DOMANI - Crypto Outlook
(DOMANI is an oracle-less Digital Asset Management platform that enables users to create, mint and manage ETF-style tokenized funds. The views expressed in the article below should not be taken as investment advice. Always do your own research.)
The start of 2022 can be best compared to a rollercoaster. All-time highs in late 2021 were quickly reversed, leading the crypto market into a bearish 2022, as the total crypto market cap fell 30% during the first month of the New Year. Over $600bn in market cap was wiped during the first 3 weeks of the year. That’s a bumpy ride even for the world of crypto.
Crypto Total Market Cap, YTD.
The macro-outlook is not ideal. Rising interest rates, international conflicts, increasing energy costs and general inflation have been rampant in the first half of 2022, causing instability in most global markets, affecting crypto assets. As noted by Arthur Hayes, blue-chip crypto assets like Ethereum and Bitcoin have been moving in correlation with the NASDAQ index (NDX), which is not a positive metric given the current global instability.
BTC vs NDX 10-, 30- and 90-day correlation
ETH vs NDX 10-, 30-, 90-day correlation
The half percentage point hike in interest rates by the United States Federal Reserve last week, exacerbated the bearish sentiment, which by many accounts feels closer to capitulation levels. However, the tightening of monetary policy is absolutely natural given the inflationary economic conditions, with the US experiencing the highest inflation in over 40 years.
To add fuel to the already large macroeconomic fire, we have seen the collapse of Luna and UST sending crypto assets into a downward spiral over the last week. For a comprehensive post-mortem of Luna and UST, you can follow Route2Fi’s thread on the subject:
Whilst it is possible that market conditions will worsen during May, there is also an interesting opportunity for investors to increase their stake in crypto assets for a considerable discount, hoping for a market rebound during the second half of 2022. Let’s take a look at the top crypto assets available on DOMANI and how they are trading respective to their all-time high:
Trader Joe: 92.3%
Curve DAO: 97.5%
If macroeconomic sentiment clears, as the Fed slows down interest rate hikes, there is a possibility that crypto assets will outperform during the second half of 2022. The significant discount these assets are currently trading at could offer a significant upside to investors who are willing to take the risk and bet on macroeconomic sentiment improving by the end of the year. The question is, when is the right time to buy? Whilst no crystal ball will predict the complete bottom out of these assets; investors can hold a basket of these goods to diversify unsystematic risk by investing in an XAV fund sponsored by DOMANI DAO on Avalanche.
In this sense, investors can save on the individual transaction costs and bet on the wider market conditions improving through one single transaction, which a fund token will represent. Given the investment thesis detailed, DOMANI DAO is proposing the creation of the XAVMACRO Sponsored Fund.
If accepted the fund composition will be weighted as follows:
Through the proposed fund composition, XAVMACRO will give more weight to large-cap, blue-chip assets like BTC, ETH and AVAX, whilst still offering value potential to lower cap assets like CRV.e, JOE, PTP and DEXTF.
DEXTF holders can vote on the creation of the sponsored fund by voting on Snapshot:
A bearish start to 2022
Macro conditions have not been ideal with high inflation and increase of interest rates by the US federal reserve
Monetary conditions are natural for inflation, leading to a decrease in tech stocks included in the NASDAQ index, NDX
NDX and bluechip crypto assets like ETH and BTC are highly correlated, which explains the bearish conditions experienced in the last week
Whilst the bottom out might still not have been reached, there is still significant value in investing in crypto assets relative to their ATH
XAVMACRO has been proposed as a DAO Sponsored Fund, as an investment strategy built to represent a basket of assets which are trading at a significant discount compared to their ATHs.