Crypto and legacy markets have traded together for some time now. Apart from the recent lack of volatility in the former, it's all been one market.
We don't need to overcomplicate this.
Just look at the ratio of the High Beta ETF $SPHB against the Low Volatility ETF $SPLV overlaid with Bitcoin since the onset of the pandemic. They look pretty similar, right?
As we turn the page on another quarter in the crypto markets, we leave behind yet another period of aimless price action.
Bitcoin ended the period unchanged after giving back some of its slight gains earlier in the quarter. The leadership was outside Bitcoin, as Ethereum sported some modest gains.
Other names, like Polygon and Binance, are well above the lows achieved in the mass capitulation event in June. This came after Ethereum completed the transition from Proof-of-Work to Proof-of-Stake.
One of our favorite anecdotal indicators is the classic magazine cover.
Journalists do a tremendous job of aggregating consumer and investor sentiment.
By the time these magazines and other features take time to plan, develop, and eventually publish their covers, they're always going to be late to the party.
That time delay often presents a prime opportunity for investors.
Similarly, ETF providers also give us a wealth of sentiment information, particularly when it comes to ETF launches and de-listings.
ETF providers have a hilarious track record of launching funds at the complete worst time while de-listing them right before things get going.
A classic example is the coal ETF that got de-listed right before the epic bull market in coal stocks just began.
In crypto, we have yet another insightful indicator, one I like to call the "FTX indicator."
There's been no denying the importance of the US dollar when it comes to evaluating risk appetite.
It's been clear -- the dollar has been the safe haven.
Not gold.
Not the yen.
Certainly not bonds.
When the dollar has been strong, crypto and equities have been pressured, and vice versa when the dollar's eased off.
Just look at the last few sessions of trading: The dollar sold off, and equities quickly got back above their June lows, putting in a failed breakdown.
In fact, it's not just the broad indices putting in these failed moves. There are ton of whipsaws out there this week.
One, in particular, that's caught our interest is gold.
After running the stops below this support level, gold finds itself back in the high time frame range.
It's piqued our curiosity to see crypto volatility dampen while risk markets have continued to sell off in recent weeks. This comes as equities lost their June lows, where downside volatility looked poised to follow through.
But, this week, risk appetite has shown a completely different face.
The S&P 500 is back above the lows, putting in a failed breakdown.
What's more is that both Ethereum and Bitcoin have risen in conjunction with equities, supporting the case that the conditions for a countertrend rally have been set.
Equity markets have been selling off hard, while Bitcoin and crypto have been flat.
The primary driver of Bitcoin and crypto price action, more generally, has been the tight trading correlation to legacy markets. In fact, the two have been trading tick-for-tick over the last year now.
So Bitcoin's volatility in the face of the recent risk-off action in equity markets has our attention.
But is this a new trend? Is Bitcoin finally going to decouple here, or is this just a temporary bout spurred on by unique conditions?
It's hilarious. This little observation is becoming a running gag around here. Because, let's face it, in this tape, a strong dollar has proven to be a significant headwind.
The analysis need not be more complicated than this basic framework.
The simple fact of the matter is that if you're going to make money long equities and cryptocurrencies in the late stages of 2022, you're betting that this dollar strength will ease off.
As long as the dollar remains strong, expect Bitcoin to remain under pressure.
There's a lot that we can learn from Warren Buffett, who many consider to be one of the greatest investors of all time.
One of the most important lessons of all of them is that there are no called strikes on Wall Street. In other words, in liquid markets, you're not penalized for “missing” a trade.
The market doesn't guarantee traders much. But we can be certain there will always be future opportunities. We're not venture capitalists running rounds on private companies where a single deal can make or break our year.
Instead, we operate in public markets, where there will always be a multitude of setups.
In other words, we're not penalized for not swinging like we are in baseball.
