Patience is a Strategy
Macro Commentary
Key Takeaways
- The FOMC meeting this week will likely include a 75bp rate hike
- Price volatility is likely to continue in most sectors throughout the week
- Macro indications point to the possibility of recessionary conditions
Investors await the conclusion of this week’s Federal Open Market Committee (FOMC) two-day meeting with a rate decision expected Wednesday afternoon. Futures have priced in a 75 basis point hike with some Fed committee members conveying this message over the past couple weeks, but a 100 basis point hike is not out of the question with the Fed’s next scheduled meeting in September. Fed officials will have a full month’s slate of economic indicators to consider, with the labor market relatively resilient despite the detrimental effect of inflation across the economy. There may be a faint light at the end of the tunnel with futures markets pointing toward a rise in rates above 3% by year end, with a pivot anticipated by June 2024 towards the 2.5% level. With most commodities turning lower over the last couple months, corporate earnings showing some weakness due to the current economic environment, and consumer sentiment rising off historic lows, perhaps an end is near, with some obstacles to navigate before arrival.
Interest rates have been a fluid story this month with notable yield curve movements week to week. The 2/10 treasury yield spread declined below -20 again after improving slightly earlier in the week. Current yield curve confirms the trend with the front end moving higher, then quickly shaping lower starting at the 1 year point of the curve. The 10 year treasury yield alone has experienced volatile weekly moves as well, jumping close to 3.1% midweek, before declining near 2.75% by Friday afternoon. Equities turned positive through the week following a decline Monday afternoon near the 3800 level for the S&P 500, then seeing a print above 4000 before settling slightly lower. Finally, Brent oil futures remained in range last week despite headlines coming from the on-going Ukrainian-Russian war. Futures ranged between about $102 and $108 a barrel, with a gradual trend lower over the last 30 days.
On-Chain Commentary
Key Takeaways
- Digital asset firm M&A talks ramp up as the industry cleanses contagion
- Technicals dating back to Bitcoin’s inception show price maintaining key levels
- Hash rate drops as industrial Bitcoin miners in Texas have curtailed power use
Restructuring, layoffs, and talks of mergers and acquisitions continued for several digital asset firms over the past week, as many are still in the midst of dealing with connections to a mixture of Celsius, Voyager, or Three Arrows Capital. Sam Bankman-Fried’s FTX exchange is simultaneously raising a new fundraising round at the previous valuation, attempting to buy the South Korean exchange Bithumb, and offering deals to troubled crypto lenders BlockFi and Voyager.
On a technical basis, Bitcoin and Ethereum continue to hold at or near their respective 200-week moving averages, previous all-time highs, and realized price, or aggregate average price of all coins moved on-chain. Historically, both the 200-week moving average and realized price have acted as a multi-month accumulation zone on Bitcoin and Ethereum for market participants in prior bear markets.
Bitcoin’s hash rate decline continues to accelerate, as most industrial miners located in Texas have continuously curtailed power use in response to concerns over grid stability during the summer heat. Additionally, the least cost-efficient miners are the most likely to reduce hash rate as mining profitability declines. Many variables determine mining profitability, including Bitcoin price, network difficulty, block reward, and transaction fees.
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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
