01 Feb 2023

Monthly market Wrap-Up: Honey badger don't care

Short-term, I am bearish as the crypto market strength seems over-extended across multiple metrics, while a FED pivot still seems far away. Long-term, I am steadfastly bullish as BTC reclaims pre-FTX trauma levels.
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A month-long echo has roared in the market. BTC is about to end January up 39%, its strongest month since October 2021. January will be remembered as the month where shorts and those underexposed bled as BTC ripped beyond pre-FTX collapse levels. Appreciate BTC’s ability to weather storms.
Short-term I am a bear sitting on my hands
A combination of slowing momentum, strong technical resistance, and expectations of a hawkish FOMC leads me to expect a poor February in the market. However, I am not outright bearish due to convincing developments on the only regulated BTC futures market. I express my view by reducing small-cap exposure. Momentum is falling, and the constant short squeezes experienced throughout January have cleansed derivatives of vast amounts of leverage and fuel for further upside. Additionally, brief tendencies over the weekend indicated that long traders were once again pushing the buy button with the leverage bar dragged toward the double-digit x’s. This is not a welcoming signal for BTC to push higher. I believe today's FOMC will negatively affect bitcoin’s momentum in the coming weeks. The market is overly optimistic regarding a swift FED pivot. Like the market, I expect a 25bps hike on Wednesday. Still, I also expect JPow to use the opportunity provided by the strong markets in January to be hawkish and maintain a steadfast focus on the war on inflation. A pivot is still off the table, maintained QT and high rates throughout the year will be the message, and that message will not be adjusted until the FED’s hands inevitably get forced by some kind of seismic disturbance. Technical resistance also limits the upside. Both $25,000 and $28,000 are hefty resistance areas, and BTC is currently finding itself straight in the middle of the “in-between devastating industry collapses range” from late June until early November. The odds are high that we will be reaccustomed to this bland trading range in the foreseeable future. CME’s surging open interest, substantial contango, and yield buoyancy disrupt my bearish outlook. A positive trend to the CME basis toppled with a growing CME dominance in the market makes it hard to be bearish to the extent that I sell at current prices. The current tendencies at CME are rare, and one should always pay attention to and respect speculative institutional flows. In my view, traders with small-cap exposure will benefit from rotating into the majors. Ethereum is destined to face some interesting months as the Shanghai upgrade is nearing, which could reflect well on tokens related to liquid staking, such as LIDO. Coins such as SOL (142% YTD), AVAX (82% YTD), FTM (143%), and particularly APT (382% YTD, highest alt-layer 1 FDV in the market) have seen an incredible performance in January, predominantly pushed by shorts getting squeezed. Ahead of a potentially slow February, the timing could be ripe for a portfolio rebalancing into quality.
But long term my faith in the honey badger only grows
Since October 1st, Nasdaq has seen a 6% upside, while BTC has seen gains of 18% like nothing happened. Need I remind you what happened in November? Bitcoin has already more than recovered from the sorrowing FTX trauma. Correlations between BTC and U.S. equities will trend lower in the coming months, bar the odd highly important macro catalysts. As inflation focus gradually develops into recession fears, S&P 500, Nasdaq, and earnings will matter less. Anticipated changes to liquidity conditions and the cost of the U.S. Dollar (Interest rates) caused the high correlations of 2022. Since July 1st, Bitcoin has seen gains of 15%, and Nasdaq has seen a 3% upside. While the crypto complex has been shattered as behemoths such as Celsius, BlockFi, Genesis, FTX, Voyager, Core Scientific, and more have been busy filing Chapter 11 bankruptcies, BTC has quietly stabilized and outperformed other assets. Blackrock, Sequoia, the Ontario Teachers’ Pension Plan, and more have eaten losses based on the expression “in a gold rush, you should sell shovels”, with the crypto analogy being “institutions seeking to invest in crypto infrastructure”. What if the long-term sound choice is to add direct exposure to the mythical orange coin?
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