The Byzantine Times

G’day all, hope you’ve had a good weekend so far after another week with a lot going on.

Equity markets are in a strange and precarious place — where some no-risk superbubble seems as possible as a market collapse, while a full tech takeover of the fed-backed economy is looming (Microsoft, Apple, Amazon, Alphabet and Facebook make a record 22% of the S&P 500). Techs ability to be dynamic, innovative and pro-active is going to create significant and potentially abstract opportunities for tech organisations, as opposed to the strict bureaucracy and internal politics of companies with established market share. But it’s not revolutionary to recognise that the flux will be far kinder to dynamism and innovation.

For the coronavirus, enough stability has returned, fear dissipated and hysteria under control that narratives are starting to emerge to take control of the unknown, to contextualise the bogey monster.

Having said that, a strange situation remains in capital markets where bureaucrats will decide which companies are helped — are ‘required’ or ‘essential’ — Again.

And through this corruption of capitalism, US Government institutions are the largest holders of assets. It’s not socialism by any other name yet, neither is it capitalism but it represents a deep paradigmatic failure.

It is the exact macro-story that is strong for digital assets.

The Numbers

The equity markets are up and oil has taken a hit.

The most important figure here is probably that the VIX is down significantly over the week — rightly or wrongly, the market feels like it is starting to understand what the situation is. Of course this could be the calm before a second wave of selling.

The Events

The week saw an uptick in geo-political rhetoric as the problem of financial markets took a backseat after risk was embraced (or rather backstopped).

China ‘may be knowingly responsible’, according to Bloomberg quoting Donald Trump. The story is being built around one that had emerged a month or so ago where COVID-19 had a molecular splice from HIV that could only come from intelligent design (as opposed to mutation). It was the Nobel prize winner of medicine, Luc Montagnier who suggested the obvious but ugly potential for the virus to have escaped from a lab — his suggestion also refuted here.

So far, the information has been presented as a soft landing but onto a hard target — China. In this narrative, the virus is not a bioweapon but the result of research into defeating viruses where a lab employee has been infected. It is anybodies guess if the rhetoric mutates further to it becoming a bioweapon, with a little help from intelligent design. Republican Senate Chair Lindsay Graham was talking about Chinese financial reparations which could emerge as an end-goal.

The US also suggested China had tested a nuclear weapon and China was reported to restrict exports to the US of medical supplies in response.

Of course it’s all dangerous talk — it also comes during a week of reported militaristic antagonisation towards the United States where Russian jets buzzed American planes, 11 Iranian gun-boats shadowed American naval vessels, North Korea fired a bunch (is it a murder?) of missiles and China showed off its new assault rifle. On the other side the US had shown off its strategic bombers in Guam before removing 5 of them for good.

Oil just keeps going backwards although volatile and it is anybodies guess what moves are being made on that front. A structural reality of there being a huge amount of oil everywhere overhangs the market.

For financial markets, the latent question in the financial markets is firstly whether risk-on is back for good, whether we see a second phase of risk-off collapse in the next fortnight, and for fed intervention — when the next new liquidity injection is and who are the bad-debt dominoes are to fall.

And in digital markets this week, BTC barely broke the major levels to the down-side before roaring back to highs. It’s enough to make you bullish in a fortnight that Tether supply has increased by $2 billion (and in 2019 gave us a scouts honour that it is backed by cash).

Another figure provides context though where a huge volume of Bitcoin has been settled into USDT in March. Is it cash on the sidelines?

BTC in Focus

Bitcoin is an interesting asset at the moment. It had looked like the trend had turned when it rolled over from 7500, but the false-break of the low and rally back to highs looks very strong.

Bitcoin has been pre-empting the equity markets, throwing some confusion into where it might go from here.

It could be easy from within the digital asset space to see a furious rally from here.

Our sentiment analysis last week suggested a more bullish reversal than last time the markets turned. The period in between the two sentiment events was far more bullish in the market compared to last time, as was the recent rally during an extended period of low sentiment.

However, a trader may see the levels in red at 6600 and ~5875 as irresistible before moving higher and the options operator might see an opportunity to lock the market up between 6600–7285 (green) and force the doe-eyed to pay maximum prices before traders have their squeeze.

BTC Volumes for the last 30 days

With the last week in the red box, overall volumes have been fairly standard. The only interesting aspect/coincidence of note in volumes the last month is that Thursday has alternatively been the highest and lowest volumes for the week-days. This may be interesting to anybody watching derivative expiries.

The fear and greed index is showing a tick-up towards being less fearful (although still showing as extreme fear).

BTC Dominance

Last week we pointed out that BTC dominance had been rolling over long-term, taking some relatively arbitrary levels as places of note.

The below chart gives BTC dominance between 50% and 70% (discounting crypto winter) and shows where it looks like digital assets are rolling over.

This will be worth considering for those building digital asset portfolios.

Money

The US Dollar continued to consolidate either side of its previous major high. We do not present any ideas or analysis on what it might do, besides pointing out that the risk-off, deleveraging event has already occurred and financial institutions are much more awake to the potential of liquidity problems (and liquidity solutions).

Gold had gone about 20% from low to high before perceptibly rejecting higher prices Friday. It will continue to be an interesting study in the coming period having rallied almost 50% from the start of 2019.

Gold over the S&P 500 is an interesting study in the context of an upcoming period of extraneous liquidity going into markets as asset inflation.

Below is a weekly chart of Gold / S&P 500 from 2007.

We noted last week that S&P 500 over gold shows an equity market peaking in 2018 when the trade-war became real. The market gave this lense lower highs before breaking down in 2020, a year of expected global recession even before the coronavirus hit.

The chart is a more rational take on the equity market and wonder if hedging short S&P 500 positions with gold allows honest speculation on the upcoming earnings season, global recovery and global recession — there could even be something in there from the S&P 500 / Gold relationship with the equities crashed — although that relationship must change after the fed intervention.

S&P 500 over Gold

Ethereum

Ethereum is a major winner of the change in BTC dominance, up over 100% from its lows.

A brief framing of the asset might see reasonably hard lows in black, buying opportunities around a and a selling target around b with digital asset markets implicit exponential curve coming in about the same place as the major swing high.

Rest of the space

Besides Ethereum, Tezos and Chainlink continue to be darlings of the space with Z-Cash, Maker, Synthetix, DigiByte, Enjin and DigixDAO outperforming in the last 24 hours.