Bitcoin
Bitcoin snapped its 2-week losing streak last week, soaring by more than +11% and closing at $24,281. Interestingly, the 200-week moving average level that we have been tracking at ~$25,000 indeed seems to be acting as resistance.
This will be the next important level to clear on the upside. Interestingly, we are still not seeing any significant build-up of short positions in bitcoin even at these levels. This is consistent with the shape of the Bitcoin futures curve which is still in a healthy contango - or prices moving higher progressively into the future.
Markets opened this week in the red, with the focus shifting back to rising U.S. interest rates and “stickier-than-expected” inflation. The Fed meeting minutes release this week will be very relevant to markets as it could provide clues to how the Fed is thinking about its next raise in March. Details in our What’s Ahead section.
In terms of technical support levels for bitcoin to the downside, we are still watching the 200-day moving average at roughly $19,700.
Digital Asset Markets:
1. Coinbase Beats On Revenue, Misses on User Growth
Coinbase reported higher than expected revenue of $629 Million vs. analyst expectations of $590 Million. It also posted a smaller-than-expected loss of $557 Million.
At the same time, the company posted 8.22 Million monthly-transacting users, down from 8.5 Million users in the previous quarter. Trading volume also fell 9% from the previous quarter to $145 Billion.
The stock has been reacting positively to the news in after-hours trading. One potential reason for that is that many investors were short the stock going into the report.
According to data from Benzinga, over 23% of the available trading float is short - which represents approximately 2.1 full days of buy-side trading volume to cover their positions. With earnings results coming in stronger than many expected, this could potentially set up a short-covering rally in the stock in the days ahead.
Macro
2. Will King Dollar rise again?
Since the start of February, U.S. bond yields have been rising. Because of this, the U.S. dollar has strengthened and most asset prices have suffered during this time. As we’ve covered before, as the real rate of return of U.S. government bonds moves higher, this typically strengthens the U.S. dollar. Therefore, there is a tight correlation between U.S. government bond yields in general, and the U.S. dollar index (DXY).
The chart above shows the correlation between the U.S. dollar index and the yield on the 10-year treasury bond. As you can see, the 2 lines cross each other often, and tend to move in tandem. Currently, there is a significant deviation from the correlation. Either the yield on the 10-year treasury bond is too high, or the U.S. dollar index is too low - or a combination of the 2.
On the rates side, the Fed has been very clear in that it wants to keep rates high “until the job is done”, and recent inflation data shows that it could be stickier than many expected. This suggests that it's not the yield on the 10-year treasury that has the catching up to do.
A renewed U.S. dollar rally could put pressure on most asset prices in the near term. Other macroeconomic factors could also act as a tailwind to a potential U.S. dollar rally - like an intensification of the conflict in Ukraine, and China pumping fresh cash into their economy.
3. China is pumping (cash into its economy)
As we’ve covered here previously, China suffered the economic consequences of its zero-covid policy last year. It caused chaos on supply chains and the local Chinese economy. It also led to lending crises like the Evergrande saga that threatened to spill into their local real estate market.
But the Chinese government started intervening earlier this year to jumpstart its economy by easing monetary policy. Those efforts seemed to have accelerated recently, with the central bank ramping up cash injections into its banking system. Last week it conducted $39.33 Billion of seven-day reverse repo deals at a rate of 2%.
Their aggressive action is starting to pay dividends, it seems. Last month, new bank loan originations jumped by more than expected to a new record of $713 Billion in January.
This narrative has also led to a series of rallies in China-related speculative crypto assets.
And to cap it off, yesterday Hong Kong proposed rules that would allow retail investors to trade certain “large cap tokens” in licensed exchanges. Keep in mind that this is not mainland China, where mining was banned last year. However, there are no accidents in politics.
This action is deliberate. To some, it could be seen as an “escape valve” to allow investors an outlet - or, it could simply be a test case before rolling out a similar policy in mainland China.
The Week Ahead
The rest of the week is loaded with data and earnings that could move markets. Later today we get the minutes from the Fed’s last meeting and earnings from Ebay, Nvidia and others. Tomorrow we’ll get a read of European inflation, a Fed speech, earnings from Block (CashApp), MercadoLibre, and more. The next bitcoin difficulty adjustment should happen at some point Thursday and should bring mining difficulty to another record high. On Friday we get another read at U.S. inflation with the Personal Consumption Expenditures Index and a speech from the incoming governor of the Bank of Japan.
As always, here’s a summary of the events and data that could move markets in the week ahead:
Notice for U.S. Residents: Effective April 4, 2022, U.S. clients will no longer be able to earn interest on any newly deposited funds in their BTC and/or USDC Savings Accounts, where available; however, they will continue to earn interest on their pre-existing balances in their BTC and/or USDC Legacy Savings Accounts.
This article is intended for general information, educational and discussion purposes only, it is not an offer, inducement or solicitation of any kind, and is not to be relied upon as constituting legal, financial, investment, tax or other professional advice. This article is not directed to, and the information contained herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to law or regulation or prohibited by any reason whatsoever or that would subject Ledn and/or its affiliates to any registration or licensing requirement. This article is expressly not for distribution or dissemination in, and no Ledn product or service is being marketed or offered to residents of, the European Union, the United Kingdom, the United States of America or any jurisdiction in Canada, and such product or service may only be marketed or offered in such jurisdictions pursuant to applicable laws or reliance on regulatory exemptions. A professional advisor should be consulted regarding your specific situation. Digital assets are highly volatile and risky, are not legal tender, and are not backed by the government. The information contained in this publication has been obtained from sources that we believe to be reliable, however we do not represent or warrant that such information is accurate or complete. Past performance and forecasts are not a reliable indicator of future performance. Any opinions or estimates expressed herein are subject to change without notice. This article may contain views or opinions of the author that do not necessarily reflect the opinions, standards or policies of Ledn. We expressly disclaim all liability and all warranties of accuracy, completeness, merchantability or fitness for a particular purpose with respect to this article/communication. Read our Disclaimers at https://ledn.io/legal/disclaimers
