The cryptocurrency market has been experiencing a significant drop in market capitalization, with the current level 60% below its all-time high. In contrast, the S&P 500 is only 15% away from its peak. This is a significant difference that crypto analyst Marcel Pechman addresses in his show, Macro Markets, which is featured on the Cointelegraph Markets & Research YouTube channel. Pechman explains that the cryptocurrency sector is suffering from a significant problem – it doesn’t fit neatly into any established category, such as a commodity or a foreign exchange currency. As a result, not all mutual funds can hold crypto, leading to a decreased demand.
The lesson here is that Bitcoin (BTC) and Ethereum (ETH), which are mostly understood as alternative risk assets, will continue to trade this way, and investors should not waste time looking for theories to explain why crypto has not been able to break new highs. Instead, they should acknowledge the unique nature of the industry and consider alternative strategies to profitably invest.
Another interesting topic explored in Macro Markets is the recent $2.3-billion short seller losses by NVidia, which Pechman argues do not provide the full picture. Short sellers can still endure pain as long as they don’t close their borrowings, and as long as they have enough collateral deposits. For a buyer who paid a higher price for their crypto, the losses are not concrete until they sell. The difference is that a short seller needs to find someone willing to lend the shares to keep the trade open.
According to a Bloomberg article mentioned in the show, NVidia is the fourth-most shorted stock in the US, ranking behind major companies such as Apple, Tesla, and Microsoft. Interestingly, Pechman notes that these four shorted stocks are also included in the top 10 components within the S&P 500. This raises the issue that the short sellers may have been market neutral all along, buying index futures and selling individual stocks.
Finally, the show discusses China’s 5% growth, which has disappointed investors and its potential consequences for the markets. The most critical news according to Pechman is China’s reluctance to issue new stimulus packages, which could be a strategy to weaken remaining global economies even further. China is a key player in global commodities, and if commodity prices and the global trade balance continue to weaken, other governments will have less tax revenue. Pechman highlights that Germany has now entered a technical recession, with the US following close behind.
Pechman believes that the initial outcome of these developments is negative for crypto as it drains liquidity from markets, and investors will rely more on short-term government bonds and cash. However, if the US dollar loses strength, this could be positive for crypto in the medium term.
In conclusion, Pechman’s Macro Markets show provides an in-depth discussion of complex financial concepts in layperson’s terms. By exploring the impact of traditional financial events on day-to-day crypto activities, he helps viewers to better understand the underlying forces shaping the crypto market and make more informed investment decisions. Fans of the show can access exclusive and valuable content provided by leading crypto analysts and experts by subscribing to the Cointelegraph Markets & Research YouTube channel.