Quick crypto market thoughts (8 March 2021)

Posted on 8th Mar 2021 by the LSS team

Volatility, stocks and the dollar

Traditional markets have been experiencing heightened volatility as the VIX index has gone up to near 30% and US 10 year yields are approaching 1.60% (we believe a longer term ceiling should be in the 175-200bps range, and if it breaches that we may be in for a rough ride). Traditional stock indices like the Nasdaq are down nearly 10% from their highs and meanwhile the US dollar index has bounced off its low at 90 and now hovers around 92.


All of this has coincided with Bitcoin dropping from 58,000 to 45,000 and now slightly back up, and it would be foolish to assume that there is no correlation here. As large institutions enter the crypto markets, traditional finance and crypto will move more and more in sync with each other. Our belief is that longer term Bitcoin becomes a safe haven like asset that moves countercyclical to stocks, but clearly we are in the early stages of all of this playing out and today it is not true yet.

Worst case scenarios

If rates continue to rise, the dollar continues to strengthen and stocks continue to sell-off, the *best* case scenario here is for crypto to range and we would expect Bitcoin to maintain its 45k-55k range for a while to come. The stock-to-flow multiple today hangs around $38,000 so is slowly creeping up to 40k and we suspect there may be an absolute bottom there bar a black swan event. Altcoins would likely take a larger hit if Bitcoin moves down and 25% drops are par for the course there but we don't see technical reasons on the charts at the moment for a really harsh sell-off. A 25% drop from here would put ETH at sub $1300 levels and ADA in the $0.80s, which is not far off from where the lower of the Bollinger bands on the daily currently sits.

But if it turns...

A further move up could be sparked at any time by either US stimulus momentum, large institutional buy announcements (we see you in the charts, homies), or the rates/dollar/stocks story that we mentioned earlier to turn around. Longer term trend charts indicate a potential for a $10 trillion crypto market cap this bull-run, which means we likely have about a 6x to go on Bitcoin ($250-$300K?) and significantly more on alts. Buckle up and stay in the markets.