MacroGuy1 Macro Report - 2022-03-30

MacroGuy1 Macro Report - 2022-03-30

Airdrop Price Action

Two weeks ago, the company behind Bored Ape Yacht Club (BAYC) launched a governance and utility token —ApeCoin (APE) — via an airdrop. An airdrop is a mechanism designed to reward early protocol adopters and attract new users and has proven to be a remarkably effective tool for building community and momentum around a project.

However, airdrops are not without their risks, as highlighted by Apecoin, which suffered a flash loan attack, price volatility, and controversies around the distribution of tokens. Although APE is governed by a decentralized autonomous organization - Apecoin DAO - around one third of the total 1bn of APE tokens created will be attributed to Yuga Labs and launch contributors.

I thought it would be informative to see if there are any patterns that Airdropped coins follow. Below are charts showing the price reaction of the largest Airdrops of the last few years:

We can observe that all three airdropped tokens experienced an initial price pop followed by a steady drop in prices as traders took profit. In the long run, tokens often re-gain momentum, and it will be interesting to see how BAYC evolves as its community grows.

Crypto Developments

Jim Chanos, a renowned stock shorter, has taken a large short position in Coinbase, but states that this is not due to any negative sentiment towards Crypto and is due to his belief that competition on fees between exchanges will be bad for profits.

Canadian crypto miner Bitfarms (BITF) on Monday morning reported revenue of $60 million for the fourth quarter of 2021, up 33% from $45 million in the third quarter and up 426% from the fourth quarter of 2020. The company reported full-year revenue of $169 million for 2021, up 383% versus 2020. Operating income in Q4 was $15 million, and net income was $10 million, or $0.05 per share. Adjusted EBITDA for Q4 was $44 million, or 74% of revenue, up from $32 million, or 71% of revenue in Q3.

It is up 13% since Monday, but on a forward P/E of 23.5 compared to a forward P/E of 40 for Coinbase, it looks like good value.

In other industry news, Goldman Sachs completed its first over-the-counter crypto transaction with Galaxy Digital, Bridgewater Associates - the world’s largest hedge fund - reportedly is planning to invest in a crypto fund, and micro-investing app Acorns added Bitcoin exposure as an option for long-term investment.

Economic Data

Overall, risk assets are off to one of the best rallies on record at the start of a monetary policy tightening cycle. However, stagflation fears are still rampant with the U.S. yield curve – a leading indicator of recession – still close to inversion and the Fed signalling last week that it will deliberately push growth below trend to fight inflation.

Axel Weber, the chair of UBS and ex-Bundesbank chief said that the ECB is making a big mistake not to raise interest rates without delay.

US Consumer confidence and job openings smashed expectations yesterday - economy looking very strong based upon that. Additionally, House prices rose 19.1% year on year - ahead of expectations and showing that they need higher rates to cool the market.

Oil inventories drew down strongly, so the oil price had some support despite the fall based upon the peace talks.

Nasdaq 100 went over 15250 yesterday, which is higher than when the Fed admitted that inflation was not transitory in January - before the shock from the war. It would be madness if the market kept going higher when now the fundamentals are so much worse for tech and growth stocks, but insanity has prevailed in the US for many years, so could keep going.

Upcoming Market Events and Predictions

Wednesday - 30th March

  1. Lagarde of the ECB is speaking today. She is likely to respond to the pressure from other European central bankers to raise rates sooner, but that they are not yet ready to reduce stimulus. Euro may strengthen after this speech, continuing the robust performance since the peace talks were announced.
  2. Important indicators of the state of the US economy are released at 8.15am (Employment figures) and at 8.30am (Q4 GDP). If these are strong as I expect, they may cause risk-on stocks to fall as would give the Fed more support to raise interest rates - Nasdaq and Crypto to fall, S&P & Dow to rise or fall less than the Nasdaq.

    Paradoxically, if these figures are bad, the markets may rise - but it's hard to call as that might also indicate slowing growth but also rising prices, which equals- stagflation.
  3. Crude Oil inventories are out at 10.30am and may cause a localised move in the oil price at that time, but the day's trend will be determined by the ongoing peace talks in Turkey.
  4. Esther George of the Kansas Fed speaks at 1pm. She is known as a Hawk and so can be expected to emphasise that rates have to go up regardless of any damage to the economy, this is likely to have some negative effect on the market if there is no good news on the peace talks.

Thursday - 31st March

  1. Galaxy Digital, the Crypto investment company, releases results before market open. They are expected to do well in the stronger price environment, as the CEO increased holdings significantly when BTC was near $30k a few months ago.
  2. There is an OPEC meeting at 6am. The last OPEC meeting was just 17 minutes long, and so don't expect much increase in production from this one either. Producers seem to be enjoying showing the US how much they are needed and how much they disapprove of the US making a deal with Iran.
  3. Four price indicators are released at 8.30am, although in a normal environment they would be less important than the Jobless Claims which are released at the same time, all inflation indicators are now central to the direction of Fed policy. The YOY forecast for Feb is 5.5%, which is higher than the previous month, but if it comes in higher, expect a market fall, crypto fall and strengthening dollar.
  4. Williams of the NY Fed speaks at 9am - he's a centrist and will probably add little to the current market view.
  5. Chicago PMI will show the strength of US manufacturing at 9.45am, this is likely to be close to forecast. It will take a big miss in either direction to move the market, but the potential is there.

Conclusion

The main market moving data is still the war, and real steps towards a peace deal will be positive for the market and outweigh any negative data for this week. Otherwise, the data that is coming out is more likely to tend to be negative for the markets and strengthen the dollar.


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