Strange candles for strange times

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.

After a shaky start to the year, BTC finally finds itself climbing above the $30k-$40k range that dominated the past month. In stark contrast to the story of 2022 so far, recent weeks have seen a flurry of positive news flood the blockchain space - most recently with indications that the Russian government will soon relax its historically conservative stance on cryptocurrency significantly. However, Thursday afternoon’s whiplash volatility in response to record US inflation data serves as a sobering reminder that macro markets remain awash with uncertainty.

Recent correlations

January’s continuation of a largely unabated drawdown from October’s $69k highs saw BTC briefly graze lows just below $33k, marking the momentary completion of a -52% reversal, not unlike the retracement witnessed last May. BTC’s final leg down was aggravated by a record drop in social media monolith Meta’s shares, which fell 25% following the release of a concerning earnings report. 

Conversely, Amazon (AMZN) stock soared substantially in response to its Q4 earnings report, observing a $191B single-day increase in market valuation, posting gains almost on par with Meta’s earlier losses. Bitcoin’s correlation to the wider market, and in particular Big Tech, has seen the leading cryptocurrency absorb a share of both Meta’s bearish news and Amazon’s markedly bullish performance, with BTC spiking 11.4% in the wake of Amazon’s announcement.

BTC’s recent drawdown bears striking similarities to last May’s retracement

An eventful flatline

Perpetually increasing volatility in traditional markets has reached a fever pitch, with major companies like Snap (SNAP) posting single-day 58% gains - a sight rarely seen outside the realm of crypto degeneracy. The climate of hair-trigger sensitivity has been largely fuelled by dicey US Federal monetary policy, with inflation data becoming increasingly evaluated by market participants. The latest US Consumer Price Index (CPI) figures published on Thursday came in at 7.5% - 0.2% above forecasted projections, and, more concerningly, the highest CPI recorded in the country for the past 40 years. BTC was quick to print red as this month’s CPI data came to light, dropping from above $45k to $43.6k in a matter of minutes, before briefly reclaiming $45k highs as US markets began to stabilise.

Consumers continue to face heavily inflated expenses for basic goods and services (bls.gov)

Institutional adoption intensifies

In perhaps a sign of the times, Russia’s commitment to acknowledging cryptocurrency as currency and ease restrictions surrounding its trade came just days after the country’s central bank had pushed for the outright banning of cryptocurrency-related activities in the nation.

Russia’s crypto-friendly pivot has been bolstered by the entrance of other major traditional entities to the market, with KPMG Canada allocating BTC and ETH to its corporate treasury. Elsewhere, BlackRock, the world’s largest asset management firm, expressed renewed interest in cryptocurrency, while Tesla announced that the company would maintain its current BTC holdings. 

The downpour of positive sentiment, and its evident normalisation, evidences both how far the industry has come in a few short years, as well as the seemingly bottomless appetite for the utilisation of blockchain technology and its potential to disrupt established systems on a financial, cultural, and geopolitical scale.

Forward focus

Given the concerning outlook for macro markets, crypto’s current performance shows promise, with the market’s total valuation seeking to reclaim the $2T levels that opened 2022. There seems to be consensus, however, that the true test of the digital asset market has yet to come, with many looking to impending Federal Reserve interest rate hikes as a significant influence on wider risk appetites. While speculation tends to ebb and flow in especially jarring jerks during times of uncertainty, the demand for blockchain tech and its real-world utilisation only seems to gain further clarity as development accelerates.

Buy a degen a coin and they’ll trade for a day, teach a degen to build and they’ll contribute for a lifetime - that’s how that adage goes, right?