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BEGGING FOR GUIDANCE
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BEQUANT Crypto&Coffee

The last week was all about macro, although some market commentators continued to point out the apparent miner outflows and miner to exchange flows are giving a clear sell signal, and the same narrative will remain in play this week. Specifically, it was noted last week that based off the previous market reactions to events such as taper tantrum, it appears that once again market participants will demand on the Federal Reserve (Fed) to be more forceful in their language and further reaffirm the easy monetary policy stance. 

With that in mind, last Friday analysts at Bank of America opined with a view that some verbal Fed intervention is paramount, writing that "the market is begging the Fed for greater guidance" - something the Fed has generously provided in the past during times of market stress - and states that it now "expects the Fed to clarify policy expectations in the March FOMC meeting." As BofA chief economist Ethan Harris writes, "the Fed is in a bind" since rising interest rates ("shall we say tantrum?"), prompted a tightening of financial conditions, yet at the same time the market is adamant that "higher rates may be justified." Harris then notes that "since the Fed relies on “open mouth operations” to guide markets when the policy winds shift" it has become quite clear that "markets are asking for greater guidance." Something we tweeted two days ago. Harris' conclusion: a shift in Fed speak is coming at the upcoming FOMC meeting.

Another trend that has not helped Bitcoin is the aggressive rise in the demand for the Canadian ETF and with Grayscale AUM down to $31 billion (vs $35 billion at its highs), the premium has collapse as a result. The compression in the premium will have one knock on effect and that is cash & carry strategies. However, it is unlikely to evaporate the demand altogether, although some capital will look elsewhere, while others will turn more creative and may use various structured lending products to enter DeFi assets, especially given the recent announcement by Grayscale to launch a number of related entities. It is also worth remembering that February saw the launch of Ethereum's CME offering and while the overall volume is still small, it is worth keeping track of demand evolution as it will likely increase competition for capital vs Bitcoin based offering.

On a more sombre note, decentralized finance (DeFi) application Furucombo lost $14 million after an exploiter apparently used a fake contract to trick the app into thinking it was an Aave v2 update. Furucombo later tweeted that the vulnerability had been fixed. The attack also affected DeFi protocol Cream Finance's treasury funds, taking $1.1 million, according to a tweet from the protocol's team.

Finally, it is worth remembering that last week it was reported that Dubai-based FD7 Ventures, a global crypto investment fund with $1 billion under management, announced plans to sell off $750 million worth of their Bitcoin holdings over the next 30 days to increase the company's positions in Cardano (ADA) and Polkadot (DOT). “Aside from the fact that Bitcoin was first to market and society has given it meaning as a store of value, I think Bitcoin is actually pretty useless,” Says Prakash Chand, Managing Director at FD7 Ventures. “Projects such as Cardano, Polkadot and Ethereum are the foundation of the new internet and Web 3.0.”

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