17 March 2022
As the March 16th FOMC meeting comes to a close and the expected 25 basis point rate hike is enacted with dovish undertones, “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals”, it may seem like risk-on assets including bitcoin are in for yet another fresh breath of air. Capping the rate hikes at nine instances over the next two years is certainly milder than what many investors saw coming over the last months. Nevertheless, if we analyze the context of this soothing wording by the Fed, we quickly come to realize that the current market conditions are - let’s borrow 2020’s favorite word - unprecedented.
In this Uncharted, we explore how this charged macro environment affects global assets and we deep dive into bitcoin’s market structure and its evolution in this context.
Let’s dig in!
Bitcoin’s trading channel narrowed even further to $38k to $42k, which points to pressure building up towards a breakout.
After the end of February decoupling event bitcoin’s correlation to equities has remained high nevertheless.
As the Fed strikes a more dovish tone and caps upcoming rate hikes, capital is flowing into US equities, likely triggering inflows to bitcoin and crypto as well.
Long-term holders seem to keep accumulating bitcoin, with many even moving capital off exchanges at a loss, causing continued exchange outflows across the board.
Among exchanges futures-driven exchanges dominate, creating speculative pressure around the trading channel while accumulating long-term holders absorb any downward moves.
Bitcoin continues to dominate altcoins and Swissblock’s proprietary indicators point towards a time of cautious optimism.
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Uncharted times indeed
The significant investor uncertainty in times of a rising CPI coupled with fears of further escalation in Ukraine is reflected in the price behavior of some of the globe’s major assets: Gold, commodities, and oil-related assets have outperformed since the start of 2022, while tech and crypto assets have seen important losses. The bitcoin drawdown of -11.41% YTD in particular signals that the mainstream has not yet embraced bitcoin’s goal of becoming a safe haven asset.
Figure 1: Gold, commodities, and oil-related assets outperform YTD
Notice how bitcoin’s correlation with the US10Y Treasury and gold is negligible, while the correlation to the Nasdaq Composite has remained above much of the 2021 levels. The only silver lining in the picture below is the brief BTC - S&P 500 uncoupling that happened end of February (discussed in the previous Uncharted #10), (Figure 2, red area) giving bitcoin some room to develop its own identity as an independent asset class.