Crypto’s Buy the Recession Moment

Markets rebound in spite of decrease in GDP and rate hikes

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This week we cover crypto’s somewhat bizarre rally in light of rate hikes and recession numbers. We analyze the macroeconomic forces leading the crypto market to look beyond these news, as well as the endogenous conditions facilitating crypto’s rebound

Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether.

• Both Bitcoin and Ethereum fees dropped by approximately a third with respect to last week’s values, where price spikes led to the highest values in months

Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.

• Similarly, $200M worth of ETH and BTC were withdrawn from centralized exchanges

Crypto’s Buy the Recession Moment

While the definition of a recession has become hot topic in today’s politicized environment, the US economy just recorded its second straight quarterly decline in real GDP. Despite the decrease in growth and the fed’s 75 bps rate hike, crypto markets have strongly outperformed.

Via IntoTheBlock’s Free Capital Market Insights

Crypto’s High Beta — Since 2020, crypto markets have largely mirrored stocks albeit with larger volatility

• This pattern has led to crypto following the definition of a high sentiment beta asset, as opposed to an inflation hedge or risk off investment
• In periods of strong rebounds crypto has been the fastest horse, rebounding far more strongly than stocks
• However, in the midst of corrections it has underperformed stock indices

As more traditional investors buy into crypto these relationships have became greater. Due to this, correlations between stock indices and crypto have held at high positive levels.

Via IntoTheBlock’s Free Capital Market Insights

3-Month Highs — Correlations between the Nasdaq 100’s price and Bitcoin’s recently reached their highest in 90 days

• With eyes focused on the fed’s decision, GDP numbers and corporate earnings, most markets moved in tandem this week
• Crypto further proved its position as a high beta asset, riding higher as markets “bought the news”

Following anticipated news, markets pushed higher in spite of the once-perceived bearish 75 bps hike and GDP decrease. This has sparked thoughtful debates among macro communities and dank memes in crypto Twitter alike.

Source: Hsaka Trades Twitter

Bad news = good news? The market appears to be pricing in macro headlines as a sign that the fed is likely to go back on its decisions

• Typically during periods of slowdowns the federal reserve has moved interest rates towards zero and facilitated growth
• While current debt levels and money supply are very different from previous recessions, the market still seems to be anticipating the federal reserve to fuel growth, propelling risk on sentiment
• The federal reserve’s stance of classifying current rates of 2.25%-2.5% as “neutral” (juxtaposed with 9% inflation) has led many market participants to speculate they may not tighten conditions much higher despite the portrayed inflation-focused mandate

While this has fuelled markets broadly, crypto has certainly benefited from investors’ long-term belief.

Source: IntoTheBlock Bitcoin ownership indicators

60% of BTC Belong to Long-Term Investors — 12.69M Bitcoin, or approximately 60% of all Bitcoin in circulation, belong to addresses that have been holding for at least a year

• These addresses have increased their balances by 2.7 million over the past 365 days, accelerating in 2022
• Long-term accumulation in crypto has historically aligned with bear markets
• Current patterns exemplify how “hodl” mentality set price floors for Bitcoin

It is not just Bitcoin benefiting from the recent rally, with most of the market performing even better. To certain extent this has to do with even higher beta values for smaller cap plays. However, Ethereum has its own merit with the anticipated transition to proof of stake leading to a new all-time high in active addresses.

Overall, while crypto remains strongly correlated to macro conditions, it is creating its own merits for growth. These have to do both with investor accumulation and broader fundamental shifts taking place in the underlying technology. While this does not necessarily suggest the end of the bear market, it is evident that risk-on sentiment in crypto is back in spite of dire macro headlines.

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Crypto’s Buy the Recession Moment was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.