Digital assets broke sharply to the upside after trading in tight ranges for many weeks

Alts have been in the digital asset lead in October, as they are up 15% MoM, and exchange tokens continue doing well (+10% MoM). $BTC is still mimicking US Equities, as it is up 5.67%, and SPX is up 6.9% MoM.

  • $DOGE is up 109% WoW, making it once again in the Top 10 by market cap. It is surfing the wave of Elon Musk and the commitment to the Twitter acquisition. The ride might not be finished yet as many have already taken profit.
  • $ETH is the clear outperformer (currently: $1,560; +18% MoM), and it is almost ready to cross from the downside of its 200-day SMA.
  • $BTC (currently: $20,470; +5.6% MoM) has once again been unable to hold $21k and is yet again flirting with $20k
  • ETH/BTC might be trading at 0.08 soon – if the current positive sentiment holds; otherwise, the pair will return to 0.07. Derivatives players are betting on a higher ETH and lower BTC as the spread in implied volatilities is growing wider (currently: +23 vols). In the past, a higher spread was synonymous with an outperforming ETH. Let’s see if this trend continues (source: Laevitas.ch)

Looking ahead… the economic calendar is quite full this week, but here are the major events to watch closely:

  1. Wednesday, 1.15pm CET: US ADP Nonfarm Employment Change (cons: 193k, prev: 208k)
  2. Wednesday, 7.00pm CET: Fed Interest Rate decisions (cons: 375-400 bps target rate; actual: 300-325 bps), and FOMC Press Conference.
  3. Thursday, 1pm CET: BoE Interest Rate decisions (cons: 300 bps target rate; prev: 225 bps)
  4. Friday, 1.30pm CET: US NFP (cons: 200k; prev: 263k), and US Unemployment Rate (cons: 3.6%; prev: 3.5%)

My greatest focus this week will be on following the FOMC Press Conference after the Fed interest rate decision. The rate decision is expected to be a 75 bps hike, but the big question is about forward guidance for the upcoming hikes and the “mid-term” target rate the Fed expects not to exceed.

We already saw some central banks softening their hawkishness, but Powell may not follow suit.

Recent rumours involve a so-called new “Operation Twist” (you can read about it here

At this point in time, I would expect the Treasury to do something different than in the past: to replace similar maturity with similar issuance. This would keep the average maturity of debt constant. Also, this would help flatten the Yields Term Structure while pouring liquidity into a very stressed market. Eventually, such a programme could strengthen the Fed’s ability to carry out its Balance Sheet shrink plans (current pace: $95bn/month), as it would greatly reduce the risks of a destabilising episode of illiquidity (think back to the 2019 repo crisis). Given the intensity of inflationary pressures, few things are likely to dissuade the Fed from moving forward with tighter monetary policy, but one of them is a systematic dusting of the financial market.

Risk assets and digital assets will surely benefit from a pro-active Fed. Otherwise, if the Fed holds a hawkish tone, risk assets and digital assets could give up some recent gains. We may find ourselves reading about this topic on Wednesday.

I expect trading to be crowded this week. Should the Fed continue being hawkish, but not “too” hawkish, we might see digital assets dipping on the news, allowing many shorts to take profit and causing a buy-back opportunity that might last until the NFP on Friday.

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