Another crazy week in crypto land
Last week, the market corrected strongly, triggered by Iran's attack on Israel. Bitcoin dropped towards the $61k levels on the news, while altcoins corrected much more strongly, as shown by this chart (where total 3 is the market cap of crypto excluding BTC and ETH).
This flush has also deleveraged the market significantly, and global open interest is now back to levels not seen since Bitcoin traded around the $40k levels.
For the moment, our base scenario is still bullish, and we expect a breakout to the upside of this consolidation, continuing the bull market. However, we believe the short-term direction of the market will likely be affected by the current unfolding of the Iran-Israel conflict.
At the moment, it is really hard to have visibility on what will happen: information change fast, public information can differ greatly from what will happen in reality, and it is becoming challenging to distinguish good from bad information .
Therefore, instead of trying to decipher the geopolitical puzzle of the world, we can focus our attention on analysing different factors to better assess the current situation of the market.
Crypto v/s Instability
While the revival of geopolitical tension in the Middle-East triggered a big flush in the crypto market, there’s different ways to analyse the longer term implication of those events:
The value proposition of Bitcoin make sense in those environments
Like gold, Bitcoin is starting to be perceived as a hedge against fragility in the system. Even Larry Fink is saying that on US national TV. Hence, we can argue that the value proposition of Bitcoin makes sense in the wake of instability in the world.
War is synonymous of greater spending
A war costs a lot of money and if the US decides to get more involved in the conflict, then we would expect a massive increase in military spending to either defend or attack. This would put even more pressure on the fiscal deficit and reinforce this idea of fiscal dominance that we presented in the previous macroscope . Ultimately, the increase in spending will need to be financed and this would lead to more money printing. This would be bullish for crypto.
Tension in the Middle-East could trigger inflation
If the situation deteriorates, this could put pressure on the oil price and lead to global supply shock which could put even more pressure on inflation. When we consider that the US already struggles to maintain inflation at its 2% target levels, a revival of inflation could delay the Fed pivot.
Risk asset at the onset of war
As shown in this chart from Arthur , the founder and CEO of DeFiance Capital , wars in the Middle East generally don't matter for risk assets in the medium to long term.
For the crypto market, this would suggest that the momentum of the cycle should dominate the geopolitical situation and in the mid to long term, the trend for crypto is still up.
However, this situation needs to be monitored closely. If the situation worsens and goes out of control into a much larger global conflict (considering the tension surrounding China and Taiwan, Russia and Ukraine, etc.), the picture could change.
The first spot Bitcoin and Ethereum ETF just got approved in Hong Kong. This is a significant step forward for crypto and shows that global adoption is increasing, with investors in every part of the world beginning to realise the value proposition of crypto.
Looking back at the success of the spot Bitcoin ETF in the US, there is ample reason to believe that these new ETFs could open the door for new crypto investors from Asia and lead to a surge in buying pressure for Bitcoin and Ethereum.
On that note, it is likely that Asia is going to have a bigger and bigger influence on the crypto market going forward, and this structural shift is something to keep in mind when analysing the market.
The halving is nearly here
The next halving is days away. This is a highly anticipated event in the crypto space and acts as a supply shock to Bitcoin, where the annual supply of Bitcoin will be cut in half, resulting in a decrease in its annual inflation rate from 1.7% to 0.85%. This halving is also a significant milestone as, for the first time, Bitcoin's annual inflation rate will become lower than that of gold.
Now, looking at the price performance of Bitcoin following each halving, there is reason to believe that the halving could act as a positive catalyst for Bitcoin price action.
Our Long-Term in-House View
- We are in a bull market and we expect to see BTC > $100k, ETH > $10k and SOL > $500 as new ATH in the next leg of the cycle.
- A dovish stance is starting to appear on central banks' sides and global liquidity is in positive territory. Long term, this is bullish for crypto assets.
- The revival of geopolitical tension in the middle east is something to monitor closely, but for now, this does not impact the long term bull case for crypto.
- We believe in ETH as the superior asset to Bitcoin for the next decade. Further, our view is that SOL has the biggest potential for consumer app adoption.
- Our favourite altcoins thematics for the next upleg are Socialfi, Gamefi, DePIN, AIfi & Infrastructure for scalability.
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