All Quarters Must Come to an End
Today marks the final day of 21Q1. We have passed the one year anniversary of the market bottom, and are now coming around to the one year anniversary of the birth of the bull market of 2020. This last month has been one of turmoil, while the major US equity indexes have looked healthy for the most part, with only minor hiccups, a look under the hood reveals a market in quite a bit of disarray. The rebound in the US dollar, fueled in large part by optimism of reopening and growth in the US, has caused tech stocks to reel and cyclicals to come back with a vengeance. The steepening of the yield curve has helped banks but has thrown doubt across many other aspects of the market. Combine this with the quarter end rebalance of many widely held mutual funds and other quasi-actively managed investments, and the result is a significant amount of dispersion. While the VIX has been plummeting lower, many stocks have had quite outsized moves.
Crypto has sailed through this period with some bumps and bruises but has mostly remained on course. The aggressive rebound in the US dollar has been a headwind, however the dollar strength is at least partially due to other major fiat weakness, where all currencies are weak, simply others are weaker than the dollar. This aspect has helped to support BTC as it furthers the story of a store of value outside of the reach of central bank easing. ETH has also struggled to tread water during this time, just this week finally seeming to get its head back in the game.
All of this turmoil caused by rotation and rebalancing as investors sell overperforming assets and buy underperforming ones, getting the mix of their portfolios back in line with investment mandates, has also come during a period of lower volumes and reduced liquidity relative to earlier in the year. This has created an environment that has exacerbated the moves in individual assets. I believe that today will mark a turning point in this aspect of the market, and after today when rebalances are complete, correlations that have been broken will start to reemerge.
There are still many risks, but I have been encouraged by the ability of both BTC and ETH to weather this storm, and the underlying support that both share appears to be intact. The main risk factor that I am currently focused on is US dollar and long dated treasuries. If the dollar continues to strengthen and the yield curve continues to steepen, it will create resistance for crypto that might continue to hold it back from continuing higher. Even with that risk, I think that as we say goodbye to March and welcome in the start of Q2 that BTC and ETH are setting up for a resumption of their path forward and higher. For many traders, the quarter end couldn’t come soon enough. Its finally here, and tomorrow will be a brand-new day.
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