Bitcoin Selloff Extended by FTX Liquidation of GBTC While US Equities at New All Time Highs

1. Digital Asset Market: The recent drop in Bitcoin's price, following the launch of spot exchange-traded funds (ETFs) in the U.S., has been influenced by traders on Binance, OKX, and Upbit. The cumulative volume delta (CVD) indicator shows that Binance traders led the sell-off, with other major exchanges also showing net capital outflows. However, exchanges like Coinbase and Bitstamp have seen net inflows, supporting the case for further price drops. Some analysts expect the sell-off to continue until GBTC pressure subsides, as the new Bitcoin ETFs continue to add BTC to their AUM, pointing towards continued interest in the new products.

2. Macro Economics: The stock market reached all-time highs this past week despite widespread concerns about the economy. Surveys have shown that Americans are feeling pessimistic about the economy, and many blame President Biden. Consumer sentiment is also low, likely due to the Federal Reserve's aggressive interest rate hikes. However, if the market continues to reach all-time highs, this could boost consumer confidence and spending. Still, there may be limits to the impact of increased confidence, as consumers have already drained their savings and higher rates remain. The current stock market gains are largely based on the expectation that the Federal Reserve will cut rates and provide monetary support.

3. Equities: US stocks were mostly flat on Tuesday as traders awaited a stream of earnings reports to gauge the health of the economy. The Dow Jones Industrial Average fell slightly after reaching a record high the day before, with 3M's disappointing earnings report dragging down the index. Meanwhile, companies in the Consumer Staples and Communications Services sectors saw gains following strong earnings announcements. However, concerns about high valuations in the stock market persisted, as analysis showed that the majority of S&P 500 companies are priced at a discount compared to their values in January 2021. Homebuilder stocks also took a hit after D.R. Horton reported weaker results, highlighting the sector's sensitivity to interest rates and the housing market.

4. The Fed and US Treasury: Federal Reserve officials are trying to convey that interest rate cuts will be slower and less aggressive than what investors have been expecting. This shift in messaging has caused a decrease in expectations for rate cuts, with the likelihood of multiple cuts decreasing and a longer timeline for when they may occur. Other central bank officials have also suggested a more patient approach to rate cuts, pushing back on market expectations.  On the other side, The US sold $60 billion in 2-year paper in a strong auction that priced on the expected yield of 4.365%. The bid to cover ratio was in line with recent averages and indirect, or foreign, buyers purchased the most since last summer. Direct buyers were slightly below recent averages and dealers received the lowest allotment since last September. The market had no significant reaction to the auction. 

5. Geopolitical: The World Economic Forum (WEF) has formed a discussion panel at the annual Davos conference titled "What If Ukraine Loses?" This suggests an admission by the globalists that Ukraine could be defeated by Russia despite Western support. The long-hyped Ukrainian counter-offensive has failed and the average age of Ukrainian soldiers is now older than 40. There are rumors of government enforcers kidnapping young men to send them to the front with little training. The media has largely acted as a propaganda arm for NATO and Ukraine, leading to a widespread misconception that victory was imminent. The WEF's discussion about a possible Ukraine defeat suggests that defeat may be closer than previously thought.

View from our desk

The recent drop in Bitcoin's value following the debut of its ETF was somewhat anticipated, but the extent of the decline to $39,000 was more than we had initially expected. Prior to the ETF launch, we advised our readers to exercise caution during the frenzied trading period leading up to the debut. However, it's important to recognize that there are factors beyond the typical "sell the news" phenomenon influencing Bitcoin's price. Notably, the liquidation of FTX holdings has played a significant role in this downturn. Despite this, we are of the view that we are nearing the end of this selling cycle, suggesting that a stabilization or recovery in Bitcoin's price could be on the horizon.

In the broader U.S. economic landscape, the stock market is currently experiencing all-time highs, and we do not foresee any substantial downside risks in the near future. The Federal Reserve has seized this opportunity to temper expectations regarding rate cuts. While the market currently assigns a 50% probability to a rate cut in the first quarter, our analysis suggests that the first cut is more likely to occur in the second quarter. This more conservative outlook reflects a cautious approach by the Federal Reserve, aligning with broader economic indicators and market sentiments.

This period in the financial markets is marked by a mix of optimism and caution. While the stock market's robust performance instills confidence, the Federal Reserve's cautious stance on rate cuts indicates a measured approach to monetary policy. For Bitcoin and other cryptocurrencies, the recent price fluctuations underscore the market's sensitivity to a range of factors, from ETF launches to broader economic trends. As investors navigate this landscape, a balanced and informed approach remains crucial, particularly in light of the evolving economic and regulatory environment.

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The 1Konto Team

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