Ride The Waves - Valkyrie

Ride The Waves

June 27th, 2022

Macro Commentary

Key Takeaways

  • Inflation strategies remain top of mind for heads of global economies
  • Sanctions push Russia to miss first foreign debt payment since 1918
  • University of Michigan consumer sentiment has reached an all-time low

The upcoming holiday weekend marks the conclusion of a volatile second quarter and sets up what could be a definitive direction in the current US inflation management strategy. The G7 is meeting this week in Germany, following Russia's first debt default in 100 years due to payment restrictions placed under the imposed sanctions related to the Ukrainian-Russian war, now in its fourth month. Leaders of the top economies of the world will be talking about further sanctions on Russian gold and oil pricing, in addition to possible solutions regarding rising food costs and gas prices.

Investors enjoyed a reprieve from the current norm last week with equities edging higher while rates buoyed down then up before the weekend. Positive market trends could mean momentum in the hope of less rate hikes, but economic data suggests there will be challenges ahead. Friday's University of Michigan consumer sentiment reached an all-time low, confirming how investors see the road ahead. Housing related indicators were mixed as existing home sales declined Monday, as expected, while new home sales rose unexpectedly in what could be the last increase this year due to buyers trying to lock in lower costs. Elevated mortgage rates are frustrating potential buyers that are considering higher monthly payments. This could naturally help calm the housing market and re-balance supply and demand metrics, which could be one benefit as Fed officials are looking for indications the economy is slowing down as intended.

On Chain Commentary

Key Takeaways

  • Digital asset markets have begun to stabilize in the face of credit contractions
  • Q2 will likely close deeply negative for many crypto assets, a historic reversal
  • Technicals dating back to Bitcoin's inception show price maintaining key levels

Digital asset markets have begun to stabilize as crypto lenders continue to slowly reveal the full scope of recent liquidation fallout connected to crypto firm Three Arrows Capital (3AC). Crypto lender Voyager's exposure to 3AC consists of 15,250 Bitcoin and $350 million USDC.

As Q2 draws to a close, Bitcoin sits at -55% on the quarter, likely finishing as the worst performing Q2 on record. Since 2013, Q2 and Q4 have historically been the best performing quarters for Bitcoin. Ethereum, which has never had a negative performing Q2 since 2016, is down 63% on the quarter. This will also likely close as Ethereum’s worst performing quarter on record.

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 in prior bear markets, both the 200-week moving average and realized price have acted as an accumulation zone on Bitcoin and Ethereum for market participants. Both assets are also now seeing declines in hash rate from all-time highs, suggestive of some miners no longer maintaining profitability relative to costs.

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

Weekly Thoughts: Source: Valkyrie Investments, Inc.

Stablecoin Origins & Purpose, Fiat-Backed, Crypto-Backed, Algorithmic, Terra and UST De-pegging Event: Valkyrie Investments, Inc., Tether Operations, CoinMetrics, Circle, and Paxos

Macro Commentary: Source: Valkyrie Investments, Inc.

Coin Prices, Market Capitalizations, and Returns: Source: Valkyrie Investments, Inc., TradingView, Messari. All returns represent total return for stated period. Coin Logos: Source: cryptologos.cc

Annualized Issuance, Staking Yield, Volatility, and Sharpe Ratio: Source: Valkyrie Investments, Inc., Messari, StakingRewards.com. *ETH's EIP-1559 token burn and ETH-2 staking not included.

Bitcoin Fear and Greed Index Source: Valkyrie Investments, Inc., alternative.me and represents a multifactorial sentiment analysis index of volatility, market momentum and volume, social media, bitcoin market cap dominance, and Google trends

Bitcoin Monthly Average Hashrate, Bitcoin 30-Day Rolling Volatility: Source: Valkyrie Investments, Inc., CoinMetrics

Bitcoin Weekly Moving Averages: Source: Valkyrie Investments, Inc., TradingView - INDEX:BTCUSD

Stablecoin Circulating Supply: Source: Valkyrie Investments, CoinMetrics, The Block, and CoinGecko

Stablecoin Net Exchange Flow: Source: Valkyrie Investments, Inc., Nansen and represent wallet inflows and outflows of Tether, USD Coin, Binance USD, PAX, and Huobi USD through crypto exchanges, including but not limited to; Binance, Curve.fi, AnySwap, Crypto.com, Uniswap, Hop Protocol, OKEx, Kucoin, dYdX, Coinbase, Kraken, Huobi, FTX, Gemini, FTX US, CoinList, SushiSwap, Gate.io, Balancer, BitMEX, Bitfinex, Bittrex, Binance US, Bitstamp, BlockFi, Paxos, Celsius, Alameda OTC, Poloniex, HitBTC, Bancor, Kyber, and ShibaSwap.

List and examples shown in the Stablecoin table are non-exhaustive, intended for illustrative purposes only. Chain data sourced from CoinMarketCap. "Multi" description can include Ethereum, Solana, Binance Smart Chain, Algorand, Tron, Fantom, Polygon, Avalanche, Arbitrum, Secret, Terra, Moonriver, Velas, and Harmony. Coin Logos: Source: cryptologos.cc

"Indicies" prices and returns: Source: Valkyrie Investments, Inc., MarketWatch. "S&P 500" provided by Standard & Poor’s and is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States, "Nasdaq 100" provided by NASDAQ OMX Group and includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. "Russell 2000" provided by FTSE Russell and is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. "Dow Jones Ind." provided by S&P Dow Jones Indices and is a price-weighted measurement stock market index of 30 prominent companies listed on stock exchanges in the United States. "Gold" provided by NYMEX - CME Group and is a continuous futures product. All returns represent total return for stated period.

"Commodities" prices and returns: Source: Valkyrie Investments, Inc., Wall Street Journal. Bloomberg Commodity Index provided by Bloomberg and tracks prices of futures contracts on physical commodities on the commodity markets. All returns represent total return for stated period.

Past performance is not indicative of future results. Investments may be speculative, illiquid and there is a risk of total loss. There is no guarantee that any specific outcome will be achieved. This is not an offer to buy or sell securities. We do not offer legal, tax or financial advice. Information is purported to be as of the time period provided therein. Charts/graphs are for illustrative purposes only.

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