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FOMC’s minutes setting the tone for risk assets today

Yesterday, all risk assets underperformed ahead of FOMC’s minutes, which could set the macro tone going forward.

February 22, 2023 - Yesterday, the US stock market posted its worst performance in 2023, so far, as market participants were cautious about the FOMC’s minutes to be released late today. According to Reuters, investors interpreted a rebound in US business activity in February as a concern for inflation control. Therefore, the remainder of risk assets traded accordingly, including cryptocurrencies. Indeed, a hawkish reading from FOMC’s minutes today could trigger a sell-off of risk assets causing Bitcoin to lose the US$24k price level. In our view, despite the recent US retail increased activity, the Fed would not detour too much from an inflationary deceleration narrative already put in place.

Keeping a certain distance from short term noise, around 15 million Bitcoins have not moved for at least six months, worth ~US$370bn, according to blockchain analysis firm Glassnode. Some analysts see this as an indication that Bitcoin investors have become more long-term oriented. Also, Glassnode said that there is a turning of the cycle in place, in which such behavior potentially signals that the market is oversold, and could be poised for a rebound. In our view, Bitcoin has been differentiating itself from other cryptoassets as a feasible storage of value with commodity-like features, justifying the increasing number of BTC held for long periods of time.

However, for those short term oriented investors, Glassnode also brings good news with the Adjusted Spent Output Profit Ratio (aSOPR) retesting the 1 line. The aSOPR measures the ratio between the profits and losses that are being realized at the moment. When the indicator is greater than 1, it means the average investor is selling at a profit. In bull markets, the 1 line becomes a support level for Bitcoin, with investors seeing it as a buying opportunity. Therefore, we believe that if the aSOPR remains above 1 for the time being it would mean that the bear market is definitely behind us.

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