Wednesday, Apr 19, 2023

The crypto drop, leverage signals, Gensler's hot seat and more...

“If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.” – Henry David Thoreau

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CRYPTO MARKET PRICING: Join myself and a team of experts from data and analytics provider Coin Metrics in a free webinar to discuss crypto markets, pricing challenges, valuation factors, why regulators are paying attention, and much more, on Thursday, April 20 at 10:30am ET. Sign up here!

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WHAT I’M WATCHING

Sharp moves. As I was sitting down to write this newsletter, planning to talk about yesterday’s rally with BTC again in the driver’s seat, crypto assets dropped sharply across the board, with some smaller ones falling more than 10% in the space of an hour. More on this below.

Growing frustration. SEC Chair Gary Gensler endured a day of grilling yesterday as he testified in front of the House Financial Services Committee. The questions got particularly contentious around the topic of the SEC’s approach to crypto assets and was sprinkled with words like “nonsensical”, “embarrassing” and “incompetent”. We’re all left wondering how many more of these he can politically take. More on this below.

Signs of life. Bitcoin custody platform Unchained Capital has closed a $60 million raise led by Valor Equity Partners with participation from NYDIG and others. The size of the raise is encouraging (this time last year, successful rounds of this size were common – now, they’re like sighting a rainbow cloud). It’s also notable that the raise is for a bitcoin-only firm, which implies a significant bet on adoption growth of an asset many tell us has “no utility”.

Fund manager survey. The latest Bank of America fund manager survey – which gives insight into where professional investor consensus is heading – shows that skepticism about the stock market’s continued rally is growing, with bond allocations up to a net 10% overweight, the highest percentage since March 2009. A net total of 63% of respondents expect a weaker economy, the most pessimistic reading since December 2022. The “most crowded” trades are long big tech stocks, short US banks, long China equities and short REITs. In sum, all the main narratives you’ve been reading about in the financial press. And perhaps the most bearish signal of all, asset managers are the most overweight in defensive stocks versus cyclicals since US equities bottomed in October.

MARKETS

Sudden shift

Ouch. Earlier this morning, BTC dropped almost 3% in under 30 minutes, in a broad market drop that saw some smaller cap crypto assets suffer more than double the amount in percentage terms.

(chart via TradingView)