Buoyant Bitcoin's Losing Its Liquidity

Cryptocurrency

Summary:

Bullish bitcoin has been a surprise winner of the banking blowout. Yet investors aiming to ramp up their bets face an ominous obstacle: a lack of liquidity that could trigger wild price swings.

The price of the No.1 cryptocurrency has jumped 40% to around $27,700 since March 10, when the failure of Silicon Valley Bank (SVB) careered into mainstream markets.

On the flip side, though, its liquidity is drying up.

Bitcoin's market depth indicates the asset is at its lowest level of liquidity in 10 months, even lower than in the aftermath of the FTX collapse in November, according to data provider Kaiko. The market depth for the two leading trading pairs - bitcoin-dollar and bitcoin-tether - stands at 5,600 bitcoin, the equivalent of about $155 million, Kaiko said.

"As a market maker we try to provide liquidity where we can but we're facing a difficult situation," said Kevin de Patoul, CEO of Keyrock. "There is a big network effect here. In the short term at least, liquidity will remain a challenge."

Slippage, a liquidity measure describing how much prices change between the placement and execution of a trade, has also increased. Slippage for buying bitcoin with U.S. dollars on the Coinbase exchange is 2.5 times higher than it was at the start of March, said Conor Ryder, research analyst at Kaiko.

The slippage for a simulated $100,000 sell order has doubled in the past month, meaning the average price you get for each bitcoin is worse than a month ago, Kaiko said.

The network effect de Patoul referred to was the collapses of Silvergate Capital and Signature Bank, whose networks had long been used by market makers - which expand liquidity by rapidly buying and selling tokens - to transact with exchanges.

Lower liquidity typically translates to more volatile markets, especially in crypto. Kaiko's Ryder said this was possibly one factor behind bitcoin's leap this month.

CryptoCompare's Bitcoin Volatility Index spiked to 96 last week, way higher than the range of 52 to 65 it saw last month as the cryptocurrency held its footing despite broader market turmoil. The index is currently hovering around 68.

The alameda factor

Further crimping liquidity, Binance - the world's most liquid crypto exchange - ended zero-fee trading for nearly all its bitcoin trading pairs last week, hitting market makers' ability to charge higher fees for executing trades on the platform.

Liquidity for the bitcoin-tether pair on Binance has dropped 70% since the announcement, while trading volumes have fallen 90%, according to Kaiko data.

The vanishing liquidity can be traced back to the collapse of Sam Bankman-Fried's FTX exchange and hedge fund Alameda Research. Alameda was one of the biggest liquidity providers in the crypto industry, and its bankruptcy left a void that has been exacerbated by the banking sector turmoil of 2023.

While most market participants expect new contenders to gradually emerge to perform the network functions of Silvergate and Signature, they say complete replacements are unlikely to pop up overnight.

Until then, "liquidity is probably going to get worse and worse", said Joseph Edwards, investment adviser at Enigma Securities.

Furthermore, it's not just market-maker trouble that's crunching crypto liquidity; Despite bitcoin's recent rally following a lengthy downturn, many investors are still trading cautiously in the wake of the banking crises and rising interest rates, some specialists say.

"Even if some players haven't left the place, they are on the sidelines right now because of what's happening with banking turmoil," Edwards said.

Source: The Economic Times

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Thomas

Commodity

China's crude oil imports will average 10.8 million barrels per day (bpd) in 2023, matching the previous record high from 2020, according to the think tank of the country's leading energy group.

Imports will rise 6.2% from last year to 540 million tonnes, while refinery processing will gain 7.8% to 733 million tonnes, equivalent to 14.66 million bpd, China National Petroleum Corporation's Economics and Technology Research Institute (ETRI) said in its annual industry outlook released on Monday.

The forecasts are largely in line with those of private analysts, who have tipped a rebound in China's fuel consumption as the world's second-largest economy reopens after ending its strict zero-COVID policy late last year.

The ETRI forecast is for crude oil imports to rise by 630,000 bpd in 2023, which is below the 900,000 bpd expected by the International Energy Agency, but above estimates from some analysts, such as Wood Mackenzie and S&P Global Commodity Insights.

Forecasts are useful insofar as they provide insight into the expectations of participants in the market, but it's also useful to look at some of the risks around the estimates.

What is interesting with the ETRI forecasts is that they would seem to show that China's refiners are still expecting to add crude oil to stockpiles over 2023.

Assuming domestic oil production remains relatively steady over 2023 at the 4.23 million bpd achieved in the first two months of the year, it implies that a total of 15.03 million bpd will be available to refiners from imports and local output.

This is some 370,000 bpd more than the ETRI forecast for refinery throughput of 14.66 million bpd.

If these sort of volumes are added to inventories in 2023, it would be lower than the 740,000 bpd added to storage tanks in 2022.

China doesn't disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.

New Refineries

It's likely that some of the oil heading for storage will go to build working inventories for new plants expected to be commissioned this year.

Two new refineries - PetroChina's Guangdong Petrochemical and Jiangsu Shenghong Petrochemical with a combined capacity of 520,000 bpd - are expected to enter commercial operation in the coming months, industry sources said last month.

A third new plant, Shandong Yulong Petrochemical's 400,000 bpd project, may also begin crude imports for possible test runs by the end of the year, a company source told Reuters.

Flows in, or indeed out of, either commercial or strategic reserves are the biggest X-factor for China's crude oil imports.

The assumption of modest inventory builds as part of the commissioning of new refining units is a safe choice, but it's worth noting that China's refiners and the authorities in Beijing tend to use stockpiles to smooth out prices, even if they don't talk about this in public.

Imports could rise by more than expected if crude oil prices drop and remain low, a situation that is possible if the world economy goes into recession, or a banking crisis ensues after the collapse of two U.S. lenders and the forced sale of Credit Suisse.

Conversely, if global oil demand growth is robust and prices head higher, Chinese refiners may choose to reduce imports and dip into their reserves.

Another factor that isn't subject to market imperatives is the level of fuel exports, which is set by the government through the issuing of permits.

Exports of refined products ramped up in recent months as Beijing sought quick economic stimulus and allowed refiners to take advantage of strong margins in Asia for fuels, especially diesel.

But there is no guarantee this policy will persist over the whole of 2023, and if domestic demand does rebound, then it's likely fuel exports will be curbed.

Source: Reuters

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FastBull Featured

Daily News

【Quick Facts】

1. Bailey: Inflation control should be considered ahead of banking worries.

2. First Citizens Bank's acquisition of Silicon Valley Bank is settled.

3. The Hungarian parliament approved Finland's accession to NATO.

4. SNB has taken emergency liquidity.

5. Interest rate swaps show that the Fed is likely to raise interest rates in May by more than fifty percent.

【News Details】

1. Bailey: Inflation control should be considered ahead of banking worries.

As the successive "collapses" of banks such as SVB and Credit Suisse have sparked market concerns, some investors believe that central banks should not separate monetary policy from financial stability at a time when worries that banking woes could lead to a widespread financial crisis have intensified.

Bank of England Governor Andrew Bailey countered this view in a speech at the London School of Economics on Monday. He said rate-setters will focus on fighting inflation and should not be unduly influenced by concerns about the health of the global banking system. Britain's banks are resilient and able to support the economy.

2. First Citizens Bank's acquisition of Silicon Valley Bank is settled.

First Citizens Bank, a regional U.S. bank, said Monday it acquired the assets of the previously failed Silicon Valley Bank. The Federal Deposit Insurance Corporation (FDIC) has been given the right to increase the bank's equity worth up to $500 million, thereby acquiring all of Silicon Valley Bank's loans and deposits. Including $110 billion in assets, $56 billion in deposits and $72 billion in loans, with expansion in California. the FDIC retained about $90 billion in securities pending disposition.

The First Citizens deal boosted the shares of other smaller regional banks, including First Republic Bank, which has been the one that has kept investors most on their toes, whose shares jumped about 12 percent on Monday. And it eased fears of systemic stress in the banking sector.

3. The Hungarian parliament approved Finland's accession to NATO.

Hungary's parliament approved a bill on Monday to allow Finland to join NATO. Hungary's ruling party, the Federation of Young Democrats (Fidesz), has reportedly been dragging its feet on the issue for months. Sweden's bill to apply for NATO membership is still lingering in the Hungarian parliament. Finland and Sweden requested NATO membership last year in response to Russia's special military operation against Ukraine, but the process has been blocked by Turkey and Hungary.

4. SNB has taken emergency liquidity.

Data show that the SNB's demand deposits rose sharply last week, with commercial banks' demand deposits with the SNB jumping to 567 billion Swiss francs ($619 billion) from 515 billion a week earlier. 52 billion Swiss francs was the second highest increase on record, second only to the 52.4 billion Swiss francs in August 2011, when the SNB sold a large number of Swiss francs to ease the pressure on the safe-haven currency The Swiss franc was under pressure. This suggests that Credit Suisse and UBS may have taken on significant emergency liquidity to ensure the completion of the merger.

5. Interest rate swaps show that the Fed is likely to raise interest rates in May by more than fifty percent.

Interest rates on swap contracts rose to about 4.96% on Monday, about 13 bps higher than the current federal funds rate. This suggests that the Fed is more likely to raise rates by 25 bps at its May meeting than to leave them unchanged. The likelihood of a rate hike is more than 50%.

【Focus of the Day】

UTC+8 16:00 ECB Governing Council member Muller to speak

UTC+8 20:30 U.S. Monthly Wholesale Inventories Preliminary Rate (Feb)

UTC+8 22:00 U.S. Conference Board Consumer Confidence Index (Mar)

UTC+8 04:30 U.S. API Data

UTC+8 [TBD] U.S. Senate Banking Committee hearing on Silicon Valley Bank incident, Fed Governor Barr will attend

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Justin

Bond

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Higher-Quality Short-Duration High Yield Captured Less Downside When Spreads Widened

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In our analysis, dynamically managed short-duration high-yield strategies that can allocate tactically to higher-rated assets, including investment-grade bonds, may achieve even more consistent performance. By varying the allocations to return-seeking and more defensive bonds as market conditions change, investors may have the opportunity both to capture higher returns in risk-on periods and to guard against downside risks in choppier markets.

Inverted Yield Curve Favors Shorter Bonds

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In an uncertain world, we think shorter-dated, higher-rated, high-yield strategies could be particularly well-suited to delivering attractive risk-adjusted returns.

Source:Gershon M. Distenfeld

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Justin

Central Bank

Forex

The monthly bank lending data from the ECB continues to show the effects of monetary tightening on the economy as non-financial corporates saw small negative growth for borrowing for the fourth consecutive month. Month-on-month growth was just below 0%. For households, monthly growth rates continue to be positive but have also been on a downward trend for some time now. The monthly rate slowed from 0.15 to 0.1%.

We expect this trend of moderation to continue as the ECB's bank lending survey suggests that demand for borrowing is set to weaken further and credit conditions could become tighter. The latter could also be influenced by the recent global banking turmoil, as we argued in this recent piece.

The monetary data released today also show a further contraction in money in the euro system. M1, the narrow definition of money and a solid leading indicator for economic activity ahead, fell again and is now down by 2.2% on the year. Broad money (M3) is still positive but showed a sharper decline than expected to 2.9% year-on-year growth. The reversal of monetary policy plays a key role here, especially through the decline in asset purchases.

It is becoming more apparent that the hike cycle will have a significant dampening effect on the economy over the course of this year. The full effect of recent hikes on the economy still has to come through, and recent turmoil – while very uncertain at this point – will likely hamper economic activity. For an economy already quite weak at the start of the year, this means that the risks of a contraction remain significant.

Source:ING

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Thomas

Political

Nepal is at the centre of a delicate geopolitical balancing act, as the world's superpowers vie for its attention through major investments in areas such as energy and infrastructure.

The Biden Administration released its Indo-Pacific strategy about a year ago, and continues to deepen security ties with allies like Japan and South Korea, while pursuing closer relations with others, including Nepal.

However, Nepal's new Prime Minister Pushpa Kamal Dahal, who took office at the end of December last year, is seen by some as being friendly towards Beijing.

With tensions between the US and China showing no signs of abating, and a looming India as its neighbour, the new Nepalese government has to balance its relations with all the countries, each with their own competing interests.

A Balancing Act

Prime Minister Dahal is viewed by some in both Washington and Delhi as a pro-China politician.

In the last two months, the US under secretary of state for political affairs Victoria Nuland and United States Agency for International Development administrator Samantha Power, have visited Nepal to step up Washington's influence there.

They announced new investments, including more than a billion dollars in clean energy and a grant of nearly US$60 million to strengthen civil society in Nepal.

Meanwhile, Beijing had increased its foreign direct investments in Nepal by US$115 million last year.

The complex geopolitical situation is made even more challenging with the involvement of its neighbour India.

Mr Sujeev Shakya, chair of the Nepal Economic Forum, a private sector-led think tank in Nepal, said: "While the energy agreements are there between India and Nepal, implementation on the ground has been a challenge because India talks about not allowing Chinese-built power plants to supply energy into India and beyond."

Aid For Nepal

The US provided millions of dollars in humanitarian aid to Nepal following a devastating earthquake in 2015, and is focused on investing in the country in the longer term.

Health Foundation Nepal, a non-profit organisation registered both in the United States and Nepal since 2013, raises funds for mental health programmes in rural Nepal.

The organisation raised US$130,000 for the country after the 2015 earthquake.

Meanwhile, the US$500 million Millennium Challenge Corporation (MCC) is an infrastructure project to develop roads and facilitate cross-border electricity trade between Nepal and India.

It was signed in 2017 and ratified by Nepal last year.

Former World Bank economist Prem Sangraula said it is just one of the programmes the US is conducting in Nepal, and has drawn criticism from China who accused the US of "coercive diplomacy".

The MCC initially faced opposition from current Prime Minister Dahal, who was back then the Chair of the Communist Party of Nepal-Maoist Center, though he later voted for its ratification.

While Washington hopes to compete with Beijing in the region by growing its ties with the Indo-Pacific, Asian countries do not want to be forced to choose sides.

Mr Harry Bhandari, state delegate of Maryland since 2018, was the first lawmaker of Nepali origin to be elected in the US.

"The relationship between Nepal and United States is based on peace, economic prosperity and human rights," he said, adding that there are benefits to greater alignment with the US.

Much of the Nepalese diaspora in the US still feel a strong connection to their roots, and hope to strengthen those ties by improving health and education opportunities in Nepal, away from the complexities of geopolitics.

Source: CNA

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Devin

Energy

Iraq's oil output and capacity may peak following growth of around 25% over the next five years, analysts said, falling short of 2027 targets and ending a long-standing ambition to rival the output of top OPEC producer Saudi Arabia.

Political infighting has cost Iraq the opportunity to invest in growing output more quickly. As the energy transition gathers pace, it means Baghdad may never be able to cash in the hundreds of billions of barrels it has in the ground, even with the efforts of the country's new energy minister to attract investment.

Since 2016, Iraq's output has stalled at around 4.5 million barrels per day (bpd).

Before then, capacity grew rapidly as the government opened up the sector in 2009 and international oil companies revamped the country's biggest oilfields.

Iraq's Ambition to Match Saudi Oil Output Is Out of Reach_1

Growth slowed in part because Iraq agreed to cap output under supply policy agreed with the Organization of the Petroleum Exporting Countries (OPEC) and allies, a group known as OPEC+.

Iraq's Oil Minister Hayan Abdel-Ghani, who took office in October, plans to update Iraq's oil production strategies to meet local needs while complying with the OPEC+ agreement, oil ministry spokesman Asim Jihad told Reuters.

It is too early for the new government to talk about any significant increases in Iraq's oil production outside the OPEC+ agreement, Jihad said. Under the agreement, Iraq's production target is 4.43 million bpd until December.

As a result, Iraq has shifted focus to the refining and gas sectors and lowered capital expenditure in the oil sector, analysts at FGE consultancy and Rystad Energy told Reuters.

'Hard, if not impossible'

For the oil sector, the country has repeatedly delayed a target to reach 7-8 million bpd capacity, from the current 5 million bpd. The previous government said last year it hoped to reach the higher levels by 2027.

Some energy industry consultancies forecast that Iraq may never reach them.

Capacity would peak and plateau at 6.3 million bpd by 2028 before declining, Iman Nasseri, managing director for the Middle East with FGE consultancy, said. Politics, security and the investment environment were all contributing to prevent Iraq from pushing output higher than that, he said.

"We think Iraq's current target looks hard, if not impossible to achieve," Nasseri said.

Rystad Energy expected production to be limited to 5.5 million bpd by 2027 as a result of midstream growth limitations and because projects that are crucial to boosting output are stuck.

Two decades after the war began, the current targets and the even lower forecasts are far off Iraq's post-war goal to take capacity to 12 million bpd.

The ambition was scaled back in 2012 after international oil companies operating in Iraq negotiated lower output targets for their fields because of low recovery factors, high natural decline rates and because Iraq was not investing enough in infrastructure, analysts said.

The major oil companies had also hoped Baghdad would improve the terms of technical service contracts (TSCs). That never happened, and companies such as ExxonMobil Corp and Royal Dutch Shell Plc left.

Above-Ground Issues

Analysts and industry insiders say the problems are above the ground rather than in the geology below, which has significant unexplored capacity, and include repeated changes to government, political infighting and red tape.

Successive governments failed to sign off on Iraq's fifth licensing round in 2018. Six deals out of eleven oil and gas blocs on offer were eventually signed at the end of February, marking long-awaited reforms to the conditions of operating in the country.

The beneficiaries were not the international oil companies, but UAE firm Crescent Petroleum and two Chinese companies.

A source close to the Iraq energy industry who could not be named because they were not authorised to speak to the press said the contracts awarded pay royalties upfront and link revenues to oil prices.

Abdel-Ghani's decision to sign the deals four months after his appointment may show a new resolve in government to cut deals more attractive to international energy companies, the source said.

Still other issues remain.

A large-scale seawater treatment project needed to boost output at the southern oilfields through water injection, has been stalled for over a decade because of haggling over terms.

French oil major TotalEnergies is the latest to take on the project as part of a $27 billion deal to build four oil, gas and renewable projects over 25 years.

TotalEnergies CEO Patrick Pouyanne said this month contractual disagreements were unresolved.

"Iraq is not the easiest place to invest with all risk," Pouyanne said.

The water project would boost output at the five Iraqi fields by 2 mln bpd of the 2.4 mln bpd growth needed to reach Iraq's 2027 targets, according to Rystad data and Reuters research.

But completion before 2027 is unlikely, Rystad's vice president of Middle East upstream research Aditya Saraswat said.

Iraq's oil minister this month revived seven investment opportunities in Iraq's refining sector.

Even if Abdel-Ghani manages to find companies interested in those projects, Iraq's refining potential only allows 500,000 bpd of crude output growth and this would take time, Saraswat said.

Meanwhile, Iraq's southern export capacity has stalled at around 3.2-3.3 mln bpd for the last year following delays to infrastructure upgrades at its Gulf ports, data from state-owned marketer SOMO showed.