Bitcoin’s Seven Daily Red Candles
Coinbase and BlackRock strike a partnership for institutional bitcoin. S&P 500 rallies while bitcoin doesn’t follow. BoE says serious stagflation ahead.
BlackRock Demands Bitcoin
In a major announcement this morning, Coinbase is partnering with BlackRock to open up institutional financial rails with direct access to bitcoin. Despite the terrible price action, an announcement of this caliber is quite a strong sign that institutional demand for bitcoin continues to grow beneath the surface as BlackRock manages $10 trillion in assets. In a bitcoin bull market, one could speculate that this announcement would have sent bitcoin’s price soaring — similar to the announcement of Tesla’s bitcoin purchase in early 2021 which sent the market +20% in a matter of hours.
BlackRock said the following regarding the announcement of the partnership.
“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets.”
Although Coinbase stock is still down 61.67% for the year, with the news this morning the stock shot up an incredible 184.8% off its July low.
In our release on July 15, we detailed the heightened volatility of bitcoin-related equities as both a benefit and detriment for bulls and bears looking to speculate or hedge. Today’s performance of COIN, which had more than a 25% intraday swing, is just another example of this.
Bitcoin and the S&P 500
In our latest monthly report, which focused extensively on the evolving macroeconomic environment, we highlighted the strong correlation between bitcoin and equities over the course of 2020, while also referring to bitcoin as a quasi-24/7/365, inverse VIX (currently). Generally, this means that when equities are bidding, bitcoin has gotten a lift as well; and when equities are selling off (likely alongside a rise in the VIX), bitcoin would face downside pressure as well.
Market participants should recall that following the implosion of LUNA/UST, bitcoin was consolidating around the $30,000 for nearly a month before equity market volatility increased as stocks took a new leg lower, which pulled bitcoin down without key support.
So what stands out in the current trend? Well, both markets have exogenous variables that can affect price and historical realized correlations. As equities continue to bid, as a result of passive flows and a squeeze of late bearish positioning, bitcoin’s price action has started to meaningfully turn over, with its derivative market short squeeze largely occurring already.
Bitcoin notably is in the midst of its seventh red daily candle in a row (lower closing price than opening).
While this has occurred, the S&P 500 on the other hand has been moving upwards considerably, with the index trending up against bitcoin since July 20.
But remember, for much of 2022 bitcoin has served as equity market beta;
Up more than equities on up days.
Down more than equities on down days.
Given that equities have been in a broader uptrend, the underperformance over the short term is concerning for bulls, as one should ask themselves where bitcoin will trade if/when equity markets turn lower and/or legacy market volatility significantly increases.
While this issue is focused less on long-term fundamentals and more on short-term price action, this aligns with our broader market thesis that risk assets haven’t bottomed, as covered in our July Monthly Report. Macro rules all at the current moment, and given bitcoin’s still nascent place as a mere pond amid a global ocean of total assets, realized correlations and relative underperformance are expected and noteworthy, respectively.
Bank Of England Says Stagflation
Five quarters of a deep recession, says the Bank Of England (BoE) as they raised rates 50 bps today — the largest hike in 27 years. The BoE also raised their baseline inflation forecast to 13.1% in Q4 with a peak in October, warning of a stagflationary environment through 2023. In their projections, inflation will rise to 9.5% in 2023 up from the previous 5.9% estimate.
A near doubling of wholesale gas prices is leading to projected estimates that will raise the typical household fuel bill by 75%. If anything, central banks and government institutions have proven to be conservative in their forecasts so this August monetary policy report is a damning view of short-term economic conditions for parts of Europe.
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