GB Market Commentary 16/06/2022
by Marcus Sotiriou
Bitcoin rallied almost 10% yesterday after reaching $20,100, as the Federal Reserve announcement of a 75 bp rate hike resulted in a short squeeze. Although a 50 bp hike was anticipated for many weeks, last Friday’s inflation data forced the market to price in a more aggressive hike with huge sell pressure. Therefore, a 75 bp hike was priced in for the short-term leading to a rally. The market has since cooled off slightly and there could be more downside ahead over the next few months.
This is due to concerns around an earnings recession on the horizon as a result of the Federal Reserve’s aggressive monetary policy. According to Bank of America, stagflation fears are the highest since 2008, and profit outlooks are the worst since the GFC (Global Financial Crisis) too. Global Profit expectations are expected to fall 72% which is the weakest guide since the GFC. If this comes into fruition it could result in an uptick in foreclosures and bankruptcies. One example of this occurring already is Revlon, an American multinational cosmetics company, who have filed for bankruptcy due to not being able to cover their debt obligations.
A recession occurring at the same time as consumer debt having risen highest levels seen since we started recording it 40 years ago, and personal savings rate being down to 2008 levels, would form a macro environment that is poor for global markets, specifically crypto. As people have less money to spend on essential items, they may have less capital to invest in risk-on assets like crypto and equities.
Despite these macro headwinds, crypto hedge fund managers remain bullish on Bitcoin’s price. data PwC conducted a survey across a sample of 77 specialist crypto hedge fund managers, whose total assets under management (AUM) were $4.1 billion in 2021. PwC noted, “The majority of predictions were within the $75,000 to $100,000 range (42%), with another 35% predicting the BTC price to be between $50,000 and $75,000 by the end of 2022.”
I think this is an example of crypto hedge funds not considering the macro environment with their outlook for crypto in the medium term. This is shown by one of the biggest crypto hedge funds Three Arrows Capital taking on substantial margin which they are now potentially unable to repay.
Regulation is needed in my opinion to stop the drastic impacts of human greed on the crypto markets, and I am looking forward to clearer regulation attracting more institutions from traditional finance into the space.