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Insights on the Crypto Down Cycle: Edition #1

Wednesday, April 13th, 2022

 

“With the recent hawkish view of Fed members and uncertainty around the CPI release data, Bitcoin price was down due to front-run sell”

#1 Market View Overall

The major macro event of this week is the March CPI publication on 12th April at 8:30 AM (ET).

With the recent hawkish view of Fed members and uncertainty around the CPI release data, front-run sellers either speculators or hedgers already sold and put Bitcoin price down a bit. We expect high volatility in the markets this week around 12th April. If inflation spikes, as the expected numbers pointed out, the rhythm at which the Fed will hike rates and deploy quantitative tightening (QT). This rate will be faster and we expect the market to react quickly on the downside in that scenario.

#2 Coronavirus Vaccination progress


Another notable macro event is the China omicron outbreak. China has tried to maintain a stricter lockdown than the West. With the high rate of vaccination, we think that this will likely slow down Chinese domestic economic activities and impact the target growth rate for this year. It is considered to be limited and manageable and it should not be a major concern for investors. However, China has not (and probably will not) engaged in monetary stimulation of the same magnitude as the West due to its structural debt problem.

#3 Ukraine-Russia War Effects on Crypto Market, Especially Bitcoin Price

The Ukraine-Russia war, which started on 24th February, now already lasts for a while and runs in the background. We think the news emerging from the war will skew towards potential good news rather than bad ones.

  • On the Technical Analysis side: The weekly chart shows Bitcoin’s price still stays above a major support line with a clear higher low pattern.
  • On the daily chart, the price momentum of 3M is slightly positive but 6M and 12M are deeply negative.
  • On the 4h chart, the Bollinger Band 2.5 STD shows the market could bounce back from around the 40k-41k level.

 

 

Regarding the derivatives markets: Funding rates stay neutral or negative on some exchanges which reflects the slightly biased short selling of the market.
Options markets: also show a strongly negative skew (downside protections are favored and therefore more expensive) for maturity up to Sep-2022 and only turn positive for March-2023.
The IV is also at the lowest level since April 2021. And is coupled with the potential surprise of CPI data release. Which gives it more chance to have a sudden spike rather than continue the downtrend. An implied volatility spike could meet selling flow given the macro environment we are now in.


On-chain data is supportive of a long time frame accumulation phase with some caution. While the net exchange position change is still negative which points to an outflow of Bitcoin from exchange. The number is much lower than the previous dates.

Overall

Overall, we think there is a more immediate downside than upside going into the CPI publication date. However, given the crypto market is not massively leveraged or even slightly biased short. The rebalancing of the portfolio of assets, with a high realized correlation of risk asset Equity vs Bitcoin, will be the main driver of any market movement post-publication. That would potentially create an opportunity for long-term buyers once the Bitcoin price reaches a support level, which seen from today stays at 35k-39k. We believe sub 40k for Bitcoin is a good long-term buy.

Our view is to have a light long positioning with some downside protection and dry powder. This will deploy around events or play the market volatility.

Published on Apr 13th, 2022

***Disclaimer: views given in this channel are for informational purposes only and are not financial advice.
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