It Smells Like Something is Burning
Earnings Revisited
Below is a chart that is both slightly jarring and fairly intuitive at the same time. The jarring aspect is obviously the rapid ascent of the expected terminal fed funds rate over the past six months. The intuitive part is that bitcoin does not like tightening monetary conditions and has steadily declined in direct opposition to the expected terminal rate.
Note that we are using the futures market pricing for the March FOMC meeting as a proxy for where the Fed is expected to pause its rate hikes. We had steadied for a bit around 4.25-4.50%, but recent weeks have seen this figure jump to north of 5.00%.
In conjunction with the slight pause in increasing rates observed in late September and early October (white box above), we saw crypto start to break its correlations with equities and outperform. Due to this behavior, we have recently speculated that even though crypto has behaved as a beta to tech stocks over the past couple of years, perhaps company earnings don’t necessarily affect crypto all that much. If this is true, then there are significant implications for how to manage risk around these assets.
The sample size is small, but trading sessions this week provided a few solid examples demonstrating the validity of this premise.
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