Shoots of Green

Bitcoin

Bitcoin roared higher by more than 8% last week and has maintained positive momentum on the back of several positive trends. We’ll get into the trends behind the recent optimism in today’s issue. But first, let’s take a look at some bitcoin technicals in terms of price.

As you can see from the chart, bitcoin’s recent rally has taken the relative strength index to levels not seen since early in 2021. Typically, we see the RSI index reach these levels in the early stages of a bull run (see January 2021 and April 2019 in the above chart). When the RSI breaches north of 70, it suggests that the asset might be “over bought”, meaning that the short-term trend is for price to stabilize or drop. Historically, when the RSI reached similar levels, bitcoin’s price ascent took a pause until the RSI came back below 70, and continued its ascent. If bitcoin can stabilize around this level it would create an even better set-up for the medium term. The big test will likely come next week as the Federal Reserve announces another interest rate decision.

Digital Asset Markets:

1. Improving asset recovery prospects around systemic bankruptcies

One of the big reasons behind the optimism in bitcoin and other crypto assets is related to the improving outlooks of asset recovery surrounding two of the largest bankruptcies in the industry.

On the FTX front, the bankruptcy lawyers reported that they had “found” $5 Billion in cash and other liquid assets. This caused the value of FTX account claims to surge from around 2-5 cents on the dollar in mid November, to north of 14 cents on the dollar after the most recent announcement. The Wall Street Journal reported that investors were making “higher offers for FTX customer accounts trapped in bankruptcy” after the news of the found assets came to light. The interim CEO even floated the idea of re-starting the exchange. Which presumably allows investors to recover even more of their assets, and faster.

On the Genesis front, Genesis’ lawyers told the bankruptcy court judge on Monday that they expect to reach an agreement with creditors by the end of the week.

If Genesis is able to structure an agreement with its creditors, it would save all parties involved millions of dollars in lawyer fees, and it would save investors multiple years of waiting for a court resolution.

Both of these developments would greatly improve the financial conditions of millions of crypto investors and are likely a driver behind the recent optimism and positive sentiment.

2. Bitcoin to the rescue in Nigeria

Last week the Nigerian Central Bank imposed a new limit on cash withdrawals as it launched new bank notes in the country. 

The move is being seen by locals as a way to reduce the use of cash and increase control and oversight over all transactions. These types of measures are common in countries facing inflationary pressures and lack of trust in their currency. I experienced very similar policies in Venezuela - and instead of slowing down inflation, these types of aggressive moves tend to reduce the public trust in the government’s ability to contain it, and cause it to surge even higher.

Since the announcement, search interest for “buy bitcoin” in Nigeria has skyrocketed to new highs. 

This should not come as a surprise. Nigerians are turning to bitcoin to protect their savings from further devaluation. Furthermore, trust in local banks and institutions is low, and many Nigerians feel safer transacting on the bitcoin network rather than on their local banking network.

Macro

3. Bank of Canada is the first major Central Bank to suggest it is pausing future interest rate hikes after yesterday’s 25 basis point increase

The Bank of Canada, Canada’s Central Bank, announced this week that it would be pausing future interest rate hikes after increasing interest rates by another 25 basis points. 

While it still increased the interest rate, it very clearly signalled to the market that this would be “the last increase” for now. 

While the Canadian Central Bank has lost some credibility by stating that “rates would remain low for several years” just a year ago, it still signals an important change in tone and policy relative to the last meeting.

This could be a sign of things to come at more Central Banks, and has strengthened the narrative that global Central Bank tightening is peaking or very near the peak.

Interestingly, the Federal Reserve meets next week and they are expected to announce a 25 basis points increase. Investors will be paying close attention to the future guidance and commentary by Jerome Powell after the announcement.

4. U.S. corporate earnings

On the earnings front, many investors were expecting a blood bath for technology companies and those affiliated with bitcoin and digital assets. The results to date have actually been quite the opposite.

On the bitcoin side, we saw Signature Bank beat earnings estimates and post record profits. The stock moved 5% higher after the report. Similarly, Tesla’s report beat analyst expectations and the company announced it had made no changes to its bitcoin position during Q4 2022. The stock rallied 8% after the report. 

In other tech news, Netflix posted positive results and so did Microsoft. Both stocks rallied after their respective reports. 

Intel is expected to report later today. It is working on a chip to mine bitcoin and any updates on that front could impact markets. 

The Week Ahead 

While we are close to the end of the current trading week, we have a big day of economic data and corporate earnings on Friday. 

With that said, the remainder of the week could be quiet as investors brace themselves for next week’s Fed meeting.  

As always, here’s a summary of the events and data that could move markets in the week ahead:

Notice for Canadian Residents: As of January 4, 2023, Canadian clients will no longer be able to take out new B2X loans. As of February 1, 2023, Canadian clients will no longer be able to open a new BTC or USDC Savings Account, deposit BTC or USDC to existing Savings Accounts or earn yield on any existing BTC or USDC Savings Account balances.

Notice for U.S. Residents: Effective April 4, 2022, U.S. clients will no longer be able to earn interest on any newly deposited funds in their BTC and/or USDC Savings Accounts, where available; however, they will continue to earn interest on their pre-existing balances in their BTC and/or USDC Legacy Savings Accounts.

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