Trade Letter #179 : Everyone’s Awake Now

Crypto

Weekly Review

The approval decision for the Ark 21Shares Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC) has been postponed. Originally, the SEC had a deadline of August 13th to decide on the Bitcoin ETF put forth by ARK Invest and 21Shares. However, the regulatory body announced that it intends to solicit public comments regarding a specific change proposed in the application. Consequently, the approval decision deadline has been pushed further, potentially leading to a delay in the evaluation process until 2024. This delay leaves investors waiting for regulatory guidance concerning the various applications for a Bitcoin ETF based on the spot market. In the meanwhile market participants' attention redirected towards the upcoming decision dates for Bitcoin ETFs from BlackRock, Fidelity, WisdomTree & Co.

In regards to ETFs based on futures contracts, despite the approval of the inaugural Bitcoin ETF in October 2021, the SEC has so far thwarted all attempts at Ethereum ETF applications. However, this situation may be on the cusp of change in the near future. This year, multiple parties have once again submitted applications for an Ethereum ETF in the US. These products, like the approved Bitcoin funds, would rely on futures contracts from the CME Exchange. Recent statements from an anonymous source cited by Bloomberg have kindled some hope for an Ethereum ETF soon getting approval. According to this source, institutional investors could gain access to an additional investment avenue in the second-largest cryptocurrency by market capitalization by mid-October. Nearly a dozen companies, including Volatility Shares, Bitwise, Roundhill, and ProShares, have sought regulatory approval to launch an Ethereum ETF. Many of these applicants already have futures-based Bitcoin ETFs in operation and are acquainted with the SEC's stipulations. The order in which these ETFs will be greenlit remains uncertain. The SEC is set to decide on 16 Ethereum ETFs in the span of a few weeks. While multiple postponements are possible, a complete rejection seems unlikely, according to Bloomberg's insights. The first deadlines to consider are for the combined Bitcoin and Ethereum products from issuers Valkyrie and Bitwise. On October 11th, the SEC's determination is anticipated for the initial "pure" Ethereum ETF proposed by Volatility Shares. This applicant has already introduced a leveraged futures Bitcoin ETF nearly a month ago. Several applications are also seeking approval for a short ETF centered on the second-largest cryptocurrency by market capitalization.

In court documents filed on Friday, the SEC has formally requested US District Judge Torres to grant certification for an immediate appeal on the preliminary motion regarding its case again Ripple. The SEC needs this permission due to Torres's ruling being related to a preliminary motion rather than a final judgment. However, the SEC argues that the urgency is warranted because of the substantial impact the resolution of this issue could have on pending cases involving cryptocurrency assets. In a ruling made in July, Torres determined that the application of securities law to the cryptocurrency was applicable primarily when the currency was sold to sophisticated institutional investors. This ruling was seen as a significant victory for the cryptocurrency industry. The SEC is pursuing several major cases against cryptocurrency exchanges and issuers, accusing them of offering unregistered securities. Ripple, on the other hand, opposes the immediate appeal sought by the SEC for Torres's ruling. In a court filing, Ripple argued that there are no exceptional circumstances warranting the resolution of this matter before it proceeds to trial. The case has undergone various stages, including pretrial motions and discovery, with both parties presenting arguments and evidence to support their positions. The case is closely watched by the cryptocurrency community and legal experts, as it could potentially shape the regulatory landscape for digital assets in the United States.

BTC/USD

1-Day Timeframe

BTC price plummeted about 12% on Thursday. While we had mentioned a good possibility that price could dip towards 27.5k, the correction was faster and deeper than anticipated, causing more crypto positions to get liquidated than during the FTX collapse in November 2022. The positive view is that the price is holding the daily bullish order block between 24,824 - 26,087$. As long as we do not see daily candle closes below 24,824$ (may vary between trading pair and exchanges) there is still technical hope over the short to medium term. The RSI is currently around 21, far into the overextended negative territory. I will be watching this week whether a positive divergence will start forming here while price still holds the order block level.

ETH/USD

1-Day Timeframe

ETH price wicked beautifully into the liquidity box we had marked since around June, giving us some great longing opportunity, but at the cost of losing its long term trendline support. With news around ETH ETFs being expected in October, if positive we can at the very least look forward to a bearish retest of the trendline at around 1,800 - 1,860$. By then all longs taken since August 17 should be secured with a stop loss and break even at the very least. For now my eye is on the 1,620$ support. Daily candle closes below that level may lead towards a further correction towards 1,400$, but let’s take that into consideration when we see the first signs. 

Legacy

Weekly Review

Stocks experienced a broad decline as investor sentiment seemed to be impacted by a sharp rise in longer-term bond yields and concerns about a significant deceleration in China. The S&P 500 Index concluded the week with a 5.15% drop from its peak on July 27. Small-cap stocks endured the most substantial losses. Technical factors and the reduced trading volumes characteristic of the summer season may have magnified the market's fluctuations.

The most noteworthy economic release of the previous week appeared to be the Commerce Department's report on retail sales for July, which saw a 0.7% increase during the month, roughly double the consensus estimates. Excluding the volatile automobile sector, sales saw a 1.0% rise, contributing to a year-over-year gain of 3.2%. While retail sales remained relatively flat over the past year due to a corresponding increase in the consumer price index, specific categories indicated a sharp upturn in discretionary spending. Notable increases included an 11.9% surge in sales at restaurants and bars, as well as a substantial 10.3% rise in online purchases. Conversely, sales at gas stations plummeted by 20.8%.

Additional data from last week suggested the potential for a scenario where the economy continues to expand without undergoing either a "soft landing" slowdown or a more severe "hard landing" recession. Industrial production exhibited a 1.0% growth in July, significantly exceeding consensus estimates and marking the most substantial increase since January. However, a portion of this growth resulted from utilities boosting output to cope with exceptionally high temperatures in July. Additionally, national housing starts rose beyond expectations.

Nonetheless, the clarity regarding whether and to what extent the economy was slowing may have diminished post the Federal Reserve's meeting. The Atlanta Fed's GDPNow forecast, a continuously updated projection based on incoming data, surged to 5.8% last Wednesday, a considerable increase from the official second-quarter growth rate of 2.4%. Although most anticipate a notably lower growth rate for the third quarter, the Atlanta Fed's Blue Chip survey of economists indicated that most are consistently revising their growth forecasts higher. Despite this, expectations for interest rate hikes, as indicated by the CME FedWatch tool, remained relatively steady throughout the week, with futures markets reflecting the probability of rates remaining unchanged until the year's end.

The release of the Federal Reserve's July policy meeting minutes last Wednesday seemed to raise concerns about how policymakers would react to ongoing signals of growth. Investors appeared to interpret the minutes as leaning toward a more hawkish stance, even as Fed officials expressed optimism that "a continued gradual slowing in real gross domestic product (GDP) growth would help reduce demand-supply imbalances in the economy."

S&P 500 

1-Day Timeframe

The S&P 500 is dipping south out of its ascending price channel towards the 0.618 fib retracement level. We can see several daily candle closes below the channel in the past, and the focus should be the reaction around the 0.618 retracement at around $4,311. This will be a crucial level to hold support for the bullish narrative. Last line of defense would be the 0.5 fib retracement level at around 4,155. If we see daily candle closes below that level market sentiment and projections may go down significantly. Levels above us are yet again the key retracement levels of 0.702  and 0.786. The reaction from here in this whole area will be giving us important hints about the medium to long term future price action.

DXY 

1-Day Timeframe

Since breaking the descending trendline resistance last week the DXY value has been stalling at the pivotal level of around 103.538. Breaking though this level in a sustained manner could open the way to continuation towards 104.738 and 106.054 next.

At moves downward I am interested in seeing the reaction at the trendline, which should be in sync with the horizontal level of the 0.618 fib retracement (101.836) depending on the timing price heads down there, if at all. With little liquidity in the overall market and all the regulatory hurdles faced by crypto in the US, the strength or weakness of the DXY are likely to continue having little confluence on crypto prices until some major levels are cleared.

Weekly Schedule

U.S.

The highlight of the week will be the Kansas City Fed's Jackson Hole Symposium. Fed Chair Powell's address on Friday is anticipated to reiterate the potential necessity for more rate hikes and the importance of maintaining elevated interest rates for an extended period of time. Given the recent increase in real yields, Powell might acknowledge the current restrictive nature of policy and suggest that eventual rate cuts could be considered, contingent on overcoming inflation.

The economic calendar for the week begins on Tuesday with the release of the July report on existing home sales, expected to demonstrate signs of stabilization. Wednesday will feature the flash PMIs, which could indicate that manufacturing remains in contraction mode, while the service sector continues to display weakness. Thursday will bring initial jobless claims and the preliminary assessment of durable goods for July (the only data marked potential high impact on the TradingEconomics Calendar), with expectations of weakness. Friday will see the final publication of the University of Michigan sentiment report, with particular interest in any significant revisions to inflation expectations.

Earnings announcements for the week will include reports from Baidu, Lowe's and Nvidia

Eurozone

As the ECB prepares to implement further rate hikes to counter inflation, the risks of a severe economic downturn are increasing. This week will witness several (low to medium impact) economic data releases, with the flash PMI readings standing out (potentially high impact). It is evident that the manufacturing sector will persist in contraction across key regions such as Germany, France, and the eurozone as a whole. Meanwhile, the service sector is gradually weakening, struggling to maintain its expansionary status. The market will also closely monitor the German IFO business climate report for signs of potential stabilization in expectations, as well as an anticipated soft consumer confidence report.

Tuesday could witness subdued trading conditions in Europe due to the closure of certain banks (France, Italy) for Assumption Day.

Written by: Gunter Lackmann