It is a big week for those of us responsible for asserting the file for Bitcoin and Crypto as an investable asset class. While the global markets have been ugly, unpredictable and fragile of the end, digital assets are stable with moderate volatility.
Bitcoin increased by ~ 5% and the Coindesk 20 index increased by ~ 6% last week. In a landscape where traditional active ingredients seemed to lose their foot, crypto resilience offers an intriguing counter to skeptics that have long questioned its legitimacy during market stress.
A week ago (April 6), I described the market as a flickering bus on a cliff. It could have been exhilarating for skillful traders, but not for carriers of traditional asset portfolios. Of course, being long in equity could have appeared (and feeling) great that the future tumbled Sunday evening (April 13), but the monetization of these dishes in an extremely agitated and high speed market is almost impossible – and forces the cover to “call a background”. If you do not monetize the puts and the rebounds on the market, your puts decompose at zero, locking a loss. (Or, if your hedge of choice was a retirement for us, the treasury bills, it was even worse.)
The art of risk management on traditional markets is increasingly difficult in this environment. Even professional traders with decades of experience have found themselves on the violent market movements. For those who manage retirement funds, endowments or family offices, the challenge of preserving capital while maintaining the return objectives has rarely been more intimidating. The gaming book that has worked in the past decade seems more and more out of words.
Bitcoin resilience in the middle of liquidations
In the middle of chaos, Bitcoin has kept a fairly narrow range. The two weakest periods, on April 7 and 9, have lined up with LIP liquidations (forced sales of leverage that are much more “standard practice” in crypto than on traditional markets). This gave experts a practical “low” price to challenge the aforementioned resilience of Bitcoin, but we have to repel here. Temporary liquidation reductions are just that – artificial flows that are recoverable. They create a beautiful wick of lower candle, but do not always represent the whole market fairly; We must reduce their relevance accordingly. (This can be a controversial point of view; Timise if you do not agree.)
Value store against refuge
As usual, experts and skeptics scrambled Bitcoin’s “value store” with “quality flight” and “refuge”. We will continue to hammer the drum on the difference between the “Haven” assets of Flight to Quality and “Store of Value”. Bitcoin, always in adolescence and with limited access to traditional liquidity pools (that is to say banks), should not work as a quality flight notice or a safety disclosure during the episodes of extreme volatility.
See the outperformance of Gold vs Bitcoin this year supports this argument. Gold has better access to traditional finance, is perceived to be limited in supply and has a mature network. But does it have an adoption dynamic? Is this an asset of the future? While gold straw in times of geopolitical and economic uncertainty, Bitcoin offers something different – a technological evolution in the concept of money itself, with adoption curves which continue to remind us that we are still at the start of its life cycle.
Numbers of Michigan: uncertain consumers -> Fort Bitcoin
The experience of the cryptocurrency support week was capped by the consumer survey of the University of Michigan on April 11, which provided two powerful data points supporting the trajectory of Bitcoin prices: the highest expectations for one year inflation since 1981 (!) And high expectations of unemployment.
Source: University of Michigan
Source: University of Michigan
We promote the anchoring of Bitcoin demand to the expected real interest rates – the difference between the expected nominal rates and the expectations of inflation. When real rates are to increase, Bitcoin faces opposite winds. Conversely, when real rates should drop due to an increase in inflation and potential rate decreases (hello, upon unemployment expectations), Bitcoin tends to benefit from it. Michigan’s survey numbers provide an surprisingly clear northern star for the accumulation of Bitcoin: 1) higher inflation and 2) unemployment expectations that could cause food. Lower nominal levels, higher inflation.
This framework helps to explain the impressive Bitcoin performance during the previous softening cycles and suggest that we could enter a similar environment. The divergence between the expectations of consumers’ inflation and the most optical perspectives of the Fed looks closely – historically, the consumer is often more premonitory than the central bank.
Beyond Bitcoin
With Paul Atkins now authorized to direct the dry and other regulatory support developments, the wider cryptography ecosystem shows promising signals. Can we expect the rest of the Coindesk 20 index at large base, which covers around 80% of the market, to participate in a potential rally of Bitcoin-Lead?
Two factors suggest yes.
First, the correlations of assets are rarely decomposed during large market gatherings in this sector.
Second, the pro-blockchain upward trend dynamic which we saw last November could reappear and revive interest through the blockchains of layer 1 such as Ethereum, Solana, Suit, Cardano and Avalanche, infrastructure providers such as financial services and other SCTS of financial services such as Ripple services and other sectors.
The potential of a wider rally suggests that diversification in cryptographic space could once again prove to be rewarding, in particular if the regulatory tail winds continue to strengthen. The tide that raises bitcoin rarely leaves other blocked quality projects.
