Avantis Macro Series #4: Binance Settlement - The End of Crypto Overhang?

Avantis Labs
5 min readNov 24, 2023

In this week’s macro series, we explore how the Binance settlement could affect crypto as a whole, as well as macro updates on forex, rate hikes and crypto L1s (BTC, ETH, SOL). As always, please note that this is for educational purposes only, and nothing written here constitutes financial advice.

Macro

The broad cross asset rally continued in the holiday shortened week, albeit with lessened momentum. SPX was at 4550, while bond yields retraced slightly. Credit continued on its merry way with both high yield and high grade bonds rallying further. DXY started the week with a drop on track to post the largest monthly decline this year, but recovered after FOMC minute meeting release and jobless claims data showing that the US labor market was still robust. Emerging market currencies continued appreciating with the MSCI EM FX index reaching the highest levels this year. This was a positive development for most economies across Asia, whose central banks have been fighting hard throughout this hiking cycle to support their currencies by intervening to counter the strong dollar impulse.

FOMC meeting minutes released Tuesday suggested that Fed officials were marginally hawkish and stressed on the need to keep policy sufficiently restrictive for longer till there is more evidence that inflationary pressures have abated in a sustained manner. The Fed’s rationale for skipping the final rate hike revolved around tightening in financial conditions since July (which ‘stood in’ for a rate hike), however much of that tightening has been reversed by the cross asset rally in November. Thus the committee wanted to keep the door open to further hikes should future data warrant it. Jerome Powell also alluded to favorable November data as being a possible ‘head fake’ in his last public speech and emphasized that the disinflationary impulse needs to be persistent before the Fed can declare victory. The market did not react much and still expects that future data will come in cooler and that the hiking cycle is effectively over.

Jobless claims data released on Wednesday was lower than forecast and shows that the US economy continues to chug along without any dramatic slowdown. This lends more credibility to the higher for longer narrative where the Fed will need to make sure inflation is sufficiently under control before easing policy conditions. There will be more clarity on the state and direction of the labor market next week with the NFP data release.

Crypto

The biggest news of the week was Binance coming to a settlement with DoJ for $4.3B USD for money laundering criminal charges. Under the terms, CEO Changpeng Zhao (CZ) would also plead guilty, pay a personal $50M fine, resign from his position and be barred from having any role at the company for the next 3 years. There is also the possibility of jail time for CZ (although could more likely be house arrest like Arthur Hayes), with sentencing at a later date. The regulators will also appoint an observer to Binance for the next 5 years to ensure compliance with the law.

Users pulled more than $1B from the exchange as a risk aversion exercise, although that’s a small number compared to total assets held (~$65 Bio). This was taken as positive news since it removed a big overhang from the industry, however the mention of DeFi by regulators in their press conference led to speculation that there are further enforcement actions against decentralized protocols coming down the road.

Meanwhile BTC continued to trade in its $35–$37k range, as we get closer to month end. A monthly close above $37k will be clearly bullish, while below $35k would be bearish in the short term where price could recede to $32k.

Ethereum continued in a sluggish manner and struggled to make headway above $2,100. ETH-BTC also remained at 0.055. A meaningful rotation of capital into ETH won’t be evident till we see signs of a significant ETH-BTC rally.

The SOL rally took a breather with price consolidating around the $55 mark. A dip to the lower support region of $45 would be healthy and give a strong base for the rally to continue onward. Solana ecosystem projects meanwhile continue to attract significant eyeballs with the successful launch of Pyth’s Network token ($5B FDV) and significant interest around the upcoming Jupiter exchange airdrop (along with plenty of other planned ecosystem airdrops that will bolster the ecosystem’s liquidity).

Read more from the author (and our macro researcher), Fractalmonk: https://medium.com/@fractalmonk999

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