CoinLoan Weekly: Fed's seesaw, tranquil BTC, global crypto banking rules
After languishing around $17,000, BTC headed upward and shot up — first to $17,750 and then to a 7-day high of $18,320.82 on Wednesday, December 14. From there, the price gradually descended to around $16,700, leveling off by Saturday, December 17. Monday, December 19, did not bring much change. In the evening hours, BTC slid below $16,600.
On Wednesday, December 14, the market rallied on a positive CPI report showing easing inflation and fuelling hopes of Fed's retreat. Then, the intraday gains faded after Fed Chair Jerome Powell said that "higher rates for a longer period" were likely as the regulator was adamant about its 2% inflation goal. Although the FOMC had raised the benchmark rate by half a point earlier that day, the intention to carry on with the hikes pushed stocks and crypto down. The Fear and Greed Index reached 31 as fear slightly eased, but it revisited 26 by the week's end.
As of this writing, BTC is changing hands at $16,556.29, with a 24-hour loss of -1.2% and a 7-day change of -3.2%.
ETH briefly dipped below $1,250 before ascending in the first half of the week in lockstep with BTC. On Wednesday, December 14, its price peaked twice, cresting at a 7-day high of $1,343.42. From there, it moved downhill — first to $1,270 and then to just under $1,200 on Friday, December 16. ETH traded around this level through the weekend and Monday, December 19.
As Powell's words obliterated the pre-FOMC rally, ETH followed a market-wide decrease. In addition, the network's revenue from daily gas fees is nearly a quarter of its mid-June levels, accompanied by a significant decline in daily active users — from over 961,000 on July 26 to 367,000 on December 16. As a consequence, Ether has turned inflationary again at a 30-day rate of 0.073%. However, growing regulatory clarity and more Ethereum-based protocols could catalyze growth in the long term.
As of now, ETH is worth $1,171.18, with a 24-hour shift of -0.9% and a 7-day result of -7.4%.
Following a slump to $0.374, XRP regained vigor along with the leading coins. Its rise culminated at $0.396297 on Tuesday, December 13, and it held above $0.39 until the following evening. From below $0.38 on Thursday, December 15, XRP fell deeper and entered a slim weekend range around $0.355. On Monday, December 19, its price dropped below $0.34.
In addition to the sell-off triggered by the macro events, XRP was affected by whale activity. Whale Alert detected transfers of nearly 700 million tokens between December 17 and December 19, including $325.8 million XRP moved from Binance to an unknown wallet. Stocking up aligns with expectations of XRP withstanding this crypto winter, based on its resilience so far — the token is still a top 10 cryptocurrency by market cap.
As of now, XRP is trading at $0.337845, with a 24-hour drop of -3.7% and a 7-day loss of -11.8%.
BTC is tranquil amid stock market decline
Bitcoin and Ethereum dovetailed with equities through the week. On Wednesday, December 14, they surged, bolstered by a better-than-expected November inflation rate of 7.1%. In the run-up to the FOMC meeting, BTC traded above $18,000 for the first time since FTX's mid-November downfall.
Yet the impact of a softer 0.5% rate hike proved momentary. As Jerome Powell suggested that rate increases could continue into 2023, both coins sank, dragging the rest of the market down. DOGE became the biggest loser, having shed 20% since the previous weekend.
Stocks were also declining through the week, leaving many wondering if a recession was about to begin. The Fed's retreat to a 50-bps rate increase did not bring inflation closer to the 2% target, while Sam Bankman-Fried's arrest exacerbated investors' skepticism of crypto.
This week's macro drivers include EU ministers' agreement on an emergency cap on the price of natural gas, which is designed to shield consumers from skyrocketing costs. This measure follows the introduction of a price cap on Russian crude oil.
BTC shows lowest Implied Volatility since October 2020
Despite the drop, market analysts noted Bitcoin's relative stillness. According to Amberdata, the annualized seven-day implied volatility (IV) has hit a two-year low of 38.2%. Investors use this metric to project likely movement in the underlying asset. It is opposed to historical volatility, which measures past market changes, and is often interpreted as the degree of uncertainty or fear. BTC's 7-day IV has been subsiding since peaking at 145% on November 9 amid FTX fallout and miner capitulation.
Analysts note the diminishing effect of negative headlines on the price of BTC. At press time, the cryptocurrency is 0.5% up over the past 30 days, despite BlockFi's filing for bankruptcy on November 28, $6 billion withdrawn from Binance, and scrutiny of the platform's financial health.
A possible explanation given by Vetle Lunde, research analyst at Arcane, involves buying options to hedge crypto exposure after the FTX debacle. "The current low IV regime reflects that traders are satisfied with the current exposure (hedges already in play) and expectations of less volatility in the foreseeable future."
Volumes in both spot and derivatives markets show typical pre-holiday lull, and active BTC futures contracts on the Chicago Mercantile Exchange (CME) have also declined, indicating falling institutional interest. Between December 14 and 16, when BTC was retracing gains, open interest in the derivatives market dropped rapidly, and the funding rates across exchanges have not recovered yet.
Basel unveils global crypto banking rules for 2025
By January 1, 2025, the global banking sector will have implemented universal rules for crypto endorsed by BCBS (the Basel Committee on Banking Supervision). According to the institution's statement and standard-setter document for the prudential regulation, the exposure of any bank to specific digital assets will be capped at 2%, with recommended exposure of under 1%.
The announced threshold concerns tokenized traditional assets. This category encompasses NFTs, stablecoins, and unbacked cryptocurrencies that do not meet the committee's classification criteria. Meanwhile, the assets that meet them "are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing Basel Framework."
The said conditions include passing the basis risk test and the redemption risk test. The former "aims to ensure that the holder of a crypto asset can sell it in the market for an amount that closely tracks the peg value." The redemption risk test must confirm "the reserve assets are sufficient to enable the crypto assets to be redeemable at all times."
The new standards will be incorporated into the consolidated Basel Framework and applied depending on the jurisdiction. They give conventional financing institutions more wiggle room compared to the previously suggested 1% cap. The committee's statement followed an appeal by TradFi lobby groups that urged for a less restrictive approach to avoid stifling innovation driven by distributed ledger technology.
Guidance for New York banks
Across the Atlantic, the New York State Department of Financial Services (NYDFS) has issued crypto guidance to state-regulated banks. It specifies the prerequisites for approval to engage in digital asset-related activities, such as safeguarding crypto on clients' behalf or offering exposure to specific digital assets. In particular, a bank is to provide a business plan detailing the following:
- proposed activity
- projected impact on the bank's capital and liquidity
- comprehensive risk assessment
- expected costs of the project
- relevant consumer protection policies
According to Superintendent Adrienne Harris, these policies aim to "ensure that consumers' hard-earned money is protected" and that banks regulated in New York remain competitive.
Sending a message through SBF's arrest
Renato Mariotti, a former prosecutor for the US Justice Department's Securities and Commodities Fraud unit, has suggested regulators may use the FTX fallout to justify increased industry oversight. Sam Bankman-Fried's media appearances before his arrest may have contributed to the outcome — "From the DOJ's perspective, SBF was spreading misinformation and was creating a lack of confidence in the regulators to police the market," Mariotti told CoinDesk TV.