$BTC - where are the Shock Absorbers?

Mon 24 Jan 22

In Thursday’s perspectives (previous note) we talked about the vulnerability in bitcoin.

I highlighted the horizontal support line, which broke on Friday - Bitcoin was down 10%.

As we discussed, an unravelling of the private crypto bubble would be powerful enough to create some waves in broader markets. We may have had a catalyst for it, with the Fed's release of its Central Bank Backed Digital Currency report yesterday (i.e. the CBDC, a potential private digital currency killer).

On a related note, remember we looked at this chart below last week, which shows the relationship between the bets on the "companies of the future" (Cathie Woods' ARK Funds) and the "money of the future."

Both ARKK and Bitcoin have been investments that have been based on qualitative theories about the distant future - with valuations driven by the gush of liquidity (monetary and fiscal), rather than fundamentals. The liquidity spigot is now closed, and these trades are being unwound.

It's probably no coincidence that the top in the Nasdaq (highly valued tech) and the top in Bitcoin came in the second week of November.

That was when it became clear that a change in the direction of both fiscal and monetary policy had arrived. Just over the course of a few days (in November), the Fed's stated condition for rate liftoff was seemingly met (with a booming job report) and Congress passed the $1.2 trillion infrastructure bill.

This change in direction from easing to tightening is a signal for value stocks to outperform growth, which is underway. Historical studies suggest this value stock outperformance can hold for the next decade.

It's a buy the dip - on value.