It's All Relative
Key Takeaways
- On Wednesday, the global crypto market experienced some partial relief as the Labor Department released a December CPI figure that met analyst expectations. Consumer prices increased 7.0% over the prior 12 months, up 0.5% from last month.
- Funding rates in the perpetual futures market turned negative leading up to the CPI print, reducing the near-term risk of a long squeeze.
- Open interest continues to climb, as we are now well beyond the leverage ratio achieved in early December before the liquidation frenzy across the broad crypto market.
- The Crypto Fear & Greed Index indicates that market sentiment remains low. We discuss the implications.
- We revisit the concept of "TINA."
- Bottom Line: As Bitcoin's price rebounds and funding turns negative, the crypto market is in a better position for a rally in the latter half of January. Given the current leverage in the system, it is wise to stay positioned for volatility. We deliver our annual outlook in a couple of weeks, but as a spoiler, we think people are underestimating cryptoassets, specifically Bitcoin, in 2022.
It's All Relative
After a tough start to the year for the global crypto market, investors experienced some partial relief on Wednesday as the Labor Department released a December CPI figure...Reports you may have missed
LOWER VOLUMES PERSIST Earlier this week, we witnessed approximately $2B in open interest being unwound within a matter of hours—a significant forced deleveraging event for an otherwise uneventful Tuesday, lacking a clear catalyst. In our view, the selloff was largely technical and indicative of the negative seasonality we've been discussing recently. To backtrack, Monday and Tuesday followed a dovish Fed pivot at Jackson Hole, sparking a sharp rally in soft-landing...
GOVERNMENT SELLING SEEMS TO BE COMPLETE Last week, we highlighted the negative seasonality from mid-August through September but emphasized that macro trends and identifiable crypto-specific factors should take precedence in assessing risk. _Source: TradingView, Fundstrat_ Since last week’s CPI print, conditions have been favorable for crypto – yields and the DXY have fallen in a non-recessionary manner (more Goldilocks than risk-off), and rate-sensitive assets like IWM and RSP have rallied....
MACRO DATA POINTS TO A SOFT LANDING The global deleveraging event last week was driven by weakening economic expectations and rising fears of a potential policy error by the Federal Reserve. At the height of this uncertainty, the market priced in a 50 bps cut for September, as recession risks took center stage. However, in just a few days, the narrative has shifted. The market is now leaning back towards...
WHAT HAPPENED We won't spend time diving deeply into the events of the past few days as most are likely already familiar. In short, concerns about a potential domestic recession were ignited last Friday following a weak jobs report. This caused the dollar, particularly the USDJPY, to decline, triggering an unwinding of the yen carry trade and leading to widespread deleveraging across global markets. During such a global margin call,...