Narratives

Friday October 14, 2022 - Issue # 25

Congratulations! We’ve all officially made it to month 9 of this crypto winter. Every day that passes is one more day we’re further from doom and closer to moon (🥴). But really though, I’m impressed that we’ve all made it this far and that there’s still a lot of enthusiasm out there — albeit, moreso on the long term prospects of this space than the short term. Even these weekly articles are seeing an uptick in viewership which is a pretty good indicator that most of you want to be kept in the know (a small sample set, but definitely an important one).

I think the difference between prior bear markets to this one is that all risk assets are getting pummeled, in fact, just last week I saw an awesome chart that showed the Dow Jones 30 is now more volatile than BTC!

So unlike 2018-2019 and previous bear markets, folks can more easily make sense of why horrendous global macro conditions is negatively impacting crypto prices. I mean, a global energy crisis, the most aggressive rate hike pace since the 80s, and the escalating threat of nuclear war seems like enough to cool things off a bit. However, it is this newfound appreciation that Bitcoin is indeed an investable asset that has led to the prolonged interest I’m noticing. It also seems that the general consensus is that once the market switches back to risk-on, Bitcoin and the broader crypto market will be the most reflexive.

Yesterday, we saw US core CPI come in hotter than expected which set us up for a very wild trading day. When the number came in, futures sold off massively and the market opened up deep in the red. Then, in stunning fashion, the S&P did a 180 and jumped to a gain of 2.6% after earlier being down as much as 2.4% and touching its lowest level in nearly two years. The turnaround was the biggest for the S&P since March 2020. Bitcoin mimicked the price action dipping down to ~$18.1k from $19k before fully recovering and ending the trading day up nearly 4%!

The price action has even the most experienced market participants puzzled. What makes the most sense to me is that investors are betting (going long) that inflation is coming to a head which means the Fed might have one more hike left in them before they freeze or reduce the size of hikes which would be grounds for a monumental bounce.

The correlation between Bitcoin and the stock market (primarily Nasdaq and S&P) is hard to ignore, and increasing. Sure, this correlation might get investors excited about using Bitcoin as part of their strategy if they view it as a beta on the market (i.e. they can go long BTC if they’re bullish, or go short BTC to hedge against longing traditional equities) but I believe there will be a time where Bitcoin breaks out and decouples from its current position.

Bitcoin has a unique place among other assets as it is the only digital asset without an issuer. The opportunities to catch a narrative or many narratives at the same time in the midst of global financial turmoil and energy balkinization seem endless. For example, Russia now only allows purchases of gas in RUB, Gold, or currencies of “friendly” nations. As the rest of the world ponders the current system where USD is king, a global currency operated and owned by and for humanity has infinite value.

Apparently Canadians are starting to figure it out as reported by the Bank of Canada this week.

Click the chart above to be directed to their full report if interested!

Have a nice weekend.