ETH tops $2,100 as BlackRock files for Spot Ethereum ETF

Could the ETF narrative have a bigger impact on Ether than Bitcoin?
Team Halogen
November 13, 2023

Market Movements

Global Macro Highlights 

📈 US weekly Initial Jobless Claims rise to 217K vs. 210K expected
🔻 Oil prices fall for third week straight, Gold testing towards $1,930
📊 Fed Chair Powell: Not confident’ policy tight enough for 2% inflation

Source: Bloomberg

This week has been markedly risk on in characteristic, as yields were steady in its lower range post FOMC, and geopolitical worries eased in markets. Flight to safety proxies Gold and Oil were sold heavily, with oil in particular a huge loser. Brent crude was trading below $80 / barrel at one point during the week, and closed Friday down 4.1% on a weekly basis.

It was a light week in terms of economic data developments, with second tier data not having an outsized effect on markets that we could discern. A bevy of Fed speakers were on the wires though, and the hawks were pushing back this week. Key amongst them was of course Fed Chair Jerome Powell, who continues to push back against the idea that rate hikes have peaked in this cycle. 10Y treasury yields, which had broken 4.50% briefly prior to that, retraced their losses. 

Still, Fed Fund Futures show that rate hike bets are all but dead for 2023, with Dec contracts implying a mere 9% probability of a rate hike (recall that this was close to 40% prior to the Nov FOMC meeting). Things get a bit more murky in 2024 though. January futures still imply a 21% chance of a hike. Powell and friends have also pushed back against the idea that a Fed pivot would come fast. May 2024 probabilities were on Wednesday pricing in a 41% chance of a cut as the most likely outcome for that meeting. This has since retreated to 30%, with a 52% chance of rates maintaining the status quo.

US stock barometers still managed to eke out a substantial gain for the week, continuing the rally from the last week though in a more choppy manner. While the receding of risk aversion probably helped, we also noted that some of that move might have been structural. Options market makers were purportedly long in the region of 4,400 and above, which helped to dampen volatility and serve as a magnet for price.

Malaysia Markets Highlight

🇲🇾Ringgit opens lower against US dollar on rising US bond yields
⬆️Govt eyes RM800m annual revenue with capital gains tax
✍️ Three approaches being considered, proposal to be submitted to Cabinet this month

Source: Bloomberg

The Ringgit jumped out the gates to start the week. USD/MYR dropped 10 big figures (1,000 points) at point from last Friday’s close to touch a low of RM4.6290 on the day. The move was likely a culmination of positioning cleansing, and some performance chasing in the wake of USD weakness post FOMC. Exporters were likely also caught sleeping and rushed to sell after the break of RM4.65. 

Unfortunately, USDMYR was unable to sustain the downward momentum on pure market mechanics alone. A retracement of the move, which looked overextended was expected, but the recovery in treasury yields and broad USD pushed USD/MYR back above the RM4.70 level. The pair closed Friday around RM4.72.

A little more clarity was given to some Budget 2024 measures: i) MOF thinks capital gains tax will contribute RM800mil of annual revenue, ii) additional 2% hike in service tax to some items could bring in RM3bil of additional revenue; iii) while luxury goods tax will likely only start in May 2024. 

Impact to the markets or long term implications for Malaysia’s sovereign strength seem limited at this juncture given these are merely par for the course to help the country narrow its fiscal deficit to 4.3% of GDP in 2024 from an estimated 5% this year.

The bond market in particular continued to sway to the tune of developments in the US with yields generally down across the week, but seeing an uptick in government bond yields towards Friday:

Source: Bond Pricing Agency Malaysia

The less traded corporate bond complex enjoyed stability for the first time in a few months with gains this week close to last week’s:

And in this environment, the Halogen Shariah Ringgit Income Fund was able to clip coupons in relative peace while enjoying the slighter higher yields from the weak bond market in October (remember that for bonds, when prices go down, yields go up).

Crypto Market Highlights

🔺 Bitcoin Trades Past $36,000 on Possible ETF Investment Approval
🚀 BlackRock Filing Spurs Ether Rally as ETF Bets Fire Up Crypto
⬆️ Solana Exceeds $50 Per Coin While Tron and Optimism See Gains
💸 Crypto Exchange Poloniex Hacked for More than $120 Million

Source: Bloomberg

Crypto continues its upward seasonality trend this Moonvember. With what seems like crypto bull market vibes, the entire crypto market cap gained approximately 9.3% in the last week. Key movers were of course Bitcoin and Ethereum, but several large cap altcoins like XRP, SOL, and BNB were also strong performers.

As with most broad moves in crypto, Bitcoin started the party with a decisive break above the $36,000 level. News made the rounds that there would be a brief window between Nov 9 to 17 where the SEC could approve all ETF applications, based on the various filing deadlines. Given that, speculators started to pile into Bitcoin perpetual swaps and pushed the price to a high of $38,000 on Thursday night.

As we have been highlighting repeatedly though, speculative froth is never healthy in the long term. In this case, it was remarkably short lived. After touching $38,000 , a cascade of short position liquidations took place and sent the price down to nearly $35,500 once more, in a span of 2 hours. 

Things might have ended in more ugly fashion, until it was reported that BlackRock had filed for the registration of the Ethereum Trust in Delaware - a move that almost certainly precedes the filing of an Ether ETF. ETH price rocketed to a high of $2,130 that night, and helped to support broad crypto sentiment. 

Friday continued to see a consolidation of price for both BTC and ETH, but alts were strong performers in this period instead. Key standouts were the so-called Sam coins, tokens which are closely related with Sam Bankman-Fried of FTX notoriety. FTT (the FTX exchange token) nearly doubled in value on Friday, while SOL eked out a 25% gain on the day. While there doesn’t seem to be any headline news catalyst for this move, sentiment has certainly shifted for this segment of coins, especially as attempts to restart the FTX exchange are ongoing.

With that, the Crypto Fear/Greed Index closed the Friday section at 78, a mere 2 points away from ‘Extreme Greed’ territory.

What we are monitoring for the week ahead

What does all of this mean? Our thoughts 

The market continues to fade Fed hawkishness despite very clear messages of higher for longer, but it’s hard to blame them. The last NFP job numbers and sharp revisions to previous months indicate that the labour market could be turning much faster than anticipated. That, plus a split in Federal Reserve members on future monetary policy direction could make pushing another rate hike through much harder. 

Market volatility also continues to recede. Absent an exogenous shock to spike both equity and rates volatility, it certainly looks like risk assets are set to continue this upward trend. Aside from geopolitics, we don’t think we will see one from either the fiscal or monetary policy side. We’ve also previously highlighted that Q4 is seasonally a bullish quarter, especially in the years preceding a US Presidential election. Given the state of the market, despite the possibility of shocks, we think this is likely to continue. 

Anwar’s government continues its balancing act in trying to reduce the country’s fiscal deficit and part of that may introduce new price pressures domestically. Fortunately, this looks to be coming at a time where the global economy is slowing down and external price pressures seem to be muted. The bad news is that this finely poised balance is always subject to risk, and if miscalculated this could introduce an unwelcome bout of inflation for Malaysia in 2024. 

This could have implications for the local bond market, which was already at the mercy of gyrations in global markets. A great way to shield from this uncertainty (and perhaps buy yourself some thinking time before making your next big investment move) would be the Halogen Shariah Ringgit Income Fund with its proven track record of delivering consistent returns and can deliver liquidity within the next business day. 

Developments this week in the crypto space are also pretty interesting, and should factor into the decision matrix for most investors. First, Bitcoin price held up well despite the froth and liquidations, giving it a higher base to springboard from. Crypto fund managers continue to remain bullish on the ETF narrative, with Bitwise CIO Matt Hougan claiming that the news is still not priced in

It’s reasonable to expect that an approval headline in the coming days will spike the price by 10% easily. Given how lofty price continues to be, the $40,000 level will more likely than not break in the face of that pressure, and we’re looking at $42,000 as the next probable resistance instead.

We have consistently highlighted the risk of ‘buy the rumour, sell the fact’ price action in the face of that event. With the news of BlackRock filing for an Ether ETF, this risk takes on a whole new dimension. Why? Because there is now a competing narrative with a more attractive risk reward ratio. We expect reasonable traders to happily book profits on any BTC price spike and rotate into ETH positions instead.

Source: TradingView

This can be illustrated by just how downtrodden the ETH/BTC pair has been since June, and the subsequent price spike on Thursday with BlackRock’s announcement. We previously highlighted that shorting ETH/BTC as a relative value trade had legs, but this is probably no longer the case. Assuming the price mean reverts to something more reasonable, ETH/BTC has scope to rise some 15-20% from here. 

The speed of all this unfolding is predicated on an approval coming inside this window though. While the SEC has a track record of delays, it is better to be positioned for a tail move now instead of dismissing it outright. Assuming nothing occurs in this period, we do expect the recent price movements to retrace, but remain supported as the market continues to price in the ETF announcement. The scenario outlined is still valid, but in a more delayed and choppy fashion.

Speculative positioning will be the hardest hit, as funding rates in perpetual swaps remain high despite the open interest in contracts still staying below the June high. At one point, ETH longs were paying an annualised funding cost of between 100-110%, which are clearly not sustainable for longer term holding.

Thank you for reading and we’ll see you next week!

Team Halogen

Disclaimer: The information, analysis, and viewpoints presented here are intended solely for general informational purposes and should not be construed as personalised advice or recommendations for any specific individual or entity. For personalised investment decisions, individual investors are advised to consult their licensed financial professional advisor. The opinions expressed by the Manager are based on certain assumptions or prevailing market conditions, and they are subject to change without prior notice. This material is being distributed for informational purposes only and should not be regarded as investment advice or an endorsement of any particular security, strategy, or investment product. While the information provided herein may include data or opinions from sources believed to be reliable, its accuracy and completeness are not guaranteed. Reproduction of any part of this material in any form or reference to it in other publications is strictly prohibited without the express written permission from Halogen Capital Sdn Bhd. Halogen Capital Sdn Bhd and its employees assume no liability regarding the use of this material or its contents.

Share this post
Team Halogen
November 12, 2023
view raw