The Debt Ceiling Circus Rages On
Weekly Market Review
For educational and illustrative purposes only. This is not a solicitation to buy or offer cryptocurrency or securities. Investments may be speculative, illiquid and there is a total risk of loss of principal. There is no guarantee that any specific outcome will be achieved. Past performance is not indicative of future results.
Key Takeaways
- Fedspeak leans hawkish, Powell says June decision remains unclear
- Debt ceiling talks continue this week, as Treasury funds dwindle
- A bullish US Dollar has helped flip Gold and Bitcoin bearish in the near term
Macro and On-chain Commentary
With less than a month remaining until the upcoming FOMC meeting, a series of speeches by Federal Reserve officials strongly indicated a persistent hawkish stance. However, during his speech on Friday, Fed Chair Powell struck a more restrained tone, hinting that the interest rate “may not need to rise as much as it would have otherwise to achieve our goals.” On the other hand, the Fed’s Bullard is calling for two additional hikes this year, and has shifted rate probabilities towards elevated expectations of higher rates in the near future.
The bigger focus this week is the cataclysmic possibility of a US debt default. Although many consider this outcome to be highly improbable, markets still need to price the risk accordingly, which has disrupted short-term treasury yields around the X-date. Despite this uncertainty, the S&P 500 has broken out to a new yearly high, which may help create additional buyers remorse for those heavily focused on fixed income.
Despite a bullish S&P, the current lackluster price range of digital assets raises some confusion, especially considering Bitcoin’s previous strong correlation with both the S&P and Nasdaq post-Covid. Following the collapse of SVB, Bitcoin shifted towards an increasing price correlation with Gold, which had been poised for a new all-time high. Bitcoin’s digital gold thesis has gained steam, which has meant an increasing inverse correlation with Dollar strength. Rather than being perceived as a broad risk asset, Bitcoin’s price action has become closely tied to Fed policy, and a hawkish stance from the Fed has weakened both Gold and Bitcoin, at least in the short term. Bitcoin might experience a more favorable environment if the Fed’s tone regarding further interest rate hikes cools down after the release of additional economic data. However, for now, a stronger Dollar poses bearish headwinds.
Chart 1: Real-time Inflation Estimates are Nearing a 2 Handle
Recent Fed hawkishness has stifled expectations of extreme cuts this year
Chart 2: Bitcoin’s Current Price Drawdown is Similar to Previous Drawdowns
The drawdown of the current price cycle is on par of previous cycles
Chart 3: Bitcoin’s Daily Ichimoku Cloud Tips Bearish and Suggests Turbulent Times Ahead
The Ichimoku Cloud is a popular trend-following indicator used by many digital asset traders to quickly determine a price trend. The Ichimoku Cloud uses four metrics to help determine strength of trend; the current price position in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span (not shown). The best trade entries typically occur when most of the signals flip from bearish to bullish, or vice versa. Currently, price sits within the a green Cloud while holding a bearish TK cross. Together, this suggests an ongoing high timeframe bullish trend with a decline in bullish momentum and the potential for near-term retrenchment. A price close within the Cloud is suggestive of losing Cloud support and triggers the possibility of traversing to the opposite edge of the Cloud. In this case, an Edge-to-Edge trade would bring price to around $24,000. Similar versions of the setup and resolution paths for this trade can be seen in early January and March.
News Review
- Tether to Continue Purchasing Bitcoin Based on Monthly Net Profits
- EU States Approve World’s First Comprehensive Crypto Rules
- Representatives Tom Emmer and Darren Soto Introduce Securities Clarity Act
- Texas Passes Proof of Reserves Legislation
- Brink & Marathon Digital Holdings Announce $1M Donation-Matching Campaign for Bitcoin Development
Market Performance
Macro & On-Chain Commentary: Source: Valkyrie Investments, Inc.
Chart 1: Real-time Inflation Estimates are Nearing a 2 Handle: Source: Valkyrie Investments, Inc., FRED, Truflation.com, CME
Chart 2: Bitcoin’s Current Price Drawdown is Similar to Previous Drawdowns: Source: Valkyrie Investments, Inc., Glassnode
Chart 3: Bitcoin’s Daily Ichimoku Cloud Tips Bearish and Suggests Turbulent Times Ahead: Source: Valkyrie Investments, Inc., TradingView
Coin Prices, Market Capitalizations, and Returns: Source: Valkyrie Investments, Inc., TradingView, Messari. All returns represent total return for stated period. Coin Logos: Source: cryptologos.cc
Annualized Issuance and Staking Yield: Source: Valkyrie Investments, Inc., StakingRewards.com. ETH staking rewards values are representative of the network post-Proof-of-Stake transition.
“Indicies” prices and returns: Source: Valkyrie Investments, Inc., MarketWatch. “S&P 500” provided by Standard & Poor’s and is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States, “Nasdaq 100” provided by NASDAQ OMX Group and includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. “Russell 2000” provided by FTSE Russell and is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. “Dow Jones Ind.” provided by S&P Dow Jones Indices and is a price-weighted measurement stock market index of 30 prominent companies listed on stock exchanges in the United States. “Gold” provided by NYMEX — CME Group and is a continuous futures product. All returns represent total return for stated period.
“Commodities” prices and returns: Source: Valkyrie Investments, Inc., Wall Street Journal. Bloomberg Commodity Index provided by Bloomberg and tracks prices of futures contracts on physical commodities on the commodity markets. All returns represent total return for stated period.
Valkyrie’s Alternative Layer 1 Index: Source: Valkyrie Investments, Inc., CoinGecko. Includes Layer 1 protocols traded on at least 2 of the following 4 U.S. exchanges: Coinbase, Gemini, Kraken, or Binance US. Excludes BTC, ETH, stablecoins, and exchange tokens. Weightings using year 2050 MCAP (FDV), value struck at 8PM EST daily, rebalanced quarterly.
Past performance is not indicative of future results. Investments may be speculative, illiquid and there is a risk of total loss. There is no guarantee that any specific outcome will be achieved. There is no guarantee that any specific outcome will be achieved. This is not an offer to buy or sell securities. We do not offer legal, tax or financial advice. Information is purported to be as of the time period provided therein. Charts/graphs are for illustrative purposes only.
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