Market Commentary
Market Commentary: Weathering the Storm
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Tuesday, May 3, 2022

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All things considered, bitcoin and ether have weathered a significant macro storm. We discuss the moves that have occurred since the high in November, and its resilience since.

Key Takeaways:

  • Concerns over a growth slowdown were partially validated last week as the first-print of US Q1 GDP came in at -1.4% versus 1% expected; however, bitcoin again outperformed the Nasdaq in a volatile week
  • Markets look to Wednesday’s Fed meeting for a “sell the rumor, buy the news” event similar to what occurred in January and March: bitcoin and ether rallied an average 18.5% and 28.5% in the two weeks following
  • The Crypto Fear & Greed Index remains in “extreme fear”, an attractive opportunity for long-term investors
  • Long-term holders are unfazed by market volatility with supply held reaching all-time-highs

THE BIRD'S EYE VIEW

Market volatility continued through month-end as concerns over a potential slowdown in US growth were somewhat validated with a -1.4% first estimate of Q1 GDP. Digital assets, which have had rising correlations to equities, whipsawed along for the ride with a rally on Thursday but a decline on Friday. This was a tough end for a tough April:

But for the second time in two weeks bitcoin outperformed the Nasdaq in a down market. And on a YTD basis, bitcoin has also outperformed (-17.3% vs. -21.0%). While equities rolled over into new yearly lows on Friday the 29th, bitcoin and ether remain 9% and 18.9% higher than late January (pg 3).

So bitcoin and ether have held up well despite an incredibly tough environment. When considering that the bear market began now six months ago with a peak on November 9th, meaningful moves have occurred over the macro landscape:

  • 2yr Treasury Yield +2.30% from 0.42% to 2.72%
  • 10yr Treasury Yield +1.50% from 1.43% to 2.93%
  • YC inversion at the end of March
  • Nasdaq Composite -22.1%, worst start of year since 1970
  • Russell 2000 -22.8%
  • Barclay’s Agg -10.1%
  • DXY Index +9.6%, highest since December 2002

Even so, this macro volatility has not stopped bitcoin and ether from becoming part of the conversation for asset allocation decisions. While broader price volatility has remained, global adoption has continued, lightning network has made bitcoin a soon to be medium of exchange, investors have received more accessibility and greater regulatory clarity, long-term holding trends have strengthened, and ETH’s merge becomes ever closer to fruition. There is a lot to be excited about when it comes to crypto.

So when all is said and done and markets sort themselves out (and hopefully soon), this weathering of the storm will prove to hesitant investors that digital assets are viable in long-term portfolios and attractive substitutes for existing allocations in equities and fixed income.
As price near term has remained hostage to correlations and market headlines, we believe this is for now small symptoms of growing investor popularity rather than a longer-term trend.

Interestingly, the market rallied after the first two FOMC meetings of this year, with a “sell the rumor, buy the news” event occurring as digital assets lead the charge. We’ll see if this meeting can serve as a catalyst for near-term upside, similar to what occurred in both the January and March FOMC meetings:

On page two, we discuss the Crypto Fear & Greed Index, as well as comment on long-term holder supply reaching new all-time- highs.

OPPORTUNITY IN EXTREME FEAR

Like the traditional Fear & Greed Index, the Crypto Fear & Greed Index provides investors with an understanding of current market sentiment, often used as a contrarian indicator for long-term investors.

The Crypto Fear & Greed Index is a multifactorial index built by alternative.me, and considers volatility (25%), momentum/volume (25%), social posts (15%), bitcoin dominance (10%), surveys (15%), and search trends (10%).

Currently, the crypto fear index is in “Extreme Fear” with a reading of 22 at Sunday’s close.

When color-coding bitcoin’s price by Crypto Fear & Greed Index, we see that these periods have historically been attractive for long-term position building.

LONG TERM HOLDERS ACCUMULATE

Those holding bitcoin long term – as defined by Glassnode as bitcoin that has been held for longer than 155 days, have been unfazed by market volatility.

In fact, these numbers have reached all-time-highs of  13,549,822. The number has increased by 213,115 btc, since the beginning of this year, or $8.2 billion USD (in a down market) as of Sunday’s close.

So through broader macro volatility, and generally negative market sentiment and price action, long-term holders are uninterested in selling or even moving their bitcoin.

Over time, the number of bitcoin held long term has risen – this illustrates greater accumulation, longer holding periods, and increased scarcity.

Click here for the full PDF. As always, please reach out with any questions or comments.

Stay tuned,

Joseph Orsini, CFA
Director of Research

Key Market Data

DISCLOSURES
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.
About Eaglebrook Advisors
Eaglebrook is a tech-driven investment manager specializing in bitcoin and digital assets. The firm offers various Bitcoin and Digital Asset SMAs serving financial advisors, registered investment advisors (RIAs), family offices, and institutions. Eaglebrook is backed by wealth management executives and institutions.
For more information, please contact us at +1 (202) 798-1880 or send an email to contact@eaglebrookadvisors.com.