Market Commentary
Market Commentary: Inclusion
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May 14, 2022

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Another week and another decline for risk assets is not enough to stop the broader fundamentals from improving; last week, 44 countries met to discuss financial inclusion, with bitcoin a key topic in this regard.

Key Takeaways:

  • Digital assets experienced some calm after the Luna storm (BTC -3.6%, ETH -5.8%) despite continued weakness in equities (Nasdaq -3.8%, with the Dow’s eight week losing streak the first since 1923)
  • Last week, 44 countries met in El Salvador to discuss financial inclusion and of course, bitcoin was a key topic
  • Despite weakness in price, hash rate shows strength: the amount of aggregate computing power continues to reach new highs
  • Bitcoin’s put/call ratio reached 1.43 last week, a 12-month high and another indication of extreme pessimism


Another week and another decline for risk assets. Both digital assets and the S&P 500 have faced seven straight weeks of declines on the same uncertainties relating to monetary policy, inflation, and the potential for a hard-landing.

In fact, this market environment is so extraordinary, that the eight-week losing streak in the Dow Jones Industrial Average is the first occurrence since 1923, nearly 100 years ago.

So, while bitcoin and digital assets show some calm after the Luna storm, they continue to weather a significant macro environment. Bitcoin, despite being down 35.5% year-to-date, continues to trade around the $30,000 level, a key support when considering 2020’s close of $28,996.

Participants have become increasingly bearish as prices persistently move lower, with bitcoin and ether off 55.8% and 58.2% from 52-week highs, while the S&P 500 and the Nasdaq are off 18.7% and 29.3%, respectively.

However, this market volatility under the surface has improved some macro indicators that are key worries for market participants, such as inflation expectations (the 2yr US breakeven has declined from 4.9% to now 3.9%, the strength of the dollar (DXY index for now has topped at 105.0, closing Monday at 102.8), and the VIX, which has yet to put in new highs.

And as we’ve recently pointed out, for bitcoin, some capitulation has begun - for example, the entity-adjusted Spent Output Profit Ratio reached 0.85 two weeks ago,  noted in our “capitulation” commentary found here. Further, bitcoin investors took on-chain realized losses of $3.3 bn amid the Luna collapse, the third highest on-chain loss in bitcoin’s history.

Last week, bitcoin’s put/call ratio, discussed on pg. 2, reached 12-month highs, serving as another near-term contrarian signal in a world of macro pessimism.

And while risks and uncertainties remain on the horizon, such as the potential for a hard-landing, the official beginning of QT, and growing calls for a full-blown recession, bitcoin continues to move forward, block by block, day by day. Hash rate, or the computing power used to mine bitcoin and maintain security, reached new highs last week, also discussed on pg. 2.
And so, the fundamentals for bitcoin and digital assets continue to strengthen even amidst a macro storm.

Institutional interest and portfolio adoption, alongside longer holding trends, lightning network’s ability as a medium of exchange, continued clarity in US regulation (Senator Lummis proposal should come this week), Ethereum’s upcoming merge, and the possibility of further legal tender status for bitcoin across the globe are just some of the many reasons to zoom out and appreciate the big picture of this emerging technology.


In what may be viewed in retrospect as a hallmark event, 44 countries met in El Salvador last week as part of the Alliance for Financial Inclusion (AFI). After a two-year pause due to Covid, countries were eager to meet and discuss topics related to banking the unbanked. Naturally, bitcoin, legal tender status, and lightning network were key topics in the overall broader discussions.

Currently, just two countries label bitcoin as legal tender – El Salvador and Central African Republic. These countries thus far have received both praise and criticism for this, just as pioneers often do.

But it’s clear that bitcoin, a censorship-resistant, stateless, and easy to use asset offers those without bank accounts the ability to store value and transact as a medium of exchange. 44 countries now gained first-hand experiences of how this is possible, which could ultimately lead to significant adoption in these under-banked countries.


Despite weakness in price, the underlying fundamentals  continue to strengthen. Here, we illustrate Hash Rate, or the aggregate amount of computing power used by bitcoin miners, reaching new all-time-highs of 220 EH/s.

This has two key takeaways: first, as mining is a capital-intensive process, a rise in hash rate illustrates strong desire (corporate and individual) to own bitcoin through block rewards. As capital continues to flow towards bitcoin mining, this illustrates growing interest in the Bitcoin network.

Second, higher hash rate increases the security of the Bitcoin network, as it reduces the possibility of a 51% attack. While this is already highly unlikely for Bitcoin, greater hash rate makes this proposition even more difficult to occur. Thus, higher hash rate improves the overall security of the Bitcoin network.

Another interesting factor of the state of bitcoin mining is the resurgence of hash rate in China. As many may remember, China banned mining in May of 2021, resulting in a sharp decline of hash rate and a fall in prices related to these concerns. At that time, China’s percentage of total “reported” hash rate went from 34% to 0% - but now, new data from Cambridge illustrates that this percentage has returned to 21%, as of January 2022.

Not only does this illustrate bitcoin’s sheer resistance to censorship, but also, the importance of decentralization. While China banned mining, the Bitcoin network continued to move forward, day by day, block by block. Now, bitcoin’s hash rate is higher than ever.


Like equities, the put/call ratio provides insight into options action, and illustrates market sentiment, particularly when reaching extremes. Most recently, bitcoin’s put/call ratio hit the highest in over 12 months, averaging 1.43 in the five-business days last week. This utilizes Deribit exchange data.

This to us illustrates the continued pessimism in the market. However, as noted, this extreme could lead to the potential for a near-term rally, should sentiment move away from extreme pessimism.

Separately, the Crypto Fear & Greed Index remains at 10 – indicating “extreme fear” in the market.

Click here for the full PDF. 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.
Price Volatility of Digital Assets – A principal risk in trading Digital Assets is the rapid fluctuation of market price. High price volatility undermines Digital Assets’ role as a medium of exchange as consumers or retailers are much less likely to accept them as a form of payment. The value of client portfolios relates in part to the value of the Digital Assets held in the client portfolio and fluctuations in the price of Digital Assets could adversely affect the value of a client’s portfolio. There is no guarantee that a client will be able to achieve a better than average market price for Digital Assets or will purchase Digital Assets at the most favorable price available. The price of Digital Assets achieved by a client may be affected generally by a wide variety of complex and difficult to predict factors such as Digital Asset supply and demand; rewards and transaction fees for the recording of transactions on the blockchain; availability and access to Digital Asset service providers (such as payment processors), exchanges, miners or other Digital Asset users and market participants; perceived or actual Digital Asset network or Digital Asset security vulnerability; inflation levels; fiscal policy; interest rates; and political, natural and economic events.
Digital Asset Service Providers – Several companies and financial institutions provide services related to the buying, selling, payment processing and storing of virtual currency (i.e., banks, accountants, exchanges, digital wallet providers, and payment processors). However, there is no assurance that the virtual currency market, or the service providers necessary to accommodate it, will continue to support Digital Assets, continue in existence or grow. Further, there is no assurance that the availability of and access to virtual currency service providers will not be negatively affected by government regulation or supply and demand of Digital Assets. Accordingly, companies or financial institutions that currently support virtual currency may not do so in the future.
Custody of Digital Assets – Under the Advisers Act, SEC registered investment advisers are required to hold securities with “qualified custodians,” among other requirements. Certain Digital Assets may be deemed to be securities. Currently, many of the companies providing Digital Assets custodial services fall outside of the SEC’s definition of “qualified custodian”, and many long-standing, prominent qualified custodians do not provide custodial services for Digital Assets or otherwise provide such services only with respect to a limited number of actively traded Digital Assets. Accordingly, clients may use non- qualified custodians to hold all or a portion of their Digital Assets.
Government Oversight of Digital Assets – The regulatory schemes—both foreign and domestic—possibly affecting Digital Assets or a Digital Asset network may not be fully developed and subject to change. It is possible that any jurisdiction may, in the near or distant future, adopt laws, regulations, policies or rules directly or indirectly affecting a Digital Asset network, generally, or restricting the right to acquire, own, hold, sell, convert, trade, or use Digital Assets, or to exchange Digital Assets for either fiat currency or other virtual currency. It is also possible that government authorities may take direct or indirect investigative or prosecutorial action related to, among other things, the use, ownership or transfer of Digital Assets, resulting in a change to its value or to the development of a Digital Asset.

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