market came out last week. Kraken is being sued by the SEC for offering securities with its Staking service, Paxo is being investigated by the SEC and NYDFS and has stopped minting BUSD, and the US government and Biden administration are secretly cutting off banking for crypto companies. In the previous week, some heavy-hitting headlines came out, and the crypto market was forced to take a breather from its hot bull run since the start of the new year. This week on the macro side, we are getting US retail sales, industrial production, housing data, and most important, CPI data. This mixture of macro and regulatory action can potentially reverse the “bull market is back” thesis that everyone has been buying into. As you read on, I want to leave you with the wise words of economist John Maynard Keynes, “Markets can stay irrational longer than you can stay solvent.” Remember, we all have our biases and thesis on the market, but the price is the ultimate representation of the collective market.

Macro

Following the FOMC decision and press conference, the market rallied based on Powell’s more dovish answers to media questions. However, January’s job numbers, which came out on 2/3/23, showed an increase of 517k jobs, way above the estimated number of 185k. This also drove unemployment to the lowest level since the 1970s. This is the opposite of what the Fed wants to see in its fight against inflation. High employment means more Americans have disposable income, which adds to the demand pressure on goods that the Fed is trying to fight against. 

Last week many Fed members, including Powell himself, spoke on different occasions and parroted that with the strong job numbers, they might have to raise rates higher or hold them at high levels for longer to get inflation to their target. And we can see this reflected in the chart as the 1-year treasury bond rates have significantly increased to the upside by 30 basis points. 

This week, we are getting the CPI inflation data alongside US retail sales, industrial production, PPI, and housing data, all of which should give us more insight into the state of consumer demand – strength in any combination of the above could drive the reraise of “inflation concerns” on market news headlines. We also get a host of Fed officials speaking in public to continue to stress “higher for longer.” In sum, risk-on sentiment might continue to weaken. 

The January CPI will likely have risen 0.5% MoM, the most since the top on June 2022. Core CPI is expected to increase by 0.4% MoM, which brings the annual rate to 5.5% YoY, just a slight dip from the 5.7% YoY recorded in December. 

Macro analyst Kelvin-Wong pointed out forward-looking inflationary expectations represented by tradable products can be derived by subtracting the yields of US treasury inflationary protected bonds from the yields of a normal US treasury bond. So looking at the 5-year breakeven rate and the 10-year breakeven rate, we see a strong increase raising almost 30 basis points. This recent rise in the trader’s outlook for inflation rates suggests that the CPI data is likely higher than expected, and thus inflation is more sticky than expected. Hence the dovish narrative that many are starting to believe in might be wrong, and assets are mispriced given the current market consensus. This could result in a nasty decline further down the line, like we have been expecting at Pionex. 

Technical:

BTC: Long-term Neutral, Short-term Bearish

We finally got a pullback last week on the backs of the SEC going after Kraken news. But it was likely time for a pullback as we have run up almost 100% from the bottom. The market just used the SEC news for a reason to pull back. There is strong confluence in the price levels of longer timeframe (monthly) charts and the short-term (daily) charts. We will go over the only 3 levels that you’ll need. 

Monthly

3 Levels 

1. $22,500 | The level that needs to be reclaimed for this current uptrend to continue
2. $20,500 | The initial monthly support level should be held for bulls to show their strength. It is also the level before the FTX collapse.
3. $19,000 | The lower level of the trading range and ultimate level to be held if we want any hope of this uptrend continuing. If this level is invalidated, we will surely revisit lows of $15,500. Our ultimate target is $14,000 – $15,000. 

Daily

The basic picture that price is painting for us now is we failed to move higher when hitting our head on the $24,000 monthly resistance, which was to be expected after a 50% run-up. Considering the recent regulatory headwinds, the logical next move for BTC is to pull back into longer time frame support. On the weekly and monthly charts, we see this at $20,500 – $21,000, the middle of the trading range back in 2022, and the closing price of several monthly candles. We will likely see some retracement to this support zone. As we wrote above, the next level of support would be $19,000, which marks the bottom area of the 2022 summer trading range, and that is the most crucial level to hold for the bull thesis to play out. 

We will likely bounce off the $20,500 demand zone and try to reclaim the $22,500. However, we will fail and retrace to the $19,000 crucial support, where we will spend some time consolidating. 

The chart below shows the order book size on an exchange. Yellow represents whale-sized limit orders >900 BTC waiting to be filled. We saw a large order of 1000 BTC at $21,500 that was mostly filled today. Prices tested the area twice and broke through, but buyers came in after filling the large order and defended that level. After that fill, we saw a large block order of 800 BTC at $21,800 and 300 at $22,000. This could be the large buyer trying to unload his coins or traders positioning to short on price spikes. 

Recommendations

Structured Products | Medium Yield – Low-Risk

The CPI data will be released at 8:30 AM EST. This should cause some relatively large moves in the market. I will invest in BTC or ETH Buy-The-Dip with a strike price of $19,000 and $1,300, respectively, with a duration of < 2 weeks. This should offer high returns if you time it right during the volatility spike following the CPI release. 

If you are a risk taker, you could invest in ETH Buy-The-Dip $1,300 strike expiring on 2/17, yielding 23.25% APY. This product has a very low chance of being exercised, even with the high volatility of the CPI event.

Day / Swing Trading (Manual) | Hands-on Approach 

None this week.

Risk-averse (Grid Bot) | 1 – 12 months: (Sample Portfolio $1,000)

(This is a sample portfolio. Same % gains on a $1,000 or $100,000 portfolio.)

If we reach the $19,000 – $20,000 support level, I will open a Grid Bot with a $12,000 lower limit and a $28,000 upper limit with 100 grids. I would allocate 20% of my portfolio. Even though we expect prices to fall further final bottom of around $13,000 – $15,000, this Grid Bot will be able to buy the dip and make arbitrage profits in the processes. We expect to consolidate for a while near the $19,000 – $20,000 trading range.

Started on 9/6 $18,800. 10% of portfolio allocation. 

 Started on 12/29 $16,600. 10% of portfolio allocation.

Hodler (Moon Bot) | 1 – 3 year time frame 

None opened.