Risk assets get smashed
US stocks post their worst day since mid June with the DOW down 630 points. Bond yields have ripped higher and the US dollar has roared back to life.
The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.
Parity party 2.0
The EURUSD is trading below parity and the latest prints are coming in at 0.9930.
Watching the EURUSD market is important to get a big picture look at what can happen to crypto from a macro perspective. Arthur Hayes, founder of derivatives exchange BitMex, has cultivated a theory that the US Federal Reserve can turn on the money printer without stoking domestic inflation. The strategy would be to print and sell USD to buy EU member state bonds in order to support their allies efforts against Russia, particularly in easing the energy crisis. In short this would create a structural USD sell and perpetual bid on EU bonds, lowering yields and making the debt load more serviceable.
Now what does this mean for crypto, in particular what does it mean for Bitcoin, essentially a weaker global reserve currency with an increasing supply will fall in value against hard assets i.e. Bitcoin, Gold and Real Estate. This transition won’t happen without massive pain along the way as we’re navigating uncharted waters but for those who want to explore the theory in full, you can read more HERE.
Bitcoin key levels
Looking on the Bitcoin hourly chart we have a textbook double bottom that has formed at $20792 which if broken can see a sharp move to 20k and then 18.4k as the next key support levels. Following the liquidation cascade on Friday, for a recovery to be staged, Bitcoin bulls must reclaim 21.5k. At this level we will have a battle but if reclaimed a run to 22.7k before meeting resistance.
There is no large macroeconomic events for Bitcoin to battle throughout the week but Jackson Hole Symposium this weekend will be hotly traded in the only 24/7 global financial market with liquidity. We’ll cover this event in greater detail in our Morning Note on Friday.
SPX/BTC correlation recoupling
Bitcoin has significantly underperformed against SPX in this most recent downturn, that is to be expected though as it tends to outperform on the upside. The key takeaway here is if we recouple there is either going to be a large swing to the upside for Bitcoin, however if the sell off continues in US equities then the Bitcoin support levels highlighted earlier will get tested.
To keep it simple, keep an eye on sentiment as bearishness in either equities or crypto, will lead to a sell off in the reflexive asset that is crypto.
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