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Sunday May 1, 2022 - Issue # 12
“If we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”
— Fed Chair Jerome Powell, March 21, 2022
As the Fed continues to tighten, bond yields continue to rise, and inflation runs rampant, investors find themselves in a precarious and unprecedented position.
Stagflation: High inflation, high unemployment, and slow or negative real economic growth.
Minus high unemployment, it certainly looks and feels like we’re headed for a 1970’s style market environment.
So far this year, and especially over the last few weeks, it has not been a fun time to be in the market. Minus a few outliers, it’s pretty much been down only as the market is adjusting to this new reality. This new reality is unprecedented for most people who weren’t in the markets the last time we were in a similar predicament.
It’s been an especially interesting time for me as I’m always happy to lend an ear to investors, money managers, and others who are either clients or prospective clients of Satstreet. Lately, the conversations have followed a similar pattern of: I’m getting crushed -- I don’t know where to be invested right now -- I can’t hold on to cash because I think inflation is going to persist and probably even get worse -- what are your other clients doing? Tough times to say the least.
Naturally, I ask how they feel about Bitcoin in this environment — so far the response has been rather positive but the consensus is that it will follow other risk assets down and that they’re looking for cheaper prices to load up. I also mentioned “prospective clients” who we spend a lot of time with each day helping them feel more comfortable allocating to this asset class that each one of them agrees is not going away. Lately, we’ve noticed an increase in interest from sophisticated folk from the tradfi world come across our desk to learn more about Bitcoin and the broader crypto space. Everyone these days is at least a little crypto curious so it isn’t much of a surprise to see this sort of evolution. But the frequency of these instances has my spidey senses tingling that if we’re seeing this, the big shops in the States and other global players are seeing the same, and that those “institutions” who were supposed to be “coming” over the last couple of years are now standing outside of the door trying to decide whether to knock, ring, or walk away like a first time door-to-door salesman.
So I think the question on everyone’s mind is: can BTC decouple from the rest of the market? I think the answer is that it can, and will, but timing is uncertain. That answer doesn’t help too much, eh? Well, while it’s impossible to time the market, what we can do is take a look at what’s going on and draw our own conclusions.
I’ve covered highlights from the Bitcoin world mostly every week for well over a year now but we don’t have to look much further than the last few days to get a good sense of what’s going on…
Tweet from the President of Central African Republic:
This week we also saw more nation state adoption out of Central America — this time, Panama.
While Panama did not make BTC legal tender, the law that was passed gives Bitcoin legal status and there will be no capital gains tax on bitcoin investments.
Although it’s a very small operation, Fort Worth, Texas, is now the first city government in the US to mine bitcoin.
We’ve noticed similar activity lately where companies (mostly in the oil and gas space) are experimenting with monetizing excess energy by mining bitcoin. My guess is that there little experiments will become larger and larger as they notice a positive ROI.
Aside from nation state level news, this week we learned that investment giant Fidelity Investments is set to offer Bitcoin in 401(k) retirement savings plans later this year. For context, 23,000 companies use Fidelity to administer their retirement accounts. Fidelity held $2.4 trillion in 401(k) assets in 2020 - more than a third of the market. The total US 401(k) retirement market represents an estimated $7.3 trillion worth of value.
This is really big news. A household name in the money management business does not put their reputation on the line like this unless they're certain that Bitcoin is going to win.
Back when I used to work in fund sales at Fidelity, part of our pitch was honing in on the differentiating factor that “we are privately held which allows us to make customer focused decisions versus short-sighted decisions to appease shareholders.”
Being privately held allows Fidelity and others like it to move quicker on new trends since they are in a unique position to better navigate the bureaucratic decision making process that tends to hold up their competition.
This is another huge display of confidence in Bitcoin from Fidelity Investments. I think it’s safe to assume that others will eventually follow.
The “others” this week:
So, sure - we don’t know when Bitcoin will decouple from the rest of the market. But we do know that there is a ton of capital tied up in stocks and bonds that are desperately searching for a new home because things do not look so good on the horizon for either.
While the bullish headlines for Bitcoin continue to pile on, we can extrapolate that there is certainly a trend forming. As the old adage goes, "the trend is your friend..."
What we saw at the desk — Dan Wright
Quarterly GDP numbers came out Thursday in the US with an expected increase of 1.1% and an actual (-1.4%) decrease. Another negative quarter will indicate that the US is in a recession. USD strengthened against all major pairs to near 1 year highs in a flight to safety.
BTC and ETH are trading at the bottom of their year-long rising channels. We were net buyers on the desk as many of our clients saw strong risk to reward below $40k and $3k respectively.