Bitcoin lags behind as ‘Fed Trade’ opening lifts US stocks above 200-day moving average

Unless you’ve been underwater for more than a year, you probably know that selling risky assets like US stocks and bitcoin (BTC) and buying the US dollar against the Japanese yen (JPY) have been some of the most popular macro bets since early 2010. 2022.

Investors have been reassessing their commitment to these so-called Federal Reserve (Fed) trades in recent weeks and returning to riskier assets, except for bitcoin, thanks to the peak inflation story and the central bank’s indication of moderation in liquidity tightening from December.

The S&P 500, Wall Street’s main equity index, has gained 16% in less than two months to trade above its widely watched 200-day moving average for the first time since early April. Often referred to as a turbo bet on Fed policy and US interest rates, the USD/JPY pair fell 11% to its 200-day moving average. The dollar index, which tracks the value of the dollar against major fiat currencies, also fell below its 200-day average.

U.S. government bond yields fell sharply from annual highs, confirming the story of peak inflation and the resulting resurgence of risk in equity and currency markets.

However, Bitcoin seems disconnected from macroeconomic developments and traditional markets. At press time, the leading cryptocurrency traded at $17,340 by market cap, or a 22% discount to its 200-day moving average.

This suggests that the FTX bankruptcy could not have come at a worse time for bitcoin and the broader cryptocurrency market.

“Historically (US) stocks and cryptocurrency have a strong correlation. Without the FTX explosion, bitcoin could be trading at $29,000 by now instead of $17,200 (or 69% higher)” Markus Thielen, Head of Research and Strategy About Cryptocurrency services provider Matrixport said.

“If the market can break through the FTX, those prices are still attainable,” Thielen said.

The chart shows bitcoin trading at a discount to its 200-day moving average. The S&P 500 broke above its 200-day average amid a sharp decline in the dollar index (DXY). (TradingView/CoinDesk)

Bitcoin fell to a two-year low of $15,480 last month.

The dollar index rose nearly 20% in the first nine months of the year, peaking in late September and falling. After a bearish reversal in the dollar, the S&P 500 bottomed out in mid-October.

Weakening of bankruptcy of FTX

Bitcoin’s recent market activity suggests that the worst of the FTX bankruptcy may be behind us. Even as well-known cryptocurrency lender BlockFi files for bankruptcy protection, the leading cryptocurrency is up 4% in the past week.

“There are signs that the overabundance of bad news in recent weeks has had less of an impact on cryptocurrency performance, even as the full context of the uncertainty has not been fully appreciated,” Coinbase Institutional’s weekly note noted. recent moderation in negative sentiment in the options market.

Bitcoin’s one-month call curve, which measures what investors pay for out-of-the-money (OTM) calls versus OTM, rose to -9% from -29% seen on November 13.

Put options offer insurance against price swings, while calls offer insurance against bull runs.

It has pulled back from the November lows, indicating moderation in negative sentiment.  (Amberdata)

It has pulled back from the November lows, indicating moderation in negative sentiment. (Amberdata)

Recovery indicates that the height of the period of fear has decreased. Therefore, cryptocurrency investors can now focus on the improved macro backdrop and the de-risking of traditional markets.

One question is whether the recent risk resurgence in traditional markets will be long-lasting, given that the U.S. economy is headed for recession. The situation, defined by consecutive quarterly contractions in growth rates, does not sound good for risk assets.

An inverted yield curve is widely considered a leading indicator of an impending economic downturn.  (AlpineMacro/ Geo Chen)

An inverted yield curve is widely considered a leading indicator of an impending economic downturn. (AlpineMacro/ Geo Chen)

However, the recession may be a blessing in disguise, according to analysis by macro trader Geo Chen.

“The Fed is likely overtightening into a recession that has already begun, which will likely result in a more sustained downward trend in inflation than many expect,” Chen said in a Nov. 22 Substack post.

“The biggest drivers of asset prices this year have been income and inflation, so the downward trend in income should be a tailwind for asset prices, and next year should look like a mirror image of this year,” Chen added.

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