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Bitcoin
Bitcoin continues to stabilize around $28k on thinly traded volume, after its massive +26% move higher on the week of March 13th. Last week it closed up +0.70% at $28,188.
This price action is consistent with the last 2 times when bitcoin made big moves on significant volume.
As we can see from the chart, in the last 2 instances when bitcoin had 20%+ moves on record-setting volumes, its price stabilized after the move for several weeks, on thin volume. This happened in May 2021 and November 2022. The volume spikes are highlighted with the yellow bubbles, and the subsequent periods of price stability on low volume are highlighted in the yellow boxes.
Bitcoin has now completed 2 trading weeks of stable price action on thin volume after the weekly move on March 13th. This week will be a shortened trading week because of the Easter holiday. And we have little economic data on tap - meaning, we could have another “stable week of thin volumes” in store.
The futures curve continues to display a healthy contango, with investors expecting higher prices for bitcoin as delivery dates move further into the future.
Short interest in bitcoin still remains near historical lows - without any significant buildup after the move higher.
This all points to a healthy setup for the week ahead. Another point to highlight is both gold and bitcoin have held their ground quite well after the Fed’s decision to raise interest rates on March 22nd - which was _after_ the move higher. This has made Bitcoin’s 30-day correlation to gold to move even higher.
We covered the growing correlation between bitcoin and gold in depth in our previous issue - which you can find here. This positive correlation bodes well for bitcoin as we head into the next part of the interest rate cycle.
As a reminder, there are 3 stages of Central Bank interest rate cycles. First is the “Raising” period, which is about to be completed as the Fed approaches its terminal interest rate, then comes the “Holding” period - which is how long the Federal Reserve keeps rates high, and last, it’s the “Cutting” period - where the Fed has to drop rates to incentivize economic growth again.
Another interesting technical point is that Bitcoin closed its third consecutive positive month in March.
As reported by Documenting Bitcoin, all previous bitcoin bull markets have been kickstarted by 3 consecutive months in the green.
Digital Asset Markets:
Last week we learned that:
1) The U.S. government sold $215 M in bitcoin that were seized from Silk Road, and it intends to dump another $1.1 Billion as part of the asset recovery process.
The timing of the sale of $215 Million was … interesting… to say the least. While these sales are done through auctions, and some say “it doesn’t impact market price” - it may not put pressure on exchange order books directly, but it does satisfy “buy-side” demand that could have otherwise driven prices higher in a period of light liquidity. This could be seen as an indirect attempt to keep prices suppressed in the current environment.
2) The Federal Deposit Insurance Corporation, which is tasked with selling the assets of Signature Bank, explicitly announced that it wants crypto clients out of the bank and to withdraw their assets by April 5th (2 days from now).
This feeds the narrative that closing down Signature bank was in part politically driven, with the implicit goal of restricting banking access to crypto companies.
3) Elizabeth Warren, who is launching a reelection campaign for her seat in the U.S. senate in 2024, explicitly said that she is building an “anti-crypto army” as part of her campaign.
You would expect, by looking at these headlines, that Bitcoin would have sold off last week. In fact, the opposite happened - bitcoin has been rallying and holding on to its gains, alongside gold. And this is precisely why politicians are so concerned.
And as powerful as U.S. politicians are - no one is above the law. A Washington D.C. law firm called Cooper & Kirk published a whitepaper last week “detailing evidence that the Federal Bank regulators are waging a clandestine, financial war against the cryptocurrency industry.”
Here’s an interesting excerpt from the press release: “Cooper & Kirk successfully sued the FDIC, Federal Reserve, and OCC over the original Operation Choke Point, so the law firm is well positioned to recognize the signs that the Obama-era pattern of threats and pressure tactics was being deployed again, this time against crypto.”
More people everywhere are calling the bluff on FIAT. And the price of bitcoin is a report card on the credibility of your central bank. The report card says Central Banks are not doing so well.
People don’t want to keep their savings in a currency that can be easily printed on a political whim. There is a better, more transparent way now.
This price resilience in the face of political adversity could be a foretelling sign of what's to come.
Macro:
2. There’s always someone on the other side of a good trade
When Russia invaded Ukraine in February of 2022, many were concerned about what would happen to the price of commodities. After all, the world’s third largest oil producer had invaded the single largest exporter of wheat on the planet.
As the western world enacted sanctions to choke off the invader (Russia), they looked to hit them where it hurts the most. Their oil revenues. To do so, they imposed a strict ban on Russian oil, which later morphed into a “price cap” that could be paid for Russian oil.
At a time when the U.S. was already starting to deal with soaring inflation because of quantitative easing, the most important commodity in the world was soaring - and they needed to act.
The United States decided to tap into their Strategic Petroleum Reserves. These are oil reserves the U.S. keeps in case of an emergency - to ensure its energy independence in times of uncertainty.
Biden’s administration decided to start depleting the reserves to put downward pressure on price. In doing so, they were effectively selling their oil reserves at near record high prices.
The U.S. had committed to its oil exporting countries, namely the OPEC cartel, that it would support oil prices from going “too low” as it drained its reserves.
And so, the U.S. gradually depleted its reserves as the price of oil slid by almost 50% from a high of $126/barrel in March 2022 to a low of under $65/barrel in the week of March 13th, 2023.
And so, as inflation progresses lower in the U.S., and oil prices reach levels not seen since 2021 - the U.S. is in a privileged position to repurchase its reserves at record low prices and book a very healthy profit from selling their oil at the top.
In a press conference last week, a member of the U.S. department of Energy was asked about their plans to replenish the strategic oil reserves last week. He responded that the U.S. has no plans to replenish the reserve yet - which sent prices even lower.
Remember how Biden had promised OPEC that it would “support the price of oil” when it got lower as it depleted its strategic petroleum reserves and the Federal Reserve raised interest rates? They were _not_ happy. And they snapped back over the weekend by announcing surprise production cuts.
The move has sent oil prices sharply higher, and is now risking that the U.S. may have to repurchase its reserves at a higher price that it sold them, on average.
But perhaps more importantly, it risks reintroducing inflation into the U.S. economy, at a time when the economy is already showing cracks from the extreme interest rate adjustments.
Moreover, the move risks shifting the balance of power of oil market stability back to OPEC, after the U.S. had successfully brought prices lower after the Russian invasion of Ukraine.
Keep in mind that “Cartels” and “price fixing” are strictly forbidden in most free markets. It blows my mind that in 2023, we still allow a cartel to fix or influence the price of the world’s most important commodity. And this is not to say that having one single government impact prices would be any better. It is just intended to highlight how few assets in the world are truly removed from political influence. And why so much of economics goes back to politics.
The Week Ahead
We have a short trading week ahead due to the Good Friday holiday in the U.S. Happy holidays to those celebrating!
The week ahead will deliver 4 Fed member speeches, data on U.S. trade balances for March, and a fresh read at the U.S. unemployment rate for March.
Typically, short trading weeks tend to have light volume - however, light volume could result in heightened price volatility if we get unexpected headlines.
As always, here’s a summary of the events and data that could move markets in the week ahead:
Notice for Canadian Residents: As of January 4, 2023, Canadian clients will no longer be able to take out new B2X loans.As of February 1, 2023, Canadian clients will no longer be able to open a new BTC or USDC Savings Account, deposit BTC or USDC to existing Savings Accounts or earn yield on any existing BTC or USDC Savings Account balances.
Notice for U.S. Residents: Effective March 1, 2023, U.S. clients will not earn interest on any BTC and/or USDC balance in their Savings Accounts and/or Legacy Savings Accounts.
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