April 12, 2022

Market Dynamics
Prices have been pushed lower across the board for stocks and crypto, as traders look to appropriately price riskier assets in a rising interest rate environment. The VIX has moved higher and is now over 23 as demand for option protection has increased.

Correlation between stocks and crypto assets have been positive, especially in recent months. According to Bloomberg, and Arcane Research, BTC has a correlation to the S&P of .40. For BTC to truly hedge, it would be important to see inverse correlation via a negative coefficient.

Interestingly, with inflation at multi-year highs, it is crucial to own assets and put your money to work despite broader market volatility. Public markets create unique chances to purchase valuable assets at a discount when keeping things in perspective over a longer time horizon.

Given recent volatility in both crypto and equity markets, all watch list positions remain on Watch.

Over the weekend, Kevin O’Leary stated publicly that he is adding to his crypto holdings and believes cryptocurrency will eventually be the 12^th sector included in the S&P 500 (Source: Bloomberg, CNBC).

Terra (LUNA)
The monthly chart for LUNA is beginning to show some positive indicators that I will highlight below. Here we see the MACD line beginning to curl back higher, as our TTM indicator shows it wants to cross back above 0. This means some buyers are coming back in.

Monthly Chart

We see price dips in LUNA as a buying opportunity, as all recent volatility has been digested in the market and LUNA has continued higher over a longer-term hold period as noted below.

One Year Chart

LUNA has consistently made “higher lows” over the past year.

It is important to look at both near-term and long-term charts when analyzing an investment opportunity to better understand trading dynamics through technical analysis. This is something we perform here at Cabot in addition to providing fundamental research.

Today, longer-term indicators are not flashing bullish signals – as our MACD line has crossed back below and is trending downward. We want to see both the MACD and the TTM crossing back upwards as a sign that investors are once again buying the dip. This reading takes more time to develop over a multi-day period, which is why we are looking at both the near- and long-term charts.

However, we remain bullish on LUNA. BUY

UST Supply Increasing

Demand for UST is driving the price of LUNA higher. UST offers instant, peer-to-peer transaction settlement, a huge advantage over legacy payment incumbents.

We have not seen a decline in UST demand, and if the longer-term trend continues to prevail, we do not see reason for concern over near-term price volatility for LUNA.

Almost half – 41% of LUNA’s circulating supply – is staked, further reducing supply of the LUNA token. Holders of LUNA are granted voting power over the algorithmic stable coin protocol.

During periods of heightened volatility, some traders transition from other cryptocurrencies into UST!

Follow the Money
Stablecoin liquidity is increasing while traditional money supply is expected to contract with rising rates. As stablecoin liquidity continues to increase, this is bullish for crypto assets as we continue to see increasing adoption.

UST is Taking Market Share

UST Adoption Statistics

Ethereum (ETH)
Ethereum is a time-tested blockchain that underpins the majority of DeFi projects today. ETH currently operates on a “proof of work” model – where miners solve complex puzzles to compete to validate transactions and earn ETH rewards.

ETH is currently undergoing a major shift to “proof of stake,” where the cryptocurrency will require less energy consumption and be more environmentally friendly. Ethereum calls this process “The Merge” (Source: Ethereum). I urge you to explore for yourself here.

There are other benefits from shifting from proof of work to proof of stake, including lower transaction fees, declining supply of ether, and increased security. These benefits are clearly exciting and are likely to serve as long-term price catalysts.

This week exciting developments occurred on test networks for Ethereum. Developers are actively testing and iterating to understand and solve problems well in advance of the anticipated upgrade!

One Month Chart

ETH is showing some positive signs from MACD curling higher, with TTM squeeze trying to revert towards zero. However, the current charting trend looks to be downward.

For near-term buyers looking to enter or begin the first leg of a position, it represents an opportunity to do so if you are willing to hold or trade with a tight stop loss. At the $2,600 level I will be actively buying.

One Year Chart

The one-year view is less constructive with our indicators trending downward. More time is needed to show a clear reversion in trend.

Interestingly, I want to also include the 5-year chart with a compressed view.

Five Year Chart

Look at our blue MACD indicator curling up to cross the red, longer-term average. This is a historically bullish pattern, that often precedes moves higher.

Right now, the price has retested the $2,800 support level with further support at $2,500.

ETH remains a Buy but we are looking to add to the position during continued macro weakness as it approaches lower levels of support.

Current Portfolio