Market Commentary
Market Commentary: Patience
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September 20, 2022

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While many feel hopeless after last week’s data and the new “higher for longer” Fed narrative, we remind investors that markets do not go up in a straight line; patience is often rewarded.

Key Takeaways:

  • Ethereum’s Merge is officially complete; we discuss the immediate decrease in new issuance
  • Last week’s hotter than expected CPI report reinforced the recent “higher for longer” narrative; expectations are for a 75bp hike this week, with policy rates now expected to peak in March of 2023
  • With overhangs that remain stubborn, we remind digital asset investors of the importance of “patience”
  • We point to 2014 and 2018, in which bitcoin lost 57.5% and 73.8%, only to rally for the next three years


The Merge is now complete. After many years of anticipation, Ethereum transitioned to a proof-of-stake mechanism in the early morning hours of Thursday, September 15th.

While many were focused on the likelihood of a “buy the rumor, sell the news” event after strong performance from the lows in mid-June, the volatility during the Merge was quite underwhelming: as per Bloomberg, ether traded around $1,600 both at midnight and at 4am, about an hour after the Merge took place.

On the day of the Merge, Ethereum declined 6.2%, with a weekly loss of 22.0%, while bitcoin declined 0.5% with a weekly loss of 8.9%. This compares to the weekly declines of 4.8% and 5.5% for the S&P 500 and the Nasdaq Composite.

With another decline in equities, weakness across crypto was much to do with macro, as last week’s economic data illustrated to investors that the overhangs in the market remain stubborn.

US CPI data for the month of August came in “hotter than expected” – particularly core, which came in at +0.6% m/m versus +0.3% expected. Although off peak, this data was frustrating to many investors looking for inflation to continue its core month-over-month deceleration that began in June.

Investors are becoming impatient with inflation data - the CPI report sent risk assets lower as markets priced in higher Fed Funds expectations. In the participants view, the longer inflation remains high, the greater the Fed has to move and with a longer duration.

Further support for the Fed’s need to remain “higher for longer” came about through US Retail Sales data, which printed 0.3% m/m versus -0.1% est. Of course, “good news is bad news” – a strong consumer implies the Fed must keep its foot “on the brakes”.

By the end of last week, traders priced in a peak policy rate of 4.4% by March 2023. This compares to prior peak expectations of 3.9% when risk assets bottomed in mid-June.

And so, as a result, the “Fed pivot” is now pushed back until September 2023, when the first “cut” is “expected.”

But while many investors remain focused on the headwinds and today’s tough environment, it’s important to keep an eye on the big picture.

Sure, risk assets are down, interest rates are high, the dollar has strengthened, inflation remains sticky, and the Fed is now expected to hike rates above 4% until December 2023. But what happens if conditions improve, and sticky inflation and policy uncertainty moves to the rearview?

Well, we saw what can occur during the “sign period” from mid-June to mid-August. In these months, commodities declined, interest rates moved lower, the dollar weakened, and inflation and policy expectations came down. Growth outperformed value, and bitcoin and ether outperformed equities as investor sentiment improved on the margin.

So, despite last week’s economic data, “all is not lost.” While many feel hopeless after last week’s data, it’s important to remain patient. Markets rarely move higher in a straight line and as such, investors are often rewarded for maintaining conviction through times of uncertainty. “If you want the rainbow, you have to put up with the rain.”

As we know, bad times often give way to good ones. In history, those that have remained patient have often been the most rewarded.


As we noted in many weekly pieces and our recent two-pager titled “What the Merge Means for Ethereum”, one of the larger benefits of Ethereum’s Merge is the ~90% reduction in new issuance.

Prior to the Merge, Ethereum’s proof-of-work consensus mechanism issued 2 ether per block to miners, similar to bitcoin’s 6.25 btc/block.

In August of 2021, EIP-1559 was passed, which removed each transaction’s base fee (paid in ether) from circulation. This lowered new issuance after implementation, more so when transactional activity was high between August and January.

Since the Merge’s completion, average daily issuance has dropped from an average of 13,650 ether per day in August ‘22 to just 815 ether per day since the Merge.

While this reduction in new issuance has not clearly impacted price in this environment, patience will likely be rewarded: annualizing this 815/day rate results in one-year supply inflation of approximately ~0.25% compared to the average 2.73% in 2022.


Markets do not rise in a straight line, which often tests the conviction of long-term investors.

In history, a variety of macro environments have resulted in both up and down years for risk assets.

While it’s not unusual to face a “down year,” it’s important to remember that over time, markets have climbed a wall of worry.
A wise man from Omaha once said, the market “is a device for transferring money from the impatient to the patient.”

In the two down years of bitcoin’s history, bitcoin declined -57.5% to $317 in 2014 and -73.8% to $3,674 in 2018, only to rally for three straight years following.

In this regard, a rally after a bad year is certainly not impossible.

Click here to download full report. As always, please reach out with any questions or comments.

Stay tuned,

Joseph Orsini, CFA, CMT
Vice President of Research

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