Michaël van de Poppe - 17 October 2022
Bitcoin is the best performing asset!
Hi there! Welcome to our new blog article! Enjoy the read!
The past few months have been hectic, and each time there is another factor to consider. For example, look at last Friday, in which we saw for the first time that "Retail Sales" actually influenced the market and its subsequent direction.
If, like me, you are looking for the alpha surrounding this information on a daily basis, it is still quite manageable. But, if you are not searching this daily then it will be very confusing. To keep the overview, we have the following situation:
During macroeconomic downtrends, also known as a cyclical influence (several months to years), the various asset markets are driven to each other to an almost 1:1 correlation. This correlation is driven by market liquidity.
For now, this is the most important rule to remember. In case you get lost in all the names like GDP, PPI, ISM, FOMC, etc. Liquidity is what drives the various markets, and very simply, during the phase of QT (removal of liquidity) you will therefore experience predominant downward pressure on the various markets.
What is starting to be noticed at the moment is that Bitcoin's performance relative to the major other markets, such as the Nasdaq and the SPX, has improved over the past month. Since the Bitcoin (orange) low on September 21, the price has remained virtually neutral, where both the SPX (red) and the Nasdaq (purple) have lost about -8% and set new lows.
Click here to see the full chart!
This week we have the actual start of the earnings season. Where we already had some banks last week, this week we get the big players like Tesla, for example. Where earnings will have a lot of impact on companies, this is not so much the case for market liquidity. The question we will get answers to in these weeks is whether we can get room in this asset correlation if we have asset-specific events (like earnings).
Innovation outperforms at the end of bear markets
Although more speculative as to whether this is already having an impact (with the question around duration of the bear market), future-oriented assets at the end of a bear market will begin to outperform traditional assets. This is because during a bear market a lot of problems of current systems become apparent, innovation solves these problems. Look at problems around the food industry, energy or supply chain. Innovation makes it more effective and efficient.
Whether this performance holds up remains to be seen, given the uncertainty surrounding macroeconomic events and central bank policies, for example.
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