Market Commentary
Market Commentary: Sparks
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November 1, 2022

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A strong rally for digital assets and equities now has investors questioning whether these “sparks” can create “fire” or are just a “flicker” of hope

Key Takeaways

  • A positive month of October comes to an end; bitcoin gained 5.0%, ether gained 17.5%, while the S&P 500 gained 8.1%
  • With this most recent rally, the market now turns to Wednesday’s Fed Meeting: participants expect a 75 basis point increase, but the focus will be on how the Fed reaches the market’s 5% peak estimate
  • While the Fed is the dominant market narrative, the investment case for digital assets continues to strengthen under the surface – strong seasonals and a continuation of a “better than feared” macro environment could support this “spark” of a rally catching “fire”
  • We discuss ether’s outperformance versus bitcoin, with the ETH/BTC pair nearing the key $0.08 level


Risk assets experienced another rally to close out the month of October, with this month’s positive performance a nice change to what has occurred throughout much of this year.

While fear rose dramatically in mid-October as equities touched new year-to-date lows, the sharp reversal higher has offered investors some relief.

But this year, participants are conditioned to believe that rallies will not prevail. The multi-year “buy the dip” mentality has quickly turned to “sell the rip” as each and every rally has been met with selling pressure and further concern over a hard-landing.

So even as the S&P 500 is 8.2% above it’s October lows and bitcoin and ether are 14.7% and 73.3% above their June lows, there is not yet any “FOMO” buying taking place. But rightfully so.

But that is for now. The Federal Reserve’s November meeting – the most widely-anticipated meeting since of course the  September, July, June, and May meetings – is now upon us.

While the market expects a 75 basis point hike to bring the upper bound to 4.0%, the focus will be on the remaining 100 or so basis points needed to reach the market’s current 5% peak estimate.

And even though the Fed’s credibility has declined quite quickly in this recent cycle, the market will likely again emphasize Chair Powell’s tone and Q&A session, looking for hints as to whether another 75 basis point hike will come, or if the Fed will begin to scale down their rate hikes.

Despite the mid-October equity reversal and the recent digital asset rally, recency bias has troubled markets this year – investors have had the stubborn belief that what has occurred recently (inflation, volatility, Fed, hard landing concerns) will relentlessly continue in the future – thus being hesitant when considering adding to their risk-exposure.

But this is what makes the most recent rally interesting. For bitcoin and ether – the two held their mid-June lows, despite equities experiencing a panic selling event in mid-October.

Now, after weeks of low volatility and range-bound trading, digital assets have finally shown some “sparks” – not only have bitcoin and ether reached 45-day highs, but a strong start to the quarter now has the two potentially turning their previous 2017/2018 peaks into long-term support (we discuss on page 2).

So, do these “sparks” seen across digital assets catch “fire” or are they just “flickers” of hope into the end of the year?

We believe that digital assets have “staying power”, with characteristics and use-cases that remain persistent despite price weakness. We often comment on improving fundamentals such as strong bitcoin holding trends and highs in hash rate, as well as Ethereum’s improving ecosystem and post-Merge scarcity, all as reasons for investors to remain positive in this macro environment.

Even in this bear market, institutional investors have taken significant interest: digital assets are closer to becoming strategic asset allocations than ever before, solidifying their legitimacy and importance in investment portfolios.

So, while the Fed is the dominant market narrative, the investment case for digital assets continues to strengthen under the surface. In this bear market, it’s more about the “when” digital assets turn higher, not “if.”

Should the macro environment continue to come in better than feared (earnings, economic data, more certainty with the Fed), strong seasonals can support a rally into year-end.

On page two, we discuss the importance of the $19,000 and $1,400 levels for bitcoin and ether, given their significance in the “big picture.” We also highlight ether’s outperformance relative to bitcoin, with investors increasingly interested in ether’s wide-net capture of the broader digital asset ecosystem.


We update our “key levels” chart originally posted in September, when we pointed out the importance of zooming out. Even amidst a historically tough environment and equity drawdown, bitcoin and ether are trading well above their Covid-19 levels and continue to find support around their previous 2017 and 2018 peaks.

Further supportive of the bottoming process is the recent strength illustrated to the downside, with bitcoin and ether holding their mid-June lows even as equities experienced a panic-selling move lower in mid-October. This perfect storm of new equity lows on fears of a further stampede higher in both the DXY index and rates was an opportunity for selling pressure, yet bulls showed strength.

Going forward, a higher high relative to those that occurred in the summertime (bitcoin $24,494 and ether $1,990) is the next challenge. Should the dollar, rates, and the Fed remain in check, strong seasonals can support further upside into year-end.

$19,000 and $1,400 as long-term support would illustrate significant progress in the “big picture”. Progress, not perfection.


While ether retraced its Merge rally on a “sell the news” event, outperformance has again picked up steam: the asset has made another move higher relative to bitcoin, with the ETH/BTC pair nearing the key $0.08 resistance level.

Some likely reasons for ether’s outperformance:

  • “Wide-Nets”: an investment in ether benefits from the growth of the broader digital asset ecosystem, with growing excitement around the opportunities dApps present
  • As a platform for decentralized applications, ether has a higher beta to bitcoin and is more cyclical, outperforming on the way up but underperforming on the way down
  • Ether’s issuance post-Merge has averaged just 0.0% annual inflation, significantly improving supply/demand dynamics

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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