Geopolitical Tensions are High, Liquidity is Low, and Bitcoin is a Reserve Asset

Key Takeaways

• Markets continue to experience turbulence in the face of growing geopolitical tensions and full-scale war between Russia and Ukraine.
• We examine recent growth in spreads on major exchanges, highlighting a persistent low-liquidity environment.
• Option volumes point to the likelihood that many investors are maintaining long positions while hedging risk with derivatives.
• The market is already questioning the ability of the Fed to raise rates as indicated by a decline in projected rate hikes.
• We discuss the Terra ($LUNA) blockchain’s adoption of bitcoin as a reserve asset and discuss the resulting implications on algorithmic stablecoins, regulation, and bitcoin as the ultimate reserve asset.

Bottom Line: Consistent with last week, we think it is wise to maintain long positions with time horizons beyond six months and be prepared to buy on dips. We believe that continued headline-driven volatility will likely present opportunities to add on long positions at favorable prices. We will continue to monitor the temperature surrounding rate increases as the Fed starts to gain justifiable reasons not to raise rates as much as initially anticipated.

Continued Turbulence