Inflationary Worries - Valkyrie

Inflationary Worries

Week of April 11th, 2022

Weekly Thoughts

Bitcoin has experienced sustained and relentless selling pressure over the past week, declining nearly 15%. Technical analysis suggests the confluence of the 200-day moving average, yearly pivot, and 2021 volume range have all acted as significant resistance at the $48,000 level. Despite a failed breakout of the multi-month ascending triangle consolidation at the $45,000 resistance level, a reach for the measured move of the pattern at the $50,000 level remains a remote possibility. This target becomes nullified with a price breach below the diagonal support of $39,500. Nevertheless, despite the significant intraweek volatility, price remains well within the established 2021 range from $30,000 to $60,000. On-chain data suggests holders and unperturbed by the volatile range. Over the past year, 63.5% of all Bitcoins in circulation have not moved on the chain, a new record.

The Bitcoin reserve for the algorithmic stablecoin UST, on the Terra blockchain, continues to grow and now holds 39,897 BTC valued at $1.63 billion. Algorithmic stablecoins are not backed by a reserve asset and have historically been unable to maintain a $1 peg. The Bitcoin reserve is intended to act as a backstop to help defend the $1 peg. The Luna Foundation Guard has unveiled plans to increase these Bitcoin reserves to at least $3 billion and as much as $10 billion.

Macro Commentary

Inflationary worries weighed down markets last week as rising interest rates made investors think again on growth estimates for the year. Markets reacted to the release of the recent FOMC meeting minutes last Wednesday confirming plans of reducing the balance sheet by $95 billion a month starting in May and discussions of a faster pace in rate hikes using 50 basis point moves. A conundrum is set as the US job market is healthy and continues to improve, but strategy to fight inflation is the top priority. We will continue to see a more aggressive tone from the Fed in the coming months.

The ten year treasury yield has risen almost 20% month to date with the 2.8% level not seen since early January 2019. For reference, yield has risen about 85% year to date. Equities declined about 3% last week to the 4450 level, down about 7.5% year to date. Crude oil futures declined last week about 8%, below $100 a barrel due to announced Covid related lockdowns in China. Surprisingly, while up about 30% year to date, futures are relatively unchanged since the beginning of the war, but remain volatile in daily sessions, sensitive to any headline. As if war, inflation, and Covid headlines weren’t enough for investors to digest, corporate earnings season begins this week.

The closely watched consumer price index came in at 8.5% year over year for March, 0.1% higher than expected, marking the highest level since 1981. This is the first full monthly indication that incorporated price movements affected by the war. Core CPI, excluding food and energy, was 6.5% in March, up from 6.4% in February but 0.1% lower than surveyed at 6.5%, Equities rallied and interest rates declined initially on the news as a more drastic headline was anticipated. 10 year treasury is now 2.68% at Noon, down 15 basis points from the intra-day high of 2.83%. Some strategists are optimistically seeing the beginning of a plateau on inflationary measures, with a peak to occur this summer, then slowly declining through year end.

Valkyrie in the Press

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The Portfolio Management Team

Steven McClurg, CIO
Bill Cannon, Portfolio Manager
Wes Cowan, Portfolio Manager, Head of Defi
Josh Olszewicz, Head of Research
Sean Rooney, VP Research and Trading
Will McDonough, Vice Chairman, Investment Committee
Leah Wald, CEO, Investment Committee
Shannon Smith, Head of Investor Relations