Bitcoin’s “Death Cross” debunked. BTC futures in the CME reach record low implied yields. Insights from the Fed’s last meeting.

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The Bitcoin Economic Calendar:

Week of Monday June 21st to Sunday June 27th.

Market Commentary:

Bitcoin: It was a volatile week for bitcoin, crossing north of $40k on Monday and reaching a peak of $41,341 on Tuesday, then  slowly giving back all gains to settle the week at $35,589, down -8.78%.

Early this morning a headline broke stating that the Agricultural Bank of China issued a statement prohibiting the use of its services for virtual currency transactions. This has sent the market lower and it will likely remain in high alert while the market awaits for potential follow-on from this announcement.

The price move also ushered in a popular indicator, the “death cross”. In plain English - this means that bitcoin’s 50-day moving average price “crossed over” its 200-day moving average price.

What happened the last 3 times we saw the “death cross” in bitcoin? The following charts show  bitcoin price moves 30 days after the “death cross” was signalled.

In the 30 days after the March 31st, 2018 “death cross”, bitcoin moved higher by +37%.

In the 30 days after the October 25th, 2020 “death cross”, bitcoin moved lower by -19.88%.

Lastly, after the March 24th, 2020 “death cross”, bitcoin rallied by +13.53% in the 30 days following.

Considering that bitcoin has been higher after 30 days 2 out of the last 3 times we saw the “death cross”, we thought it was prudent to highlight that - although it has a scary name, it is not necessarily correlated with negative price moves. 

Looking at some market fundamentals, signs of institutional activity continue. 

For further emphasis on this point, the implied basis on the CME futures contracts (the difference between the spot price of bitcoin and the future price in those contracts) has reached all-time lows in the 1-month and 3-month contracts. 

This tells us that institutions are happy to book a very small yield to participate in this trade - and they keep compressing the implied returns. 

As we have covered in the past, this is a benchmark yield in the bitcoin industry. This yield dropping means that there is more financing available and more liquidity in these bitcoin futures markets. Over time, this should lead to reduced price volatility.

S&P 500:  Equity markets shifted directions on Tuesday last week as the Fed’s FOMC meeting began. The S&P 500 closed the week lower by -2.17% at 4,153 points. 

Looking at the price action, the S&P closed the week at Friday’s session low, which typically means that there will be additional selling pressure come Monday’s open. 

A massive signal was the fact that the Fed raised its inflation expectations for 2021 to 3.4% - a full percentage point higher than its projections just a few months earlier in March. Remember that the Fed’s target inflation is “north of 2% - to average 2% in the long-run”. In other words, the Fed’s inflation targets are being met. This should make the jobs/unemployment data a big focus for markets going forward. 

Almost in textbook fashion, we can see how today’s yield curve has moved “a few years” closer relative to 2020. This is making the curve steeper, as it should be when the market is expecting a rate hike in the future. The market is pricing higher rates right in line with the Fed’s 2023 rate-hike plans - this is not a coincidence. 

Switching to how this is impacting markets, we are seeing the Russell 2000 index dip well below its “rally confirmation” level of 2,293. 

The Nasdaq is showing strength on the back of the changing rate environment. It touched a new all-time high intraweek as the industrial trade seems to be reversing back to tech. 

The week ahead is loaded with Fed activity, and markets can be volatile as they continue to digest the recent Fed comments. More on this in our What’s Ahead section.

Gold: Gold took an absolute beating last week, finishing down -6% at $1,763/oz. It is now back within the descending wedge range that we had identified - the one that started back in August 2020.

The price drop was not isolated to gold. The U.S. dollar index jumping higher by +2% during the week affected almost all commodities and industrials. 

Lumber is down -35% so far this month, copper is down -9.85% during the same period. Silver is down more than -5%. 

Watch for this trend to continue until U.S. treasury yields and the dollar index settle.

DeFi:  It was a hell of a week in the DeFi world. First, let’s look at the price action. The DeFi index finished the week down -9.18% at 7,796 - just above a critical support level at ~7,500. Ethereum finished the week down 10.67% at $2,242.

The DeFi “spotlight” went to a project called Iron Finance and its Titan token , which went from $60 per token to $0. 

This caused some of its loud (and famous) supporters to lose what appears to be some serious cash. 

The incident led Mark Cuban, the Dallas Mavericks owner, who appears to have lost about $8 Million in Titan Token according to reports, to call for stablecoin “regulation”. In his view, it is necessary to define what a stablecoin is and what collateralization is acceptable.

We will see how this plays out - and remember, there is still a looming potential law out of the U.S. that could regulate anti-money laundering requirements for cryptocurrency transactions. We still don’t know how this could impact DeFi.

Difficulty Commentary: China’s concerted efforts to curb mining in the country have resulted in a significant number of miners shutting down and a subsequent large drop in bitcoin’s hashrate. Currently, hashrate and difficulty levels are back to January 2021 levels. 

According to the Financial Times, officials all over China are either ordering shutdowns or signalling to the local miners in their provinces that their activities must cease. 

There are videos circulating around social media depicting a miner in Sichuan, a popular mining province, shutting down their equipment with a backdrop of “sad” music. This happened after the province ordered the largest 26 local mines to stop operating.

There is much speculation as to the intent of the move. Some speculate that it is to stop corruption among local officials and miners for power contracts? Our view is that the main driver for this policy is to prevent capital flight. Miners can build equipment using local currency and get a hard asset that they can trade worldwide. Anyone who has tried to buy or sell  U.S. dollars in China understands how tightly they control their foreign exchange.

This presents an excellent opportunity for miners around the world to use the extra revenue to grow. Less miners means that the difficulty drops, so all remaining miners have a higher chance to find a block - and therefore their average profits should rise until difficulty rises again.

What's ahead for the week:

In last week’s meeting, the Fed signalled that it was discussing potentially tapering its bond-buying program. The statement set off volatility in the U.S. yield curve and in the markets. 

Fed activity continues in the week ahead - and the market will listen intently as it continues to search for clues. 

Tuesday:

At 10 AM EST, we get Existing Home sales. A lower-than-expected reading will strengthen the Fed’s “transitory” inflation view. 

At 2 PM EST, Jerome Powell will be testifying before the U.S. House of Representatives on the Fed’s response to the Coronavirus Pandemic. Look for Powell to address the unemployment situation in this speech. 

Wednesday:

Governor Michelle Bowman speaks at 9.10 AM EST on Community Development and Economic Resilience. 

Manufacturing and Services Purchasing Managers Index at 9.45 AM EST and New Home Sales at 10 AM EST.

Friday:

Personal Consumption Expenditures Inflation index data comes out at 8.30 AM EST. The Fed’s projection for PCE inflation in 2021 is 4.3%. This is one of the Fed’s favourite indicators and it will likely show a similar trend to the recent Consumer Price Index reading of +5%. Look for markets to cheer a number below +4.3% - and the opposite could happen if we get a higher number.

On the bitcoin front, that large short position that we had highlighted on Bitfinex last week has covered more than 50% of the open position with the recent move down.

This is a potentially good sign. Looking at the price action, that position may be looking to fully close out in the $30-$35k range.

Several factors point to the $30k level being a very important one for bitcoin. It will be a key one to watch in the week ahead.

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account @hodlwithLedn

Canadian Central Banking Updates:
Current Target Interest Rate: 0.00 - 0.25%
Current Overnight Money Market Rate: 0.23%
Source: https://www.bankofcanada.ca/rates/

U.S. Central Banking Updates:
Current Fed Interest Target Rate: 0.00 - 0.25%
Current Effective Federal Funds Rate: 0.09%
Source: https://apps.newyorkfed.org/markets/autorates/fed%20funds 

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This article is intended for general information and discussion purposes only, it is not an offer or solicitation of any kind, and is not to be relied upon as constituting legal, financial, investment, tax or other professional advice. This article 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 or use would be contrary to law or regulation. This article  is not directed to any person in any jurisdiction where the publication or availability of this article is prohibited, by reason of that person's nationality, residence or otherwise. A professional advisor should be consulted regarding your specific situation. 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.

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