Monthly Macro Update - April 2022


All the hope and and euphoria that was captured in the last two weeks of March have completely evaporated in the Month of April, as the crypto market had 4 straight weeks of red to end the month 18% lower (Total marketcap went from 2.1T to 1.67T). The crypto market becoming more and more entangled with tradfi; rising fears in the Fed aggressively raising rates off an elevated inflation created panic in equity markets where S&P500 ended the month -9% and NASDAQ -13.6%. Expectations of rising rates also triggered the dollar index (DXY) to close above 103, highest close since December 2016. While there were alot of chatter in how Bitcoin is driven by how the DXY performs, we're here to debunk this myth as statistics show that Bitcoin is actually more correlated to equities (S&P500) and shows little to no correlation to DXY across different timeframes. In fact, based on the rolling 30day correlation BTC and S&P500 are sitting at +0.72!


While we can argue crypto is quite different than where it was 3-4 years ago, numbers don't lie and you can see that the correlations (at least the shorter timeframe like 30day) does work in cycles. Food for thought: now that 30D correlation is close to its all time high, for the traders out there perhaps this is a good opportunity to short correlation here?



All eyes on the fed this Wednesday

With everything tying back to the macro markets, the focus this week will be this Wednesday where FOMC will decide on the rate hike decision. A quick summary on what will be covered and expected:

All times UTC

Wednesday 04 May 2022

FOMC Rate Decision: 18:00

  • Expectation: 50bps hike. (Bearish surprise outcome would be a 75bps hike)

  • Announcement of balance sheet normalisation start date (expected to start in May)

  • Details on the cap size of balance sheet run-off (Consensus: initial cap to be $35bn, ramping up to $95bn per month)

Powell Press Conference: 18:30

Thursday 05 May 2022

Initial Jobless claims - 12:30 (expected 180k)

Friday 06 May 2022

Non-farm Payrolls: 12:30 (expected 390k)

While a 50bps hike is expected and is still a technically bearish outcome, anything higher will likely trigger a bigger selloff, whereas anything lower should create a huge relief pump for risk-on assets, especially crypto. In our opinion, given how the previous fed minutes the committee is rather adamant in control core inflation we believe the hike will be at least 50bps this time.

We certainly hope there will be no unexpected surprises in bigger hikes, as looking at Bitcoin the high time frame charts do like rather dire:


BTCUSD (Monthly) - April bearish engulfing candle


Looking at the monthly chart BTC closed the month with little to no bottom wick (bearish), not to mention an bearish engulfing candle that covered the past two months of positive candles. The April candle also closed below the M1 20EMA, first time since the covid crash in March 2020. The only good news with this big bad negative candle we still technically are still within structural range of 35-45k range (where it would look alot worse if we closed below June 2021 closing price).

BTCUSD (Weekly) - Broke out of a flag?


Looking at the weekly chart, it looks like BTC broke out of a long-term bear flag which also does not look good. However, as mentioned in the monthly chart this break is still sitting within the 38.4-43k range.


BTCUSD (Daily) - falling wedge setup


Now looking at the daily timeframe things actually do look a bit better as it appears we are breaking out of a falling wedge (bullish) on top of an improving MACD and a what looks like a bullish divergence against RSI. Looking at all three graphs together it looks like there could possibly be a relief rally back to near 40k first before any potential downside. This of course has to match the sentiment of the fed rate decision outcome which should drive the direction of the market in the ensuing days/weeks.

Also one thing to note is we're realising a breakout of BTC dominance might be around the corner. Looking at the monthly chart it looks like it has broken out of an implied falling wedge + MACD grinding higher + bullish divergence against RSI. Whatever happens to the crypto market it looks like there will be more focus on BTC and less on Altcoins. So either Alts nuking and moving back to BTC as a risk off, or markets decide to go head on bullish mode (possible fed easing off on rates rise) and trend starts with BTC rising first.

 

Ape together strong, ape no cares for macro market

Yuga Labs Bored Ape Yacht Club


On the otherside (pun intended), it seems the NFT market is immune to the macro market movements as the demand for $APE coin and its much anticipated metaverse project Otherside has set a record $318.7 million revenue from this mint alone for Yuga Labs. Apart from setting new records such as Sales volume topped around $561 million within 24 hours, they also have set a record in users fighting for the mint and breaking down the Ethereum blockchain:


Gas prices soared to as high as 8000 gwei right when minting commenced - with an estimated of $180 million USD was wasted by users trying to fight for Otherdeeds. This has prompted Yugalabs to issue the following tweets:


This has sparked a debate in the NFT and crypto community in the intentions of Yuga Labs. Many have criticised Yuga for its ability to create a completely new chain while not being competent enough to use gas optimised contracts for the minting process; however on a deeper level this feels like a perfect setup for Yuga for another cash grab as they could set up another raise / dao / mint / etc through building a new chain. You can see how the hype for $APE has dissipated post mint:


What can we learn from all this? 1) It's quite clear that marketing is *almost* everything in crypto (as much as we love to say fundamentals matter); 2) When legacy crypto market is in crab mode, there's always the NFT market you can bank on for opportunities; 3) Never underestimate the NFT market as it is a world on its own. Not only did Yuga labs take down Ethereum, but there were also massive outages that happened on Solana which came from bots swarming another NFT minting tool. Regardless, the surge of NFT and its branding/marketing for Yuga is mind blowing and this will definitely become one of the case studies for business schools in years to come.