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SwissBorg MacroScope - 5th February 2024

SwissBorg MacroScope - February 5th

Slow and Steady Week for Crypto

Slow and Steady Week for Crypto
Slow and Steady Week for Crypto

Steady week for ETF flows

Bitcoin ETF flows have emerged as a critical metric for assessing the overall dynamic of the crypto market. This week, we observed consistently positive net inflows into ETFs, with an increase of nearly $700 million. To date, total net inflows into the different ETFs have reached $1.459 billion. However, what’s more interesting to see is that GBTC outflows were in a steady downtrend throughout the week.

Steady week for ETF flows
Source: BitMEX Research

While GBTC still dominates in terms of volume traded, we expect that as outflow normalises, GBTC impact on Bitcoin will likely decrease in the coming weeks.

Steady week for ETF flows
Source: Twitter - James Seyffart

Banks under pressure again

This week, some US regional banks have encountered significant challenges as they are extending their losses on their Balance Sheet significantly. In the last days, the US regional banking index fell sharply.

Banks under pressure again

One bank in particular, New York Community Banks, was deeply impacted and its shares were down 47% for the week as it revealed that it has taken losses on loans tied to US commercial real estate.

Banks under pressure

The ripple effect even extended to Tokyo, where Aozora Bank, the 16th largest in Japan by market value, saw its shares plunge after reporting a net loss of 28 billion yen ($191 million) for the fiscal year. Again, this loss was also due to its exposure to US commercial real estate.

Banks under pressure again

In addition to that, the Fed omitted the sentence: "The US banking system is sound and resilient" from its last FOMC statement. Is this situation some early indicator of banking issues down the road and that dominoes are falling again? No one knows, but given that the BTFP program, designed to help banks following the SVB collapse, is ending in March, this situation should be monitored closely. In any case, it is fair to say that this should accelerate the Fed easing bias.

Source: ZeroHedge

Market expectation post-FOMC meeting

As expected, the Fed kept rates at the 5.25-5.5% range and Powell is sticking to its script, waiting for further confirmation and more data before doing anything. Following the meeting, we observed a change in market expectation  with a delay in the expected Fed pivot. Current probabilities suggest only a 38% chance of a cut in March whereas prior to the FOMC meeting, it was pricing a 46% of a cut in March. This was further reinforced by the recent employment data coming in hot: +353k jobs added vs 187k exp and an unemployment rate of 3.7 vs 3.8 exp, signalling that the US economy is still strong, at least on paper.

Target rate probabilities for 20 Mar 2024 Fed meeting

It seems that for now, the market expects the pivot to happen in May.

Target rate probabilities for 1 May 2024 Fed meeting

However, despite that Powell is waiting for more signals of stable inflation, the truflation index, which is an independent measure of inflation, has been in a steady downtrend and currently sits at 1.35% Year to Year which is lower than the Fed target of 2%. It can be argued that this is a clear signal that inflation is under control and does not represent a serious threat for the Fed, at least in the near future.

USA daily truflation rate
Source: Twitter - Tedtalksmacro

Chart of the week

An important catalyst awaits Bitcoin: the halving. This event occurs every four years and acts as a supply shock, cutting the number of new Bitcoins created per block in half.

The next one is anticipated to occur in April 2024 and while this event is known and predictable, prices always reacted positively post-halving.

Bitcoin price performance 365 days after halving

Will prices follow the same pattern again? No one knows, but it could be argued that the halving will likely contribute to an increase in buying pressure, and this can have a positive impact on price.

Our In-House View

SHORT TERM VIEW: What might happen in the next 2 weeks?

  • We are likely going to experience sideways price actions with a slight bearish bias for the next week. However, such periods of consolidation are healthy and expected in a bull market.
  • A further decrease in prices, to the $32-36k levels would likely represent a great buying opportunity to get long. Alternatively, a strong close above $44k will likely signal a continuation of the strong uptrend towards the all time high (ATH) levels.
  • Going forward, the two catalysts that could kick start another strong market move are: the halving and monetary easing measures from central banks (such as a decrease in interest rates).

LONG TERM VIEW: Where are we in the cycle?

  • We are still in the beginning of the 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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