Nothing convinces the market

Biden steps up to the plate

Undoubtedly the highlight of the week has been the White House Executive Order on cryptoassets. The truth is that we have not yet had time to analyze it, but given the context I think we can intuit what its intention will be.

The geopolitical context has put on the table a truth that for some seems to be still painful: the usefulness and role of cryptoassets as an alternative in any type of transaction.

To me, this executive order is a de facto recognition of this fact, as well as openly acknowledging that this is already a race against the clock: adoption will continue to grow, with or without regulation. Therefore, it seems sensible to try to adjust cryptoassets to a legal framework, in everyone’s interest.

Several fronts open in the management of cryptoassets. 

Naturally this is a major challenge, but one that must be taken up because cryptoassets are already inexorably acquiring the role of a medium of exchange of value, 

  1. We have a front in the fight against illicit activities. We will not be the ones to feed the mantra that cryptoassets are a nest of criminals, who do and undo as they please in a completely anonymous way, but it is true that the very fact that they are currently unregulated assets makes it difficult to control and supervise activities to fight against criminal and illegal activities.
  2. We have a competition front with respect to FIAT money. The contrast and comparison between the two types of assets highlights the weaknesses and strengths of each, but this is particularly relevant in the case of FIAT assets (mainly by volume), which until now were not seen as having any drawbacks (some still do not see them despite the situation).
  3. We have a front regarding the tax impact of these assets. In the same way as the previous points, cryptoassets make it more difficult (but not impossible) to supervise taxes and duties, mainly for the reason that there is no regulation in this respect.

The market is quickly disappointed

Having made these remarks, let’s assess the impact of this important and long-awaited news. And the diagnosis we can make is uncertain. We see a clear back-and-forth figure in the market. That is, the news has failed to change the bias or sentiment of investors for now, which in the case of Bitcoin.

Bitcoin seem comfortable in this area below 40,000 – 45,000 USD, and at the level immediately below the 1.8 Trillions in terms of market capitalization.

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We can also see that the market, from a volatility point of view, is in a clear rebound zone for the medium and long term, but once again, it seems that in order to make that jump, a strong capital inflow is needed, which is not happening at the moment.

In technical terms and from a capitalization point of view, a drop below July 2021 values would be very worrying

Attention to derivatives markets

In this regard, we follow derivatives market data very closely. We would like to provide information on two details:

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The first of these is the volume of open positions in futures with maturity at the end of the month (March 25), almost 2.5 billion (European) dollars, which if we compare it with the total volume transacted daily by the 250 most capitalized assets (about 147 billion) represents a 1.5% increase in a direct way. 

Although the figure may seem small, the fact is that it is a remarkable volume that must surely also be due to the fact that this month we have a quarterly close. We will see how many of these open positions now rollover to later maturities.

All eyes on the Fed

Everyone’s eyes are on the upcoming Fed meeting. The scenario was already complicated enough, with inflation already touching 8% at levels not seen since 1992.

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This strong depreciation of the value of money puts central banks in check, which at this moment are without resources to combat this situation with artificially low rates.

In addition, right now we have a very complex geopolitical situation that adds new variables and uncertainty. We will see if the Federal Reserve does not deviate from its previous script, but a change in economic policy is now urgent, and although the market has already discounted this change in bias, it is very much awaiting the possible forcefulness of the Federal Reserve in dealing with the situation.

The first outcome… next March 16th.

Short-term drag

Undoubtedly, these two facts are a major short-term drag on the market. If we evaluate the situation over longer periods, I believe that the current context has put cryptoassets in the spotlight and, more importantly, forced major players to position themselves. No more trying to ignore the situation or delaying decisions because reality is imposing itself, and the real usefulness of these cryptoassets is unquestionable.

Market context

I am a strong proponent of the theory that there is one financial market, and that it is all interconnected. In this sense it is important to examine the other assets as they are behaving because it is undeniable that cryptoassets will be affected by this sentiment, in one way or another.

For this, our Black Swan indicator is very useful, in which we can see how the market is in a phase of management of the current situation with the focus on the war in Eastern Europe but already managing the exit of this situation.

Gold [XAUUSD] and dollar [DXY] expressed in its index have started to moderate the ascent while the Equity markets seem to have generated a floor, which we can see in more detail in the second chart, with the most important world indices

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Watch out for rapid changes in the scenario 

This whole situation can change quickly if there are significant developments (Russia-Ukraine conflict, energy prices, therefore CPI and Federal Reserve decision) in any of the three open focuses that the market has right now.

The detail to consider is that all the factors affecting prices are external to the cryptoasset market itself. We understand that at this moment these factors take precedence due to their weight and importance in the global economy. This is the only answer to the fact that news as important as that of Biden has been diluted in this way.

This makes us even more vigilant with our positions and waiting for a consolidation of levels with guarantees.