MacroGuy1 Macro Report - 2022-05-09

MacroGuy1 Macro Report - 2022-05-09
Photo by Art Rachen / Unsplash

Current World Economic Snapshot - Monday May 02, 2022

(All times expressed below are New York – Eastern Standard Time)

Bitcoin Price Action

Below is a Rainbow Chart, which is a way of looking at long term price movements, disregarding the daily volatility “noise”. The color bands follow a logarithmic regression. The chart attempts to predict future prices based upon the past trends and cycles, so we should be aware that future movements will not be solely based upon past movements.

Rainbow Chart 1

The next Rainbow chart reaches similar conclusions but is more detailed and complicated. However, the conclusion that we are on the way down is the same.

Bitcoin's 19th million coin was mined recently, increasing the circulating coins proportion to 90% of the total supply.

Bitcoin tends to be overall bullish because the supply is limited and the amount of coins being released in circulation is halved every four years. Each block mined now provides a reward of 6.25 BTC .

A total of 210,000 blocks are mined between each halving dates, with a more visible aspect of the cycles : From the 1st block to the 70,000th block, Bitcoin appears to be in a bullish phase, from the 70,001st block to the 140,000th block a bearish phase and from the 140,001st block to the 210,000th block a sideways phase.

Bitcoin is the most dominant cryptocurrency. Indeed, it influences the whole cryptocurrency market due to its market capitalization. It's dominancy is also cyclical and since 2016, it falls below 40% exactly when we are entering the bearish phase (>140,000 blocks being mined) while the bullish phase is characterized by a dominance around 70% of the total market.

The average drawdown during an era (Between two halving dates) is 80%.

We are currently at the 3rd halving era which occurred on May 11th 2020, more precisely within the bearish phase. The crossover between the 140,000th block mining date and the lows logarithmic regression indicate 18,000 USD per bitcoin . The high of the era was 69,000 USD and considering an 80% drawdown sets 13,800 USD as minimum price. The low of the era shall be in the interval between 10,000 - 20,000 USD with our prediction at 18,000.

Economic Data

The dollar index hit 104 this morning which is the highest it’s been since November 2002. That strength exerts a negative pull on all the assets priced in dollars, as well as signifying tighter liquidity. Stocks and Crypto continued last weeks falls.

Bitcoin fell to its lowest level since January on Monday as slumping equity markets continued to hurt cryptocurrencies, which are currently trading in line with so-called riskier assets like tech stocks.

Bitcoin dropped to as low as $33,266 in morning trade, testing the January low of $32,951. A fall below that level would be its lowest since July last year.

It then steadied to trade around $33,500, down 1.4%.

There were also short lived fears that algorithmic stable coin called Terra USD (UST) could lose its peg to the dollar.

Upcoming Market Events and Predictions

Monday May 9, 2022

Raphael Bostic of the Fed is speaking at 8.45am. He is considered to be a Centrist with regards to his interest rate opinions, but has been supportive of the current trajectory. His track record is to not present any negative surprises when speaking so we can expect that he will be slight positive for markets on a day when there is not much other news.

Japanese household spending is released at 7.30pm and is predicted to expand by 2.6% from the previous month. I see this as having the likelihood of disappointing because the weakening Yen and high oil price is causing increasing costs for Japanese households, so we may see more negative reaction when this comes out.

Tuesday May 10, 2022

Three Fed officials -  Williams, Bostic and Mester are speaking today. They are all in the dovish camp and could use their speeches as attempts to reassure that the economy is still growing well and that rate rises will not derail the economy.

Chinese CPI and PPI is coming in at 9.30pm after the market close. They are forecast to be much lower than the rates we are seeing in the US and they are likely to meet forecasts as the Chinese authorities do not necessarily release genuine figures, even though much of the market thinks that they do. This could be a positive event for the market.

It is interesting to see that PPI is forecast to be 7.8% - much higher than CPI - because PPI is a figure gathered from surveying businesses and is less prone to manipulation.

Coinbase Global Earnings Report Tonight

Coinbase is releasing earnings after the bell this Tuesday night. Good results might actually boost Crypto prices as a whole.

The share price has dropped 70% to an all time low of $103, a P/E of 7.7 (last year it was on a P/E of 150) and a free cash flow yield of 15%. Based upon fundamentals it looks very good value, despite the technicals not looking so good.

For 2022, the company is expecting its trading volume to decline substantially to 200 billion USD, given that the crypto market capitalization is down by 20%. Coinbase also sees a lower number of retail monthly users at roughly 10 million down from the 11.4 million in Q4. A similar pattern is anticipated to be shown in the revenues from subscriptions and services.

On the expense side, increased miner expenses will be a crucial factor in driving up the cost due to the network congestion and elevated account verification expense.

Rising interest rates, inflation, and geopolitical instability - all of which deteriorates the appetite for risk. However, looking through the current haze, a company like Coinbase is likely to be a major beneficiary of the industry's explosive growth once the headwind fades.

Moreover, the company's diverse front-edge products will add tremendous value to the business when its time comes. For example, Coinbase is now officially the biggest NFT platform, an industry that is expected to grow 30.72% year by year. Therefore, the NFT platform could add more than $45 billion to Coinbase's market capitalization, and as of now, it is not priced in yet. Besides Coinbase Ventures, FairX, Coinbase One, and Coinbase Cloud are all waiting in the pipeline to shine.

Wednesday May 3, 2022

The ECB officials are speaking this morning and will likely clarify how they intend to begin raising rates for the Eurozone. This may help the Euro strengthen and bring the dollar down slightly from its highs. That could also turn into positive sentiment for the markets.

We then have US CPI figures at 8.30am. Core for the month is expected to be 0.4% which is higher than last month but priced in by the Fed’s outlook. CPI for the year is expected to come in at 8.1%. So real yields with a base rate of 1% are still negative (-7.1%) and the Fed will be hoping for these numbers to come down so that they do not have to tighten their policy as much. However, I expect these CPI figures to slightly surprise on the upside which will make the sell-off even worse.

Conclusion

Markets look like they will have a negative week overall. Tuesday is likely to show a small recovery, but the CPI figures for Wednesday will lead to a resumption of the falls.

Bitcoin and other Cryptocurrencies are breaking through their support levels which suggests that to go short looks to be the better trade.


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