Uncertainty Continues
Week of March 14th, 2022
As the Russian-Ukraine war enters the third week, the conflict turns complicated with a wide range of possible ending scenarios which don’t leave much flexibility for error. Recent Russian attacks near the Polish border, along with more aggressive military behavior towards civilians, are making a solution difficult to picture.
This turns to an important week for Fed policy makers, with the much anticipated March two-day FOMC meeting starting Tuesday leading to Wednesday afternoon’s decision. Expectations call for one 25 basis point hike, in addition to possible details on further action in the near term. Current indications point to a total of six hikes within the next year as investors more concerned on inflationary effects on the economy mixed with the spread of war leading to dampened growth. The CPI rose 0.8% last month, marking a new 40-year high, with next month’s CPI print potentially reaching a full 1.0%. Last week’s passage of a $1.5 trillion government spending bill will also likely have additive longer term impacts on increasing inflation.
The S&P 500 index settled into a trading range between 4300 high and about 4200 low, with the VIX declining to the 30 level after a high level of almost 38 earlier in the week. While investors wait on the FOMC decision details this week, markets are tracking possible optimism from the outcome of more frequent cease-fire talks between Russia and Ukraine. The 10-year treasury yield steadily rose last week almost 30 basis points to the 2.00% level, then a push higher to 2.11% mid-Monday. After a three day period of oil futures prices above $120 a barrel, futures declined to the $110 level by Friday, declining further to $105 this morning. Strategists are hopeful that consumers will see some benefit soon as the average price of unleaded gasoline is now above $4.20 a gallon.
Finally, President Biden’s executive order last week is a clear attempt to provide the regulatory clarity that many digital asset-related entities have been seeking and to do so while encouraging innovation rather than hindering it.
On-Chain Update
The Russian war in Ukraine continues for another week with negotiation discussions failing to provide ceasefire conditions. Global social and financial sanctions continue to tighten against Russia from the West, along with the Russian government removing social connections of Russian citizens to the West. The Russian ruble has declined 40% against the U.S. dollar since the war began, with Russia now headed for an imminent sovereign debt default as they are no longer able to access funds necessary to service the debt. Russian Finance Minister Anton Siluanov suggested debt payments could be made in Chinese yuan reserves or Russian rubles.
Bitcoin and cryptocurrencies continue to act as a financial lifeline for those in Ukraine, particularly the Ukrainian government who has now received over $100 million in cryptocurrency donations. Ukraine’s deputy minister at the Ministry of Digital Transformation, Alex Bornyakov, announced last week that these funds have been used to purchase food, medicine, bulletproof vests, and night-vision goggles for the Ukrainian army. Cryptocurrency exchanges Kraken and Binance have also each pledged $10 million in aid to Ukraine.
Technical analysis for Bitcoin continues to suggest a brewing ascending triangle, which carries a bullish bias. The chart pattern yields a 1.618 fib and measured move of $50,000 to $55,000 and remains active so long as no lower lows in price are achieved. The probability of this pattern resolving as expected declines significantly once price breaches the diagonal support. If the pattern does fail, the mid-2021 lows at $32,000 will likely act as price support.
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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
