RESEARCH
BEQUANT Crypto & Coffee
In traditional markets, be that forex or equities, while gaps in prices are hardly a desirable feature, they are not altogether that uncommon. The so-called gaps are exactly that, gaps caused by absence of liquidity, extreme widening of bid/ask spread, be that due to technical of fundamental factors. For example, stocks may gap due to unexpected earnings reports, M&A development or an other significant announcement. Similarly, in the FX market, unexpected macro development or an out of line macro data reading may cause a gap. Also, because there is no trading done over the weekend, gaps are more likely to occur between Friday close and subsequent re-open. In crypto, because the market is 24/7, there are no “weekend gaps”, however this gap is still evident on regulated platforms that offer derivatives trading (CME futures). The latest example can be seen on Monday, where the CME futures initially gapped higher at the open, in reaction to spot breaking above $10,000 over the weekend, only to subsequently pare the move and drop below $9,900 level. Question one should be asking is whether derivatives drive spot price action, or vice versa... As alluded to on Monday, even though Bitcoin did move back above the key $10,000 level over the weekend, there was a distinct lack of immediate follow through (stops), which in turn suggested there was room for a pull back. Momentum is an important factor, but so is consolidation. Despite the correction, the bias remains to the upside and it is widely expected that the market will promptly retake the levels. The futures curve remains steep and the options skew in indicating bullish expectations, when looking at 6-months out. Looking elsewhere, the ongoing market narrative may be centred on block reward halving by Bitcoin Cash (BCH), Bitcoin SV (BSV) and Bitcoin (BTC), but the growth of DeFi is not something that market participants should overlook. It is true, Ethereum (ETH) may have its troubles, but for what it is worth, the amount locked in DeFi recently topped $1bn mark. On the subject of Eth, it was reported that the planned upgrade will no longer take place in Q2 2020 as previous expected, but researchers remain confident the initial network parameters will deploy in 2020. Anything less would be considered a “failure,” they said. In further blow to Ethereum, it was reported that ETC Labs and Fantom Foundation are collaborating to bring decentralized finance (DeFi) to Fantom’s ecosystem. Ethereum Classic (ETC) will serve as collateral for issuing a stablecoin similar to Maker’s DAI on the Fantom platform.
In a recently published report, titled “Central Bank Digital Currency”, the Bank of France notes that “…Units issued on the wholesale CBDC’s native blockchain could be transferred to other blockchains. Since the attributes of a unit of the wholesale CBDC (file representing the currency unit, keys enabling use) may be integrated in a crypto-asset circulating on another blockchain, which is possible on Ethereum and Ripple, for example, it would then become possible to use the unit on this blockchain…”. (https://publications.banque-france.fr/sites/default/files/media/2020/02/04/central-bank-digital-currency_cbdc_2020_02_03.pdf) While it makes no mention of commitment to using either of the mentioned chains or alternative versions, a reference alone should be seen as a positive development for Eth and XRP/Ripple.
