CPI sent stocks soaring

The last week has seen quite strong rise in the crypto market, especially for bitcoin. The price of the largest cryptocurrency, bitcoin, rose by about eight percent, the price of the second largest cryptocurrency, ether remained pretty much unchanged, and the total value of the rest of the crypto market rose by about two percent.
We will focus on ether's relatively weak price action in more detail later in this newsletter.

Among the tokens in the selection of the Kvarn X trading service, the strongest weekly price increases were seen by Fantom (FTM, +21%), Immutable X (IMX, +18%) and Arweave's AR token (+14%). The weakest price development, on the other hand, was by Cosmos's ATOM token (-8%), Algorand (ALGO, -4%) and Arbitrum's ARB token (-4%).

ETH/BTC ratio still in downtrend

ETH/BTC-ratio  has been consistently down since the fall of 2022. During this time, ether has weakened against bitcoin by about 45 percent.

The decline of the ETH/BTC ratio saw a breakdown of yet another of the support level on Wednesday, May 15, 2024, as the ratio sank below 0.0463, which had served as the support level about a month ago. As the lowest support level of recent years has been broken, it is not quite clear where the ratio will find the next support level or its final bottom.

Our expectation is that the weakening of the ETH/BTC ratio may well continue until the US central bank implements the first rate cut. Currently, the market estimates that this will most likely happen in September. It is possible that the downtrend could even last until the end of the rate cut cycle. Such a development would roughly correspond to the reversal of the previous downtrend in the ETH/BTC ratio in the fall of 2019.

In the attached graph, one can see the development of the ETH/BTC ratio and the US rate cuts in 2019 marked by red arrows. The steep downtrend ended after the first rate cut, and the new uptrend started a little after the last rate cut.

Based on the previous development of the ETH/BTC ratio, we consider a completely possiblethat where the bottom for the ratio would be found between 0.03-0.04, i.e. 15-30% lower than the current level.

What this would mean for ether's dollar price naturally also depends on the development of bitcoin's dollar exchange rate. If Bitcoin were to make new ATH’s between 75,000 and 100,000 dollars, ether's dollar rate could stay roughly close to the current level at around 2,500-3,500 dollars. If, on the other hand, the crypto market cools down during the summer and early autumn, and the bitcoin rate drops to, for example, between 40,000 and 50,000 dollars, we might see the ether dollar rate fall to around 1200-2000 dollars, i.e. 30-60% lower than the current level.

Our intention is not to be unreasonably pessimistic, but we want to point out that, in our opinion, ether currently appears to be quite risky within the crypto market, as long as the downward trend of the ETH/BTC ratio remains intact..

On the other hand, it is possible to look at the matter from another point of view. After the interest rate cycle has turned, and the ETH/BTC ratio has found its bottom, ether might offer a quite attractive risk/return ratio. Supported by looser monetary policy, a return of the ETH/BTC ratio from 0.03-0.04 to 0.06-0.08 in 2022-2023 could provide a 1.5-2.5 multiple in relation to bitcoin, on top of which would come bitcoin's dollar price change.

This scenario is based on the assumption that the weakening of the ETH/BTC ratio would only be due to the movement of capital on the risk curve towards lower risk assetss due to the tightening of monetary policy, and would therefore not indicate a more fundamental weakening of ether or the Ethereum protocol in the crypto market. If, on the other hand, the investor believes that behind the relative weakening of ether is the more permanent weakening of Ethereum's position within the crypto world, one may end up believing that the previous 0.06-0.08 ETH/BTC ratios wouldl no longer be seen, regardless of the monetary policy changes.

A lower-than-expected CPI sent stock prices soaring

The CPI index describing the development of consumer prices in the United States during April was published on Wednesday, May 15, 2024. The index reported that inflation was 0.3 percent in April, which was slightly below the expected 0.4 percent. Annual inflation, on the other hand, was 3.4%, which corresponded to expectations.

Excluding the typically volatile food and energy prices, the so-called Core CPI was 0.3% on a monthly basis and 3.6% on an annual basis, both of which were in line with expectations.

The lower-than-expected monthly CPI was the first positive news in a while on the inflation slowdown front, and gave support to market expectations that the US Federal Reserve could start cutting interest rates in September. The market reacted to the CPI figures with rally, and both the S&P 500 stock index and the Nasdaq index, which indicatess the performance of technology stocks, rose to new highs. The crypto market also reacted strongly positively, with bitcoin price rising about seven percent in 24 hours.

While the stock indices are at new highs, the bitcoin price is still around 15 percent below its high in March. The next interesting potential resistance level for bitcoin is around $67,200, which we are about two percent away from at the time of writing (Thursday, April 16, 2024).

Participate in the lottery - Main prize 10 SOL tokens!

As a new Kvarn customer, you can participate in our spring lottery. We will draw 10 SOL tokens and 10 movie tickets among customers who have made at least 30 buy and/or sell transactions during the participation period.

The campaign runs throughout May 1st to May 31st, 2024, and to participate, you must perform at least 30 trades during the participation period – approximately one buy/sell trade per day.

With a minimum of 30 trades, each buy and sell transaction acts as a raffle ticket: the more trades you make, the greater your chance of winning!

Example 1: You make 20 purchases and 10 sales of your chosen cryptocurrencies (total of 30 trades). In this case, you have 30 raffle tickets in the draw.

Example 2: You make 28 purchases and 18 sales of your chosen cryptocurrencies (total of 46 trades). In this case, you have 46 raffle tickets in the draw.

Example 3: You make 14 purchases and 13 sales of your chosen cryptocurrencies. In this case, you are not eligible for the draw, as the total number of trades is only 27.

Attractive prizes:

  • Main prize: 10 SOL tokens (drawn in 1 SOL token increments)
  • 10 Finnkino movie tickets, worth 10 euros each (drawn in 2 ticket increments)

Learn more about the detailed rules of the lottery here.

The material contained in the Kvarn Pulse is produced solely for the purpose of marketing communication. Any information conveyed through Kvarn Pulse should not be construed as an offer or an invitation to make any purchase or sale decisions, or as an encouragement to make investment decisions about any investment object. Copying or borrowing the content of the newsletter without Kvarn's express permission is prohibited. The information presented in the newsletter pertains to the situation prevailing at the time of writing, and the information may or may not have changed. Kvarn Capital Oy does not guarantee the accuracy or completeness of the information contained in the newsletter or referred to in the newsletter.