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The stock market has recovered all the losses that it suffered after Federal Reserve officials started talking about tapering. The S&P 500 rose 1.5% to 4,224.79, aiming for an all-time high above 4,255 from last Monday. The Dow Jones Industrial Average led the recovery as it went to nearly 33,877 following an increase of 1.7% but still down from 34,756 peak early this month. Tech-heavy Nasdaq only rose 0.87% to 14,141 but is near its ATH of 14,174 made last Monday. https://twitter.com/BitBitCrypto/status/1407033459013476356 Gold sees a slight uptick at $1,780 per ounce, while the US dollar has eased some of its gains and is now at 92.105. The dollar paused for breath as traders awaited US Federal Reserve chair Jerome Powell’s testimony after a surprise shift in the central bank’s policy outlook. Westpac currency analyst Imre Speizer said,
“We’ve had a meaningful shift from a longtime dovish stance to now a slightly hawkish one.” “We’ve had a bit of a positioning cleanout - the whole world was mega short the U.S. dollar, and that’s in good part probably been cleaned out already.”
Powerless to Monetary Policy
While the Federal Reserve’s new policy shift and talks of tapering aren’t affecting stocks anymore, cryptos are surely getting battered. The cryptocurrency market continues to struggle, with Bitcoin back under $31,150 today and Ether going to $1,850 yet again. The total crypto market cap has fallen even more this week and is now just under $1.3 trillion. He said,
“The tides of FONGO (Fear of Not Getting Out) are creeping in,” said Chris Weston, head of research at broker Pepperstone. “Bitcoin is also at a make or break point.”
However, the fact that the digital assets market is looking for clues from the largest central bank could be “indicative of an asset class growing up, while in other ways it was a stark reminder of how powerless all markets are when it comes to monetary policy,” wrote Jeff Dorman, CIO at Arca. These clues also matter in the long-term because “the low dollar, low rate environment has been positive for all risk assets, including digital assets.” Digital assets had the 5th decline in the past 6 weeks with high correlations and few drivers outside of macro. China’s strict measures against crypto trading and mining are one of them. Not to mention, Grayscale Bitcoin Trust (GBTC) shares are still flowing in the market, at least until next month.
Capturing Beta to the Market
While crypto-assets are tanking hard, leverage and speculation have been wiped clean; sentiments are of extreme fear, Coinbase’s retail app has dropped from #1 on the IOS app store to 125th, in stark contrast, money continues to flow in the private markets so much so that deals are pricing at a higher valuation than a few months ago. Dorman wrote,
“Investor appetite remains very strong, as new entrants to the market are choosing to fund private companies and projects as a form of capturing beta to the market. This is another way of saying the shape of the curve has changed, with steep contango (future prices) but lower spot prices. In other words, it’s signaling that the market expects prices to go higher in the long-term regardless of near-term price action.”
He further noted that we had seen this before when investors switch between Bitcoin and Ethereum, currencies and DeFi, public and private, and digital assets and crypto stocks — all proxies for the growth of this asset class. Dorman added,
“Just like with the Fed, the end result is spelled out, but the path it takes to get their changes.”