Conflict tensions escalate as risk assets depreciate

Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.

In this week’s edition of the Upside Down, it appears that bad news, once again, is bearish. Last week’s 11% drawdown for Bitcoin has continued its slide, with BTC now sitting a hair above $19k at the time of writing. The decline has been driven by hawkish sentiment from central banks around the world as, finally, it seems the very real threat of a global inflation crisis is now being taken seriously.

Having mounted several unsuccessful challenges to reclaim key $19,6k support this week, it appears that 2017’s ATH is now being solidified as resistance. Crypto’s total market cap has similarly declined, and finds itself below $900B as markets across the board continue to print red.

Macros

Once again, macros govern all. While the Fed’s latest 75bps rate hike came in line with expectations, escalating global geopolitical tensions paint an arduous picture. 

The week began with US president Biden antagonising China by explicitly stating that the US would defend Taiwan against any potential Chinese offence, pouring fuel on to a fire that’s already grown uncomfortably large for all parties involved.

Meanwhile, in the biggest news of the week, Russian head of state Vladimir Putin gave his first televised address since the war in Ukraine began, over 7 months ago. Putin’s speech did not provide the peace-seeking comfort NATO had hoped for, but rather reiterated Russia’s determination to win at all costs. To the dismay of practically everyone on the planet, Putin and deputy chairman Medvedev announced that the nation is prepared to deploy nuclear weapons to achieve its objectives. 

This can be seen as an idle threat as the promise of Mutually Assured Destruction (MAD) has prevented the use of nukes by any nations post-WWII. However, NATO calling Russia’s bluff is a dangerous endeavour, especially given that Russia’s arsenal includes the RS-28 Sarmat, a hypersonic missile with a nuclear payload that we pray never sees the light of day.

Currencies in crisis

Attention has turned to the Bank of Japan as the Japanese Yen (JPY) trends toward hyperinflation, having lost ~30% against USD since the start of 2022. This has brought USDJPY to its highest levels since 1998.

JPY’s performance is particularly important given that Japan is the world’s largest holder of foreign debt, and currently holds $12.2T in foreign debt. For context, that’s 266% of the island nation’s GDP – which also happens to be the third-largest economy on the planet.
As a result, the BoJ has announced plans for forex intervention in the hopes of capping the Yen’s slide without having to raise interest rates. While the announcement boosted JPY on Thursday, the real impact remains to be seen. Forex intervention is typically carried out in collaboration with multiple countries, and as it stands, it appears only Japan is appeared to step in at this point.

USDJPY, Monthly

Forward focus

It appears that the range-bound uncertainty that has constrained the cross-sector downtrend in recent months is finally coming to a head. With post-Merge sentiment evaporating as ETH remains inflationary due to low network activity, participants are now, unsuccessfully, searching for a new bullish narrative amongst the macro chaos.

We remain in a low liquidity environment tuned to hair-trigger sensitivity, ripe for manipulation by market makers with bottomless pockets. The time for life-changing gains will re-emerge once we’ve weathered these present storms, but in the meanwhile it’s critical to ensure that your remaining capital doesn’t get swept away.