Risk Assets Under Pressure. How Can You Provide Protection For Your Digital Asset Portfolio?
Risk assets have come under pressure over recent weeks, and Bitcoin has not been immune to the risk-off market sentiment. In this newsletter, we take a look at the following:
Bitcoin Spot ETF Inflows/Outflows & Update
Bitcoin's daily price action correlates strongly with the daily inflows and outflows from Bitcoin spot ETFs. On March 12th, Bitcoin spot ETF daily inflows peaked at 15,000 BTC before stabilizing. Subsequently, Bitcoin reached record highs of approximately $73,600 on March 13th but has since remained range-bound, dipping to lows of $61,000.
As the market and investors pause at this peak, liquidity into Bitcoin spot ETFs has decreased with minor inflows and outflows being reported. The overall financial market sentiment is being driven by concerns about interest rates and escalating geopolitical tensions in the Middle East.
S&P500 Stocks Trading Above 200-Day Moving Average
The proportion of S&P 500 stocks trading above their 200-day moving average hit extreme heights on Monday, March 25th, rising north of 80%. Since 2009, this chart has indicated the optimal time to increase exposure to risk assets, or to decrease exposure to risk assets and realise some profits. This chart indicates overall sentiment in the stock market, and when investors become overly bullish, or overly bearish.
The stock market has declined steadily since the chart crossed the 80 threshold, and as a result, the cryptocurrency market has also faced selling pressure. The quantity of S&P 500 stocks that are trading above their 200-day moving average is dropping sharply, which suggests liquidity is rotating out of the US stock market in search of safety.
What does this have to do with Bitcoin?
Despite differing use cases and properties, Bitcoin has exhibited a similar correlation to the US stock market. Since 2020, both Bitcoin and the US stock market have moved in tandem, reflecting similar upward and downward trends. Fundamentally being driven by Central Bank liquidity.
Monitoring the proportion of S&P 500 stocks trading above their 200-day moving average can provide insights into how Bitcoin might perform under extreme market conditions.
What Is Driving The Risk-off Market:
Inflation proving sticky, interest rate re-pricing.
Over the last two weeks:
Over the last six months, market players and analysts priced in several FED rate cuts until the terminal interest rate of roughly 3% was achieved. The Fed's rate-cutting cycle was slated to begin this spring and last 18 months.
Equities, commodities, and cryptocurrencies all reached new record highs in recent months, propelled by hopes of improved financial market conditions in the near future (lower rates). However, Core CPI rose for the third time in a row in 2024, indicating inflation remains sticky and is potentially accelerating higher. The new CPI data is raising multiple red flags.
Expectations for a June FED interest rate cut have crumbled, leaving the higher-for-longer narrative on rates in place. September is going to be the earliest opportunity for any policy easing, depending on economic data.
As the market is adjusting to the new interest rate projections into year-end, there is a possibility for further pressure on the stock market and cryptocurrency market in the short term, which is supported by the chart of the S&P500 stocks trading above their 200-day moving average.
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How to protect your digital asset portfolio:
Digital GOLD (PAX Gold)
If the Fed is willing to ease in an economy that doesn't need it, low unemployment and high GDP, there are risks that growth and inflation might accelerate further down the road. Gold is an obvious candidate of an asset that will thrive in an environment with lower rates and higher inflation, due to the decreasing purchasing power of the fiat currency, and the safe-haven aspect of GOLD. Not to mention the escalating tensions across the Middle East.
In October 2023, we provided a detailed analysis of PAXG/GOLD, and how this asset could provide cover for your digital asset portfolio in the coming months.
Link to article:
Gold has increased from $1924 at the time of publishing the article, to more than $2387 today, an increase of roughly 24%.
Gold's position in your digital asset portfolio is not to generate significant gains like a cryptocurrency but to provide downside protection during times of economic uncertainty and escalating geopolitical tensions. In the current environment, hard assets are in high demand.
Bitcoin Halving / Technical Analysis
The next Bitcoin halving event is due to take place in 2 days from now. This will be the first halving event where Bitcoin has reached record highs before the halving, indicating this cycle is different from previous ones.
The Bitcoin halving event historically has marked the start of a new Bitcoin bull market. This is due to the slash in the supply of new Bitcoin entering the market by 50%. If we consider the growing adoption rate and demand, which is continuously increasing, whilst the supply of newly mined Bitcoin entering the market continues to decline, naturally over time it puts upside pressure on the token due to simply supply v demand. Whilst short-term price action indicates caution, long-term, price appreciation is still expected.
Bitcoin Range Bound:
The short-term price action shows Bitcoin is range bound, between $61,000 and $71,000. Given the current risk-off market sentiment, Bitcoin has performed considerably well against other digital assets, with only a 15% correction from its all-time high. The correction in the alt-coin market has been significantly more severe with alt-coins decreasing 60% or more as liquidity is fleeing the high-risk areas.
Total Crypto Market Cap Excluding Bitcoin
Excluding Bitcoin, the total crypto market cap has decreased from its peak of $1.25 trillion to $989 billion, a 22% decrease. This may not come as a major surprise to some, as the chart indicated a major resistance zone at 1.25T. On the downside, we can see a major support zone coming into play at roughly $855 billion. Once, or if the total market cap reaches this level, we may start to see fresh liquidity return to the market and pricing stabilise.
Volatility in the financial markets is expected to continue in the short-term.
ICONOMI not only provides investors access to a variety of different digital asset portfolios (index portfolios, discretionarily managed portfolios, quant portfolios), but investors can build and manage their portfolios using the ICONOMI portfolio management portal.
If you want to learn more about the Cryptocurrency market - Schedule a 1-on-1 consultation with the author Anthony Fernandez - Head of Business Development at ICONOMI:
Risk Warning: Cryptocurrency is classed as a high-risk investment. Previous returns do not guarantee or guidance of future performance. Don’t invest in cryptocurrency unless you’re prepared to lose all the money you have invested. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.