CryptoBitcoinUSD

Crypto and Memes - the canary in the coal mine

Chris Weston
Chris Weston
Head of Research
Dec 13, 2021
Tales of poor liquidity continue to become a real theme for the big hitters and this should be of no surprise given the event risk this week and the time of year.

Trade a range of US shares CFDs and Cryptocurrencies either long and short, from all platforms.

Top of book considerations spring to mind and the ability of institutional players to get in and out of size position at the quoted price, without moving the fill too far down the order book.

Liquidity dynamics aside, we’ve seen good selling in Crypto and meme names, so it tells me this isn’t just an Omicron thematic, but a central bank liquidity story - granted, we’ve seen the market positioning in Moderna, Pfizer and stay-at-home plays like Peloton. However, the former liquidity beneficiaries have been smashed and look incredibly vulnerable for more – Crypto, meme’s, ARKK Innovation ETF and Tesla which is certainly looking shaky here and eyes big support into $904.

Take a look at the AMC daily chart – I know which way I’d like to be trading – if you’re unsure of how short selling with CFDs work, here’s a piece I wrote on it, which may enlighten.

AMC daily

(Source: TradingView - Past performance is not indicative of future performance.)

These once liquidity beneficiaries are the canary in the coal mine and what the Fed giveth, they are now gearing to take away – Crypto has the added tailwind from the adoption story, but investors have little interest in ultra-high valuation equities now, and valuation matters when central banks are removing the gravy train and reducing the incentive to roll out the risk curve - the flava for 2022 is not ultra-high beta plays, but predictable cash flow, quality balance sheets and profitability.

Tech has also found sellers easy to come by - Apple had been dictating the tape in the various US indices, and as soon as it fell from $182, US equity indices tailed off. As many who have been pointing to the poor breadth in the index will attest to, if Apple and Microsoft start to trend lower then the VIX should hold above 20% and the S&P500 and NAS100 to pull 5%+ lower.

We’ve seen a solid bid in US treasuries, which may be screaming out a message in itself – the US 2s 10s yield curve has flattened 4.5bp and the USD is eyeing a break of a pennant consolidation – a move through 94.42 and USD bulls may add ahead of the FOMC meeting.

DXY daily

(Source: TradingView - Past performance is not indicative of future performance.)

This backdrop of flatter curves and a rising USD is a reasonably toxic combo for risk that will have the bears sensing greater volatility into year-end and will hope the Fed rock the boat this week to get some real-life back into markets. The Fed need to balance the notion of a rapidly spreading Omicron against what is shaping up to be a solid quarter of growth in the US – the tone of the statement, married with more than two hikes (which is the consensus) in the ‘dots’ for 2022 and perhaps 10 hikes in total may get the party started.

I guess not every trader likes volatility and some strategies, such as trend-following, may prefer a grind than explosive moves. However, for most strategies (for short-term traders) a bit of movement is welcomed and ultimately creates opportunity.

Either way, it feels that Crypto and the liquidity beneficiaries are being shunned and shorts are finding out that a lack of buyers is aiding their cause. What the Fed giveth, they can take away and the market lives in the future. Trade the opportunity either long or short with Pepperstone.

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