GB Market Commentary 18/05/2022
by Marcus Sotiriou
Yesterday, Federal Reserve Chairman Jerome Powell gave a speech to update on the Federal Reserves’ plans going forward. It is clear that for the next two meetings (in June and July) they plan to raise rates by 50 basis points at each meeting. Rate hikes for the following 3 meetings after these are unclear. The market believes there is a 4.5% chance of no more 50 basis point hikes after July and a 36% chance of 1 more 50 basis point hike after July, which aligns with my thesis. This is because I think inflation will start to inflect down in the months of August, September and October.
The majority of the market is predicting 2 more 50 basis point rate hikes after July, which shows why there has been significant selling pressure over the past month. If the majority of the market is wrong and inflation inflects down sooner than they predict, then we should see a sustainable rally from Q4, as the Federal Reserve becomes less aggressive.
Coinshares show that digital-asset funds last week experienced their highest inflows over the past 6 months, reaching $274 million. This occurred during the collapse of the UST stablecoin, showing that high-net worths and accredited investors bought into market panic caused by Terra's implosion and saw it as a buying opportunity.
Bitcoin-focused funds received $299 million in inflows, which was the highest inflow out of all crypto funds. This was the highest weekly inflow for Bitcoin since the last week of October 2021.
Non-Bitcoin funds performed poorly in the market sell-off, as some $26.7 million flowed out of funds managing ether (ETH), while vehicles focused on Solana (SOL) recorded $5 million of outflows. This shows that investors have flocked to safety of the largest digital asset, and de-risked with many altcoins.