Fed Minutes Aftermath

Key Takeaways

• Risk-on assets, including Bitcoin, drop upon the release of the latest Fed minutes, which signals the potential to reduce the balance sheet in Q1 2022. The 10-year has increased over 12% YTD and seems on its way to 2.0% for the first time since 2019.
  
• Contrary to apparent market trepidation, the implied volatilities of Bitcoin options have been trending downwards over the prior month.
  
• The leverage ratio has surpassed the levels witnessed during the last major drawdown in early December, meaning if prices continue to grind down, we could see the market incur significant liquidations.
  
• Long-term holders have flipped from net-sellers to net-buyers over the past week as Bitcoin trades below its 200-day moving average for the first time since September.
  
• Bottom Line: Given the current macro backdrop, leverage within the Bitcoin market, and recent robustness seen in the altcoin market, we think it’s appropriate to be overweight Ethereum and other leading smart contract platforms. We probably would not bet the farm near-term on BTC but believe there is an opportunity in going long volatility via derivatives strategies.

Bitcoin is a Macro Asset that trades like a Cloud Stock