27 Feb Bitfinex Alpha | Rates to Keep Rising, but Hodlers Keep Buying
A still-resilient US economy is giving a glimmer of hope for a soft landing. Despite the Federal Reserve’s massive rate hikes that started last year, PMI (Purchasing Manager Index) output figures show that the economy is still growing. The service sector saw a notable improvement in PMI output to 50.5, indicating an expansion, while the manufacturing sector also improved, though it is still in contraction territory. A sharp drop in supplier delivery times gave further optimism for moderating inflation – though it also reflects reduced input prices both in the manufacturing and service sectors.
But while the PMI giveth, Personal Consumption Expenditure (PCE) and inflation data, taketh away. PCE, which is the Fed’s preferred inflation gauge, climbed higher in February, with both core and headline figures above analysts’ expectations. Consumer spending also reached its highest level in two years. Market expectations that rate hikes will pause at the peak of 5.25 percent early this year have faded. We now expect rate hikes to continue until the June FOMC meeting, and a case for a 50 basis points hike as early as March remains on the table.
In stark contrast to macro headwinds, the Bitcoin market remains bullish. Our short-term prediction proved correct last week when the BTC price dipped to $22,800. While shorter-term data might fluctuate, long-term statistics suggest good market health for Bitcoin and the crypto market in general. We see the strong conviction on display by Bitcoin whales that resembles late bear market/early bull market behaviour as we continue to see large inflows into whale-style Bitcoin wallets. As much as 18,000 BTC was accumulated in the past week by long-term hodlers.
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Options market sentiment also indicates a slightly bullish bias as we enter the new trading week, with the 25-percent delta skew data for all expiry dates slightly above zero.
Amid this increasingly constructive environment for the BTC price, Coinbase announced the launch of its L2 blockchain, called Base and Ethereum developers announced that its next upgrade – Shanghai-Capella – will take place on February 28th. Binance also continued on its course for regulatory compliance as it recently closed down derivatives positions for 500 customers, which then triggered an investigation from regulators. We also saw the news that the US Department of Justice indicted the founders behind a company called Forsage for running an alleged Ponzi scheme that had been presented as a decentralised finance investment platform. The crypto hedge fund Galois also announced that it was closing its doors, given that half of its assets remain trapped on FTX, while co-founder and former CEO Sam Bankman Fried himself was charged with four new criminal counts.