Crypto Whales Have Started Buying Bitcoin!🪙

🐺 Hi pack-mates,

This is Howling Markets, the algorithmic newsletter that mathematically guarantees an increase in financial knowledge!

Today we will be covering:

• Education: What is a Time-Weighted Average Price (TWAP) trading strategy? 🎯

• Investors Are Buying Bonds From The Most Indebted Countries in Europe 💰

• Crypto Whales Have Started Buying Bitcoin! 🪙

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What is a Time-Weighted Average Price (TWAP) trading strategy?

When we want to open a position in the market, we just simply open our broker and buy a couple of shares. It is really a straightforward process as our amount of capital is relatively nothing out of the ordinary for the markets, and certainly it will not impact the price direction.

On the other hand, large institutions and extremely wealthy professional investors might have a lot of difficulties opening a sizeable position. The first issue comes from the fact that there might not be enough liquidity in the market. If the market offers less shares than the ones you want to buy, the order will remain partially open over a long period of time exposing you to the risk of a sudden change in price.

Secondly, when dumping a million dollar order in the market, the price will react quite aggressively, especially in small cap stocks or cryptocurrencies causing something called “slippage”. Slippage is the difference between the requested trade price and the execution price, which tends to be essentially zero for small trades, but which could even be several tens of thousands of dollars for a million dollar trade.

Because of all of these issues, large traders often build their large positions using a Time-Weighted Average Price strategy which is an algorithmic trading execution strategy that breaks down the large order in smaller and periodic executions to limit the slippage and the impact on the market.

For example, if you want to buy 10,000 shares in 8 hours, the TWAP algorithm will calculate the optimal number of shares to be bought in each smaller order and the frequency of each execution. In this case, the algorithm might determine that the optimal course of action would be buying 312 shares every 15 minutes.

Then, the trades will be executed when the price is as close as possible to the average price of the period leading up the trade, minimizing the slippage and the impact on the market.

Investors Are Buying Bonds From The Most Indebted Countries in Europe

During economic booms, investors flood risky markets riding the optimism wave that all the prices will continue to move higher. On the other hand, during economic downturns they tend to stick to safer asset classes, earning lower returns while minimizing the risk of losing.

In 2023 the stock market gained almost 25%, but if we expand our time horizon to just two years, we can notice how it moved essentially sideways as today’s price is just 1.5% higher than the price of January 2022. On the other hand, the money market has been offering short term debt securities at an annual 5% interest rate, making them an unbeatable opportunity considering that they can be regarded almost as risk free.

Over the same period, the interest rates and yields of the government bonds all over the world also rose quite significantly, and some even much higher than the money market rates in the US. But these government bonds carried a large risk and many investors steered clear of these investment opportunities.

However, the recent decrease in the debt ratio of many European countries including Italy, Portugal and Greece has started shedding some light on their high yield government bonds. This spotlight was also motivated by the fact that the debt ratio of Germany and France has been significantly increasing making their low yield debt offering less appealing.

The investors’ interest in riskier bonds can be seen as a great signal pointing towards the general expectation of a soft landing and the success of the ECB’s monetary policy. Do you believe that we can say that we are out of the woods yet?

Today’s Howling Question

And now, it is time for our howling question!

In our newsletters we always talk about the US government bond yields, but in today’s edition we have started looking at some European Bonds.

Among the main countries in Europe, Italy is one of the most indebted and it offers one of the highest yields in the Euro area. Do you know which is the 10 year Italy government bond yield?

a)  2.7%

b)  3.9%

c)  4.3%

d)  5.1%

e)  6.7%

Hint: it is higher than both Portugal’s and Greece’s.

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Crypto Whales Have Started Buying Bitcoin!

Since the launch of the spot ETFs, Bitcoin’s performance has continued to be a “sell the news” phenomenon and the price tumbled almost -14% down over the past two weeks.

However, the trend might be changing as some traders realized that Bitfinex Bitcoin listing was trading at a $100 premium over Bitcoin’s global average price.

According to various analysts, this price difference has been caused by a crypto whale buying Bitcoin over the past three trading days using a time-weighted average price trading strategy. According to their calculations, the sum of the trades executed by this whale amounts to more than $50 million!

In a previous newsletter, we had discussed the forecast of QCP Capital, a Singapore-based crypto trading company, that expected a retracement from the $45k-$48k to around the $36k level. They seem to have correctly predicted the top, but do you believe the Bitcoin will go as low as $36k considering that it is currently trading at $40k?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Wednesday the stock market continued to show signs of weakness despite adding an additional +0.08% to its all-time high. The price opened with a significant gap up, then it continued to move higher for a brief period of time before reversing and falling back down, closing lower than the opening price.

It is very difficult to say, but I would be extremely surprised if the stock market would be able to add significant gains on Thursday given Wednesday’s candle shape.

On the other hand, Wednesday has been a big day for the 10 year US government bond yield which moved +1.16% higher. The short term uptrend that the yields are currently in represents the repricing of the interest rates that the market has been forced to do once the central banks announced that they would likely keep high interest rates for longer.

Answer

The correct answer is b) 3.9%.

Even though the Italian government bond is considered one of the riskier ones in the European Bond market, it “only” has a yield of 3.944%, which can be quite closely compared to the 10 year US government bond yield.

Howl-Worthy Memes 😂

🐺 See you next time!

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