Delphi Office Hours Call (May 25th, 2022)

Below is the full recording and transcript of the Office Hours call our team did on Wednesday May 25th, 2022.

• Overview (00:36)
• Macro #1 (01:22)
• Macro #2 (04:39)
• DEX Vol (08:08)
• Hop (11:29)
• DAOs (17:45)
• Lens (21:38)
• ETH2.0 (25:23)
• Q&A (28:42)

Transcript

00:36 • Nick
Thanks for joining Delphi Pro’s Office Hours. The date is May 25th, 2022, and we’ve got quite an agenda for you today. We’re going to talk about macro and markets with Jason and Kev. We’re going to talk about an upcoming post around DEX volatility, Hop Protocol, check in with our DAO Digest specialist, talk about a recent investment in Lens Protocol, and then finish things up with a report on ETH2 scaling that we have in the pipeline. As always, we’re going to have Q & A at the end. We’re actually a little light on Q & A, so we’d love to get some in the chat as we go along, and we’ll try our best to get to those at the end. With that, I’m going to turn things over to Kevin to talk about the latest in macro land.

01:22 • Kevin
We’ve gotten quite a few questions recently around where we think this market is going, what is our current outlook, especially on the macro front, because whether we like it or not, macro at this point is probably the biggest driver of price performance across not only Bitcoin, but the rest of the crypto market, at least in the short to medium term. One of the things I think that’s important to hit on here as we start to think about the rest of the year is: right now, when you look at global central banks and the Fed specifically, inflation really is enemy number one. It’s one of the reasons why they’ve had so much pressure to take such an aggressive stance in terms of monetary policy and tightening. What I think is interesting is we’re now getting to this point where markets have had a tremendous downside reaction to not just tighter monetary policy, but global liquidity deterioration and a number of risks on the economic front that we’re starting to see play out. 

02:21 • Kevin
By nature, because financial conditions have gotten so tight, the market has almost tightened for the Fed. We’re going to talking about this inflection point that we’re starting to get to, as we think about where we’re going to be six to nine months from now and towards the end of the year: one of the things I think is important is how people talk about whether inflation fear peaks are behind us. Certainly, I think we’re starting to at least get to that point. This chart shows in an orange the five-year break even rates in the U.S., which are a decent proxy for future inflation expectations. The white and blue lines are looking at a U.S. GDP forecast for 2022 and then year end 2023. We’ve seen that the expectations for economic growth have started to come down. 

03:08 • Kevin
You’re also seeing that in other economic indicators, like the ISM, which has already peaked, you’ve seen break even rates. So, future inflation expectations already peaked and started to roll over. You saw the Fed on a pretty aggressive timeline in terms of monetary tightening. What I think we’re going to get to be a point where the Fed is eventually going to have to walk this back and back off, because they’re not going to want to hike into a global recession or a U.S. recession. When that plays out, what you typically tend to see with big sell offs like this, both in equity markets as well as in crypto and Bitcoin specifically, you tend to have these capitulation sell-offs where prices is a bit choppy for the next couple of months. If you think about towards the end of the summer, I think we’re going to see a couple of these narratives come to a head where you could potentially see a price bottom and an acceleration to the upside in prices because the market’s going to start not taking the Fed at its word, and… 

04:04 • Kevin
…The market will start pricing in less aggressive and more accommodative policy because they’re going to have to come back to the table as you see economic growth slow, U.S. consumption slow, etc. Again, just setting the macro landscape here as we go forward. It’s definitely something that we’re watching. It’s not necessarily actionable in the short term, but I want to put it on everyone’s radar because we’re going to do a lot more work on this type of topic in the coming weeks and months. 

04:29 • Nick
Thanks, Kevin. Shifting gears, Jason, we have you ready to go for something around the price action. What are you seeing here? 

04:39 • Jason
Piggybacking off of what Kevin just left us with, he talked about how after you get some kind of capitulation events, you have some choppy range-bound price action for the next several weeks or several months. That is true. That’s exactly how price works in the aftermath of liquidation cascades. There has been some really good literature on this in the last couple of years, and it’s something that we’re looking to write more on in the future, so just stay tuned on that. What I have on the left of this slide is something that I tweeted out back in January when we first got that pullback from November-December price ranges in the high 50Ks, we got that pretty big nuke into the 40Ks. 

05:35 • Jason
I tweeted out that there