From Kenny Hearn, Chief Investment Officer SwissOne Capital
The attractive qualities behind the technology that have led to the global adoption of Bitcoin are just one side of the argument for this asset class to takeover from mainstream traditional finance. The other side of the argument is the fundamental destablisation of global finance due to countries› over indebtedness and the inability of global central banks to work together to improve the poor state of affairs when it comes to monetary policy.
Since the founding of SwissOne Capital, we have been of the view that for decentralised technologies to take hold and become foundational to mainstream finance there would need to be a shake up in the global monetary system to really make this alternative shine.
When the Japanese raised interest rates (to 0.25% from 0%) last week, at a moment in time when the rest of the world is gearing up for rate cuts, it marked the first sign of this global monetary policy divergence. The impacts have been significant and far reaching.
For many years, this 0% interest rate invoked a carry trade whereby investors borrowed in Yen and invested across foreign markets including risk assets. When the Central bank increased rates last week, it stemmed the real concern that investors will begin to reverse these positions and as the Yen gets stronger and stronger, so the reversal trades can gather momentum. This is why the Nikkei woke up to a negative -12% on Monday.
To further add to this “risk-off” trade, geopolitical tensions between Isreal and Iran reached all-time levels over the weekend.
These events have had significant impacts on crypto and digital assets ever since with Bitcoin dropping over -20% to below the $50k level at one point. The rest of the crypto market assets are down in the region of negative 15-30%.
The major driver of the crypto market moving in much greater increments compared to traditional financial markets is due to significant amounts of leverage and/or derivatives whereby larger market moves force the closure of traders’ positions resulting in an over-selling or overreaction by the market.
What next?
We have seen a small recovery since the lows (Bitcoin back to c.$57K) in the crypto market as traders close up these gaps left by forced closure of derivatives positions. However, we do not suspect these global “risk-off” events to dissipate quickly and we suspect market volatility to last for approximately 3-4 weeks or at least until we gain further clarity on US monetary policy towards the latter stages of August.
We expect an interest rate cut of 0.5% from the US FED in September which could turn the tide for the markets after a difficult August.
We believe the next few weeks provide a BUYING opportunity as Bitcoin and other digital assets related to DeFi stand to be huge beneficiaries as we move into a loosening monetary policy that we expect to ensue over the next 12 months.
Therefore, we see these current events as a final shake out of the market before a run up back to the $70k levels for Bitcoin before the end of the year.
Could this past week’s events be the start of more challenging events to come over the next 12-24 months for central bank monetary policy makers. The result of which could place Bitcoin and other DeFi platforms at center stage to benefit from this challenging environment.
Overall, the increased levels of volatility have certainly benefitted the performance of our soon to be launched Smart Defensive ETI. This market neutral strategy harnesses the power of uncorrelated diversification. It is based on the mathematical principal that a large selection of uncorrelated assets will yield stable returns with a low probability of capital risk. With a CAGR of +28.5% (before fees) and just 2 negative months since 2019, this strategy is must for investor portfolios.
If you would like to find out more, please reach out to: Steffen@swissone.capital or Chris@swissone.capital
We recently hosted a WEBINAR where covered how Blockchain Technology will impact traditional industry and how investors can capitalise on it.
Bitcoin Technical Outlook: The market failed to breakout above $69k again and formed a «double-top» at these levels before falling through the $61k support level we spoke of in our previous Boost. Once this level was broken it opened up previous local lows of $53.5k and beyond. That’s exactly what happened and earlier this week the market touched $49k to form a base at the previous resistance level of $48.5k. As discussed above, we have seen some respite back to the $57k levels but the market will need to attain the $61k level rather quickly to avoid retesting these lows later on in the month.
Top 50 Crypto Performance
(past 30 days-to-date)
(SwissOne Capital/mc/ps)