Monthly Chartbook - The End of The Summer Doldrums

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 Sector Breakdown

Macro Outlook

Keeping with the theme of previous iterations of The Chartbook, we ask ourselves the same high level question. Has anything changed on the macro front given that we are in what we’ve described as a macro driven bear market? This month, the answer is… kind of?

At the end of August, Jerome Powell gave his annual speech in Jackson Hole in lieu of the more traditional FOMC meetings (the next is slated for September 27/28). The speech was short and sweet, just over 8 minutes long. The more interesting thing to note is that Powell spent the entirety revisiting one key point; “the FOMC’s job is not done”, with regards to fighting inflation. More importantly, Powell makes references to the mistakes of the 1970s fight against inflation, and pledged to “avoid that outcome by acting with resolve now”.

Asset markets reacted violently to this seemingly hawkish rhetoric. But it begs the question, has Powell’s stance changed or did he actually say anything different from his previous comments? And the answer would largely be ‘no’. What has changed, however, was the market. As we have mentioned in previous market notes, the bear market rally was at least in part fueled by market participants attempting to front run a Fed pivot, perhaps aided by inflation prints seemingly peaking (this has yet to be fully seen, however). This leads to mispositioning within the market, which are liable to be unwound should market conditions continue to deteriorate.

“The reaction to the Jackson Hole comments was reminiscent of the reaction markets had in early June to the much hotter than expected CPI print. At the time, it appeared as though everyone (Powell included) had taken the stance that inflation might be peaking. When the reality of higher-than-expected inflation shattered the market’s expectations, asset prices headed lower. Market participants ultimately had to reassess and reposition for the new reality, resulting in a large selloff.” – Markets Gear Up for Dreaded September, 8/31/2022

We have discussed much of this at length in our most recent Market Insight’s post, “Markets Gear Up for Dreaded September”, so please feel free to review that piece if you have not already.

Decoupling Narrative Reality Begins To Unwind

Over the past few months, the “decoupling” narrative has started to regain traction, suggesting crypto may have finally broken the shackles that tether it to traditional markets. There are some valid points to this argument, including the price performance (in July – August) of crypto assets with newfound positive fundamental catalysts, such as ETH, MATIC, and UNI to name a few.

However, the proof is in the pudding. If the rallies amongst these assets were truly driven by narratives and fundamental updates, then we would expect to see greater price dispersion comparatively to other, high-beta, risk-on assets.

However, that’s not the case. Over the past year, one could argue ETH and AMC have largely traded in tandem. But, it’s not just AMC.

What if we substitute AMC for another high beta stock, say, TSLA?

The parity is uncanny.

Same thing if we swap out ETH for MATIC and bring AMC back in the mix.

Furthermore, the same can be said when zooming out and comparing ETH to a more holistic viewpoint, the S&P 500 index.

Given that the Merge is one of the most anticipated narratives in crypto’s history, it does beg the question: who is really in the driver seat, the narrative or the macro backdrop?

The point is that, the revival of risk appetite in late July – early August wasn’t unique to just crypto or traditional markets, let alone assets with positive catalysts: it impacted most risk-driven assets. This leads us to confidently conclude that the crypto market has yet to decouple from the macro landscape. And although it is important to be aware of short-term price movements and newfound fundamental catalysts, the focus should primarily be directed at the most pivotal macro factors, which continue to dictate market direction.

We have covered many of these factors in prior reports – most notably Liquidity Runs The Wo