The Signal: Flat Is the New Up

The Market

The market looks to be moving on from the Russia/Ukraine conflict. 

 How Do You Figure? 

One by one, high-profile assets are turning flat (unchanged) for the year. Gold’s rise, a proxy for fear, has evaporated, now at levels from before the war. Energy and materials stocks, the two best performing sectors of 2022, lagged the greater market for the second straight day as reports of talks between Ukraine and Russia signal more deescalation. 

Then there’s the assets that have underperformed moving higher. Bitcoin briefly erased all of this year’s losses (remember those calls for a “crypto winter”?). Ethereum, the second largest crypto by market value, has outpaced Bitcoin’s gains over the past week, and is now just a few percentage points from going positive. The S&P 500 is a stone’s throw away from flat in 2022, which makes sense as the correlation between the S&P 500 and Bitcoin touched their highest levels ever on Friday.

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Killer Bundle?

A big part of the S&P 500’s move could be attributed to its largest constituent, Apple. In the past 5 days, the iPhone maker added nearly $200 billion to its value. Part of that lift is likely due to reports Apple may shift to a “subscription” model for its products, and the validation of its streaming product following a Best Picture Oscar win (the first for a streaming service). 

It’s not a far conceptual leap to conceive of a world where you “subscribe” to an iPhone (tens of millions of which are sold each quarter) and receive Apple’s streaming service – a shot at other streaming bundles offered by Amazon Prime and Disney+ (which adds <10M subscribers per quarter).

The Data

A confluence of events is helping lift crypto. Data around addresses on the blockchain suggests that, between the dip buying, war refugees, Michael Saylor’s MicroStrategy Inc. and the Luna Foundation Guard (LFG), millions are flowing into Bitcoin. And not many are selling. The number of addresses that have held Bitcoin for more than a year just hit an all time high.  The LFG is the most notable, after announcing publicly they would be spending $3 billion to build up reserves for Terra’s stablecoin UST. Reports indicate that $125 million worth of Bitcoin is bought each day. It’s not hard to see why bears may want to step to the side.

An Onslaught

Additionally, Tuesday’s news from Michael Saylor’s firm, MicroStrategy, adds more fuel. Though operating as a business intelligence firm, Saylor famously shifted much of his firm’s balance sheet strategy toward the acquisition of Bitcoin. Last year he famously sold debt to buy Bitcoin, and did it again today. He signed a deal with Silvergate Capital to borrow nearly $205 million for general purposes, including the purchase of Bitcoin. He’ll pay 3.7% interest for that privilege.  And lastly, willing market participants. A survey of Goldman Sachs clients recently found that 60% planned to add to their digital asset holdings over the next 1 to 2 years. About a third of the most enthusiastic investors group were even more bullish, indicating they intend to “significantly increase” their digital asset holdings. 

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* Domain Money Advisors, LLC, an investment advisor registered with the U.S. Securities and Exchange Commission and an affiliate of Domain Money, is currently recommending the following assets contained in this edition of Domain Money’s The Signal as part of Managed Strategies: BTC, ETH, LUNA, AAPL, AMZN, DIS, GS