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SwissBorg MacroScope - 26th February 2024

SwissBorg MacroScope - February 26th

One step at a time, that’s how we roll

One step at a time, that’s how we roll

Bitcoin’s fundamental are still strong

We’ve had another positive week for Bitcoin ETFs with around $580 in net inflows. By now, the inflows to the nine new ETFs (ex-GBTC) have surpassed $13B after around one and a half months of trading.

Inflow BTC February 23, 2024
Source: Sinz - Twitter

This is happening while supply held on exchanges is in a steady downtrend and just hit a 3-year low. This implies that there are less and less Bitcoins that are made available for trading. The halving, which will cut the newly created supply of Bitcoin from 900 to 450 per day will likely further reinforce the potentiality of a supply squeeze.

Percent of the Bitcoin circulating supply on exchanges

Moreover, the percentage of Bitcoin supply held by long term holders is also near record high and seems to start its downtrend. In the past, a peak in this figure followed by the start of a downtrend (long term holders are starting to sell) often correlates with strong price actions to the upside.

Bitcoin: percent supply last active 1y+

Price is also trading above the short term holder cost basis since October which signals strength in the market as short term holders are  majoritarily in profit. This not only signals stronger investor confidence but also solidifies Bitcoin resilience.

Bitcoin price
Source: The rational root

Retail trading volume entering a new uptrend?

Trading volume on Coinbase is starting to pick up after 8 quarters of downtrend. The last we witnessed trading volume at these levels marked the beginning of a massive +500% rally on Bitcoin that lasted over a year. 

Quarterly retail trading volume
Source: K33 Research

Could we witness the same thing this time again? No one knows but there’s certainly a lot of evidence pointing towards the continuation of this bull market. Using Coinbase volume as a proxy to gauge where we are in the cycle, the answer is clear: we are still early.

A view on recessions 

During the September-December quarter of 2023, two major economies, Japan and the United Kingdom slipped into a technical recession (which, by definition is two successive quarters of negative GDP growth). 

Definition of recession

Some experts like Paul Donovan, chief economist at UBS Global Wealth Management, argued that the recession in Japan was connected to its poor demographic numbers as it experienced its 14th consecutive year of population decline. This is a clear limiting factor to growth as it means fewer people making and consuming fewer things.

To illustrate this argument, this is what the population distribution of Japan look like in 2023:

Population distribution in Japan

In contrast, the recession in the United Kingdom is much more attributed to a decrease in consumer spending. 

Will the US follow? Well, if we focus on quarterly real GDP numbers, we note that the US is far from this and has experienced much higher than expected GDP growth, due in large part to robust consumer spending.

Real GDP: percent change from preceding quarter

However, the definition of a “recession” is blurry and solely focusing on GDP data can make us miss the big picture. So instead of arguing about something that will be backward looking (we will acknowledge a recession only after the fact), the real question is: What will be the consequences if economic conditions deteriorate in the US?

In the short term we can surely argue that it will be bad. People lose their jobs. Living conditions deteriorate and those are not desirable outcomes. But for market participants, the consequences are a bit less straightforward.

Looking at past data, it can be argued that in the short term this can lead to a liquidity crisis, which is typically bearish for risk asset like equities:

S&P500 performance during recessions

On a longer time horizon, this is often bullish for risk assets as they recover and benefit from a revival of economic conditions as well as support from the Fed.

S&P500 Performance 1-year after recessions

Nonetheless, it is crucial to acknowledge that one crucial thing has changed since then: The Fed has become much more effective at dealing with crises and liquidity events and it has a vast array of tools that it did not have a decade ago. Therefore, extrapolating how markets reacted to past crises from decades ago can be extremely misplaced.

Moreover, we have been talking about this probable upcoming recession for a long time and it is the most anticipated recession ever. Therefore, it seems fair to argue that there’s a high likelihood that investors have already front-run it and that this event was priced-in throughout 2022 as risk assets bottomed.

So the TL;DR is this: this “recession narrative” in the US is not something to be particularly worried about for risk assets like crypto. There’s a lot of reason to think that it has already been priced-in, and in fact, this could prove bullish for crypto as it would lead to liquidity injection from the Fed.

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.
  • 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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