Market Commentary
Market Commentary: Up, Down, and Sideways
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September 15, 2021

Bitcoin and digital assets have experienced a series of ups, downs, and sideways markets in recent months as investors weigh risks and catalysts on the horizon.

A strong August in which bitcoin and ether gained 13.2% and 36.1% respectively led to a September pullback of 16% and 20% percent from monthly highs. As investors weigh risks and catalysts on the horizon, likely culprits of this month’s pullback include:

• buy the rumor, sell the news event related to El Salvador
• profit-taking and liquidations after a strong performance from the bottom in July (bitcoin rallied almost 74% from July 20th to September 6th, ether rallied 121%)
• and concerns of inflation, tapering, and global growth

Investors and traders look back to $50,000 as either significant support or resistance, with the 50 and 200D moving averages approaching a golden cross around $45,800.

This week, we cover El Salvador, September’s seasonality, the Fed, and recent economic data.

El Salvador

The highly anticipated launch of bitcoin as a legal tender in El Salvador was met with both celebration and speed bumps as the government-sponsored Chivo wallet required a back-end update to increase capacity. Despite these issues, El-Salvadorians signed up to receive $30 USD in bitcoin and immediately began using newfound money for purchases at Starbucks, McDonald's, and many other businesses offering bitcoin as payment. While investors across the globe “sold the news”, fundamentalists see this as a major milestone and use-case of bitcoin as both a medium of exchange and unit of account. It’s likely that other countries have a close eye on El Salvador’s progress.

Seasonality Strikes

Bitcoin has declined an average of 10.4% in September for the last four years, coinciding with the current month-to-date performance of -4.1% (as of Sunday’s close).  While not unusual for risk assets to experience profit-taking and rotation in preparation for Q4, this year had catalysts such as El Salvador speedbumps, the failure to hold $50,000, and potential tapering as near-term firepower for bitcoin bears.

While September often struggles, the month also provides an opportunity for long-term investors to gain exposure. October, November, and December have averaged 23.7%, 6.0%, 25.2% in the last five years, and we illustrate monthly performances for bitcoin below:

Fed Up with the Fed

Last week news broke that regional Federal Reserve Presidents Kaplan and Rosengren day trade at the same time they influence asset prices, inflation, and standards of living for all Americans. Dallas Fed President Robert Kaplan has traded S&P 500 Futures with size greater than $1 million per trade and owns 27 other holdings worth more than $1 million, while Boston Fed President Eric Rosengren has traded stock in companies such as Apple, Alibaba, and Tesla for example, and actively trades real estate investment trusts. Ironically, the two announced they will no longer trade during their time as regional Fed Presidents, just as the Federal Reserve is likely to communicate the beginning of a reduction in bond-buying programs. Frustrated with this reality, both traditional and bitcoin investors take note: centralized decision-making is headed in the wrong direction.

Recent Economic Data & CPI

Non-farm payroll numbers for the month of August increased 235,000, missing estimates of 733,000. The potential for slower economic growth with higher inflation has created some whispers of stagflation, particularly as central banks look to reduce bond-buying programs. With the ECB announcing a slight reduction last week (PEPP to 60-70bn EUR per month from 80bn), the Fed is likely to announce their plans by year-end.

Tuesday morning, the BLS reported an expected 5.3% year-over-year increase in headline CPI for the month of August, with core CPI up 4.0% vs. 4.2% estimates. Month-over-month, headline grew 0.3% vs. 0.4% estimates while core rose 0.1% vs. 0.3% estimates. While this "slowing" of inflation is likely due to delta-variant, it could be a reason for a delay in tapering timelines. Current expectations are for tapering to begin by December, and the Fed's ability to navigate this environment will be a major focus for many market participants.

Going Forward

In the coming months, investors will learn whether inflation and tapering have any effects on risk assets and thus, the performance of bitcoin. For now, we’d say the momentum behind financial integration and institutional adoption remains forefront, with education, awareness, and accessibility a significant driver of demand. $50,000 as support would be a major milestone in bitcoin’s history and is likely to require fundamental and macro catalysts to the upside, which could come in the form of announcements from sovereign governments and/or institutions, unexpected inflationary changes in monetary and fiscal policies, or better regulatory clarity.

As always, please reach out with any questions or comments.

Stay Tuned,

Joseph Orsini, CFA
Director of Research

Investment advisory and management services are provided by Eaglebrook Advisors, Inc., a registered investment advisor. Information presented is for educational purposes only. Past performance is no indication of future results. Please see our Form ADV Disclosures and Privacy Policy in our website.
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