Monthly Chartbook - Another Year, Another Rally

The Monthly Chartbook is a collection of interesting charts and trends we’re watching across crypto and markets. This month’s edition focuses on:

• Macro Outlook

• Crypto Market Review: Market Structure & On-Chain Observations

• L1s, L2s, & DeFi Analysis

• NFTs & Gaming Analysis

Macro Outlook

Please refer back to our The Year Ahead for Markets report for a comprehensive list of themes that we are watching for 2023. You can also check out our most recent macro report, Markets Setup for Rollercoaster Ride in 2023.

After a miserable 2022 for risk assets, 2023 opened on the opposite foot. Risk assets rose considerably across the board, in large part due to recent increases in global liquidity driven by China’s PBoC and the Fed.

“Headline QT” remains in focus, but recent increases in liquidity have largely mitigated these forces. We believe that we may see this trend continue through the better part of Q1.

2022 was the year of dollar strength, a consistent thorn in the side of risk asset performance. It has come as no surprise that the recent rally has been accompanied by a period of dollar weakness. The DXY finds itself at a pivotal level, with risk assets not out of the woods just yet.

Looking into the rally a bit closer, we can see that much of it has been attributed to multiple expansion rather than earnings expansion. We have written that much of the 2022 drawdown was attributed to multiple compression rather than earnings compression (something we increasingly expect to see as the year continues). If earnings are decreasing, the price rally may not have the legs many bulls are hoping for.

For the better part of the last 3-6 months, we have been signaling the alarm of potential recession in 2023, citing several leading indicators. Since then, it appears as though some form of recession has become the base case for many market participants. At first glance, this could seem to be a good thing. However, we know that markets tend to be forward looking and eventually begin to look past the negative data and towards potential policy responses (which are usually good for risk assets). This can pose a risk as market participants attempt to “front-run the pivot” even more aggressively.

Speaking of front-running the pivot, the Fed has made it clear that there is more work to be done with regards to taming inflation. The Fed has reiterated that a period of tighter-for-longer policy will likely be necessary in order to accomplish these goals. This type of policy caps risk asset performance while increasing the probability of tipping the economy into recession.

Volatility will likely be a 2023 headline with the way things have been shaping up so far. Though the short to medium-term outlook is