MaiCoin Digital Asset Weekly, Mar 27 2020

Commentary

Digital Assets +9% WoW. BTC +10%, did most of the heavy lifting outperforming Altcoins +6.6%.

BTC outperformance this week brings the total rally off the Friday the 13th low to +78% and increased BTC’s chunk of the total digital asset market cap to almost 70%— a YTD high.

Headlines this week were heavily macro skewed : 1. US jobless claims surging to a record 3.3M, 2. US policy makers set to approve a $2T stimulus package, 3. the Fed committing $4T in liquidity…with infinite bullets behind, 4. House Speaker, Nancy Pelosi, advocating for digital wallets to facilitate stimulus payments, and 5. Goldman Sachs turning bullish Gold on inflation concerns.

Mid to long term, the broader macro environment looks tailor made for BTC outperformance. Goldman’s bullish gold report, a sharp pick up in gold token trading, and reports of a growing discrepancy between physical and paper gold prices all point to investor unease with another week of unprecedented stimulus and market intervention. BTC improved its positioning vs other major asset classes this week and has now trimmed YTD losses to just -2%; still behind Gold’s +6% YTD, but significantly outperforming global treasuries, equities, and commodities.

Looking into next week, I think the overwhelmingly consensus view is that BTC is in forming a bear flag pattern — a bearish continuation pattern implying further downside. Resistance is expected ~ $6,900. I’m less certain, though. Looking at crypto fear and greed, overall market sentiment remains very fearful. The current reading of 14 is one of the worst crypto sentiment readings on record. It’s also worth noting that the current BTC:SPX (US Equities) correlation is at the top end of the historic range — I think this implies a high probability of mean reversion and a breaking down of this relationship.

In short, I think the overall macro picture, the tendency of BTC to rally prior to the halving, and the strongly consensus bearish view makes me cautiously optimistic that BTC can break above $7,000 in the short term. Seasonality is also in our favor. While March is typically a down month, April and May have historically been 2 of BTC’s best — BTC has been up 4 of the past 5 Aprils, the median 5 year return is +26%.

Thoughts

6 Trillion Reasons to BUY Bitcoin

Today the House will vote on a $2T stimulus package to offset the economic impact of the Coronavirus. In addition to this package, White House economic adviser Larry Kudlow guided this week that there would be an additional $4T in liquidity from the Federal Reserve.

These are big numbers. $6T represents ~ 29% of America’s 2019 full year GDP of $21T and is almost 9x larger than the 2008 $700B TARP Program.

Prior to this week’s announcement, the Fed’s balance sheet was already up +24% from Sep of last year to a historic high of US$4.688T. An increase of an additional $4T would almost double it to an unprecedented US$9.7T.

Fed Balance Sheet now at a record US$4.688T

On top of this record increase of the Fed’s balance sheet — they also guided a willingness to buy unlimited amounts of Treasury bonds, and purchase corporate and municipal debt for the first time with an infinite supply of cash.

With the US Presidential election just 8 months away and US jobless claims at 3.3M — the highest ever — it’s easy to see how the $250B earmarked for ‘Payments to Individuals’ could evolve into an ongoing UBI scheme.

Goldman Sachs said this week that gold is the currency of last resort and that inflationary concerns should continue to support gold prices just as they did the after the 2008 bailout announcement. This time is different, though. Gold isn’t the only game in town. And in 47 days, BTC will become more scarce than gold as its supply issuance decreases from 12.5 newly minted BTC every 10 minutes to just 6.25 BTC. This translates to an annualized increase of 1.8% — lower than gold’s 2019 2% YoY supply increase.

News

  • US senate passes $2T stimulus package to offset Coronavirus impact
    – House will convene at 9 a.m. on Friday to consider the relief package
    – $250B => To individuals: $1,200 P/P, $2,400 per couple, $500 for kids
    – $350B => Small business loans, $250B => Unemployment Insurance
    – $500B => Loans for distressed companies
  • US jobless claims jump to 3.283M — the highest ever
    – Last week’s number gained to 281,000 from 70,000 the week before
    – Reports also of unprecedented levels of web traffic and exponential increases in applications ….so it looks like applications could actually get pushed into next week and go on for awhile
  • Goldman Sachs: Buy Gold
    – Report calls for a 12 month target price of $1,800 ~12% above current
    – Expects a 2008 post stimulus package type rally
    – The drivers for gold are also the drivers for BTC
  • FDIC seems worried about a run on banks …

Charts

  • Chart 1. 7 Day Price Performance — Top 20 By Volume
  • Chart 2. BTC Seasonality
    – March on track for -20% MoM. March is typically a bad month
    – April and May are typically 2 of the best; both in terms of consistency and the median gain over the previous 5 years
  • Chart 3. BTC Seasonality
    – March is typically bad. May and April are typically good.
  • Chart 4. BTC vs Other Assets, YTD
    – Gold +6%, BTC -2%, Treasuries -4%, CN Stocks -9%, TW Stocks -19%, US Stocks -19%, Commodities -28%
  • Chart 5. BTC correlation with SPX
    – 90 day rolling correlation has rarely been higher than current
    – Think this implies mean reversion and correlation starting to break down
  • Chart 6. Crypto Fear and Greed
    – Market sentiment is currently at one of its lowest levels ever
    – Yet most traders seem to be calling for BTC to flip lower
  • Chart 7. Halving — This Time vs Last Time
    – In 2016 we saw a short rally before the halving and a longer more sustained rally afterwards
    – If we follow the previous pattern, we should start to rally soon and peak out on April 20 2020…then pullback into the halving…before beginning a longer, more sustained rally into the end of the year
  • Chart 8. BTC Bear Flag?
    – The consensus technical view is bearish — A Bear Flag pattern and the 50D MAVG crossing below the 200D MAVG
    – As mentioned above, worry that this view is too consensus
  • Chart 9. US Jobless Claims
    – Seems likely we could see another similar number next week
Apocalyptic headline — highlighting the 3.28M jobless claim reading
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