A Framework for Positioning Around Tightening Monetary Policy

Weekly Recap

It was yet another choppy, risk-off week for crypto, as investor concerns over inflation and the impending Fed response grew. Last week, we discussed how the March FOMC meeting minutes discussed an expeditious plan for rate hikes and a roadmap for quantitative tightening starting as early as May. This clearly reverberated throughout both traditional and crypto markets over the past week.

On Tuesday, March CPI figures were released, the first numbers to reflect the impact of the war in Ukraine. While the headline figure of 8.5% came in slightly above analyst expectations, Core CPI met expectations, thus marginally reducing rate hike expectations and leading to a partial recovery in risk assets.

As one might expect, Web3 and DeFi names have underperformed over the previous seven days. Smart contract platforms performed surprisingly well, following closely behind currencies.

A Framework for Positioning Around The Fed

In Q4 2021 and early Q1 2022, we frequently discussed how bitcoin was trading like an overpriced tech stock, falling precipitously as the US 10-year started to move higher. It was clear to us that as the macro outlook turned bearish, and as investors ran for cash/commodities, bitcoin and other risk assets traded in tandem with each other.