This Week's Top Headlines

i) Euphoria returns. Bitcoin jumps to a 5 month high of $23,000 as investors ignore various macro and industry headwinds.

ii) Crypto giant Genesis Global Capital files for bankruptcy. The firm is Luno's preferred lending partner. A recent court filing estimates the lender's assets and liabilities to be in the range of $1 billion to $10 billion.

iii) Bank Negara Malaysia (BNM) surprises the markets by maintaining the Overnight Policy Rate (OPR) at 2.75% in its policy meeting on Thursday (Jan 19). A Reuters poll of 27 economists expected a 25 bps increase.

Scroll down to read the details.

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Bitcoin is up a whopping 37% since the start of January 2023

As if a switch was flipped, the crypto market has abruptly come back to life in the past 2 weeks. Apart from negating all the losses from the FTX crisis, the world's largest cryptocurrency pushed on and surged to a 5 month high of $23,000.

The shift in sentiment was initially triggered by the most recent US inflation data hitting expectations. The figure was released on Jan 12 and came in at 6.5%, significantly lower than the prior month's reading of 7.1% and the peak of 9.1%.

The hourly chart of Bitcoin (refer below) shows just how parabolic the rally has been, with the inflation data causing a massive short squeeze, followed by a brief period of consolidation, before another swing upwards.

At the time of writing, Bitcoin is back at its sideways movement, with traders taking profits at $23,000.

But why are we seeing such a rally?

i) Bitcoin has been consolidating for almost 2 months, ever since the FTX debacle. The sideways action between $16,500 and $17,500 has led to an accumulation of overleveraged short positions. Like what I've covered in my previous issue, a slight bump up in price triggered a massive short squeeze, and voila!, we have ourselves a parabolic rally.

ii) Another reason for the sudden sea of green is the sheer amount of fear in the crypto market previously. The Relative Strength Index (RSI), which tracks the relationship between buyers and sellers, has seen Bitcoin trading in the "oversold" region for the past 5 months.

The market was so oversold and the sentiment so bad that it was due for a massive correction upward.

iii) Any good (or decent) news could have caused a rally, and the perfect excuse was the US inflation data, which I mentioned above.

The tech index, which Bitcoin is historically correlated to, has also surged, giving more strength and euphoria to the bulls.

Such a strong and decisive upward movement has overheated the market. I wouldn't be surprised if we see a retracement back to $20,000 in the coming days.

Another domino falls. Luno's preferred lending partner files for bankruptcy

One of the biggest crypto lenders, Genesis Global Capital, has filed for bankruptcy on Friday (Jan 20). A court filing estimates that the firm's assets and liabilities range between $1 billion to $10 billion.

Genesis is one of the latest in the long list of casualties of the global crypto meltdown, tracing back to the Terra (LUNA) death spiral in May last year, which gradually led to the fall of institutions like Celsius, Three Arrows Capital, FTX, and many more.

According to a report from Financial Times earlier this month, Genesis's parent company, Digital Currency Group (DCG), is currently exploring the sale of assets to pay back more than $3 billion owed to creditors.

The lending firm is also in a high profile dispute with a well known crypto exchange, Gemini, owned by the Winklevoss twins, over the fate of $900 million in assets that Gemini that customers deposited with the lender.

The part which worries me about this entire fiasco is that Genesis is Luno's preferred lending partner. On December 1, 2022, Genesis abruptly announced that it is temporarily halting customer withdrawals.

On the same day, Luno announced that its savings wallet, which previously allowed users to earn passive income with their crypto holdings, will no longer be offered.

From Luno's statement in December, it seems like none of the users' funds in the savings wallet have been affected. This, to me, draws a bit of suspicion. If Gemini lost $900 million, how could Luno lose nothing?

I've contacted Luno Malaysia about this matter, and the team said that its services remain unaffected because Luno MY does not offer a savings feature. To be safe anyway, I decided to move the majority of my funds out of Luno and into a cold wallet.

Bank Negara Malaysia surprises the markets by holding the OPR at 2.75%

On Thursday (Jan 19), Bank Negara Malaysia (BNM) announced that it decided to maintain the Overnight Policy Rate (OPR) at 2.75%, with the goal of allowing the economy to "assess the impact of the cumulative past OPR adjustments, given the lag effects of monetary policy on the economy."

This is a huge surprise to the markets, as all but one of the 27 economists in a Reuters poll expected BNM to raise the policy rate by 25 basis points due to stubborn inflation.

The sudden pause in OPR hikes from the central bank led economists to believe that BNM is more concerned with growth stalling this year, as inflation pressures are expected to subside due to the weakening global demand.

From its recent monetary policy statement, BNM sees the current OPR levels as "accommodative and supportive of economic growth." The central bank will be more prudent when it comes to future rate increases, as it will be heavily dependent on the "evolving conditions and their implications to the domestic inflation and growth outlook."

To keep things simple, BNM will reassess the economic condition before making any policy decisions. If inflation continues to steadily cool in the next few months, then we should expect the central bank to hold the OPR rate steady at 2.75%.

As for the ringgit, the impact of BNM pausing rate hikes will be significant. We should see the ringgit's rally come to an end, as the difference in interest rates between Malaysia and the US grows wider.

That’s all for this week’s newsletter!

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 11.00 AM on 23rd January 2023 and completed at 3.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!