Fear, Uncertainty, Doubt from Mt Gox, Silk Road, FTX

Ang Kok Wee, Head of Treasury

Bitcoin has been walking back from its Blackrock Spot-ETF-fueled gains on July 23 from a high of $31,700.

Technically, the near-term outlook for Bitcoin looks challenging. Spot is currently trading below the daily and weekly 200-day moving average levels. Until $28,000 is cleared, the looming asset sale from Mt. Gox, Silk Road, and FTX may dictate how spot performs.

Spot is now testing $25,000, a key support level dating back to March 23. We continue to watch how spot trades around the low end of this $25,000-$31,000 range.

Overlaying the seasonality of Bitcoin’s performance (Fig. 1), September has been an underperforming month, while October is traditionally Bitcoin’s most prolific month, with an average gain of 20.8% in the past 10 years. Q4 is also the seasonally strongest quarter.

Fig1 Bitcoin Monthly Returns 11 Sep 2023

We keep a keen eye on the implied volatility of BTC, which has seen some bids in the past few days as spot drifted lower (Fig. 2). It is currently trading at its 15% percentile level.

Fig2 Bitcoin Implied Volatility by Tenure 11 Sep 2023

Any clear break below $25,000 will see volume pick up considerably, particularly in the front end.

The Federal Open Market Committee (FOMC) meeting next week will be the focus of the calendar. Fed Funds futures are pointing to the almost foregone conclusion that the Fed is sitting on its hands. We expect the usual hawkish Fed posturing to balance the lack of action in this meeting. Echoes of “higher for longer” may continue to resonate through the end of the month.

But with only two more FOMC meetings after next week, in November and December, more than half (56%) of market participants now expect the Fed to hold rates steady through the end of the year, implying we are indeed near the end of the Fed’s tightening cycle.

As the yield curve inversion abates, the market also believes a US recession can be averted. We will take heed of the Fed’s reiteration to remain data dependent as we await this week’s US CPI (Wed Sep 13: Forecast +0.2% MoM) and US PPI (Thurs Sep 14: Forecast +0.2% MoM).

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