Rebuilding Process
Macro Commentary
Key Takeaways
- Recession likelihood continues to increase based on key metrics
- Red hot commodities prices may begin to cool with falling demand
- Unemployment numbers will be released Friday, exp. 3.6%, unchanged
Investors remain wary of the effect of expanding inflation over the broader economy, as some data suggests recession is inevitable and has already arrived. The probability of a recession in the next twelve months is 0% percent in next 12 months, 3% recession in next 18 months, and 98.5% in the next 24 months, per an article by Bloomberg. Economic worries in Europe are causing the currency to scale down to parity against the US dollar, something not seen in 20 years. One possible bright spot could be seen with some notable commodity prices turning lower quarter to quarter, with oil, natural gas, wheat, lumber, and corn looking to stabilize the current unbalanced supply picture.
Equities trended lower through the week, with the S&P 500 index seeing a week low at 3,750 before settling closer to 3,825 Friday afternoon. Tuesday morning had the index grind higher towards 3,800 after opening just below 3,750. Flight to safety had the 10 year reach the 2.8% level for the first time in two months. This move made the 10 year yield lower than the 2 year yield, an inversion observed as a recession indicator. The yield curve has flattened between the 2 and 10 year, and rises for the 20 and 30 year points on the curve. Finally, Brent oil futures also turned lower due to rising inflation worries causing less demand. Futures hit a low of about $102 per barrel Tuesday, after reaching a high last week just above $120.
Focus this week will be on the unemployment rate released this Friday, currently surveyed to remain unchanged at 3.6%. Next FOMC meeting is at the end of the month.
On-Chain Commentary
Key Takeaways
- Custody fears continue as more smaller exchanges halt customer withdrawals
- Technicals dating back to Bitcoin’s inception show price maintaining key levels
- Industrial Bitcoin miners have sold significant portions of their Bitcoin reserves
Crypto prices made an attempt to stabilize last week, in the face of continued layoff announcements from many companies in the digital asset industry. More details have emerged surrounding the business practices of crypto firm Three Arrows Capital, which continues the bankruptcy and liquidation process. Troubled crypto lender Voyager, as well as several other smaller lenders and exchanges, such as CoinFLEX, Babel Finance, Vauld, and CoinLoan, have all limited or halted customer withdrawals. Concerns over exchange custody risks remain broadly evident based on the further decline of Bitcoin held on exchange balances, which have dropped to near a four-year low, according to Glassnode.
On a technical basis, Bitcoin continues to hold near the 200-week moving average, 2018 all-time high, 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 an accumulation zone on Bitcoin for market participants in prior bear markets. Bitcoin’s hash rate decline appears to have slowed but does suggest some miners are no longer maintaining profitability relative to costs. Additionally, many industrial miners, such as Core Scientific, have had to increase the sale of their Bitcoin reserves in recent months, based on company disclosures, to pay operating expenses, fund growth, retire debt, and maintain liquidity.
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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
