January 19th Technical Analysis: Bitcoin

Cryptocurrencies have seen a lot of volatility in recent weeks. Bellweather crypto, Bitcoin, has seen prices plummet by almost 10% year-to-date, to levels of about $43,000 currently, and also remains down by almost 33% from all-time highs seen in November 2021. The decline is likely driven by expectations of tighter U.S. monetary policy as the Federal Reserve plans multiple rate hikes for this year, as inflation soars to near 40-year highs. Moreover, the recent uncertainty following the surge in Covid-19 cases (U.S. daily cases averaged over 800,000 last week), amid the spread of the highly infectious omicron coronavirus variant, is also adding to the negative sentiment.

Our theme of Cryptocurrency Stocks which includes semiconductors, payments, and brokerage companies, enables investors to gain exposure to the cryptocurrency value chain without betting on the volatile cryptocurrencies themselves. Although the theme remains down by about 8% thus far in 2022, compared to the S&P 500 which is down by about 2% over the same period, it fared very well through the Covid-19 pandemic, returning about 192% in 2020 and about 25% in 2021. The theme has also been much less volatile over time, with average drawdowns over the last five years standing at just about -10%, compared to drawdowns on the S&P 500 which have averaged around -15%.

Within our theme, semiconductor major Advanced Micro Devices has been the strongest performer in recent quarters, with its stock rising by about 55% over the last 12 months. On the other side, digital payments player PayPal has been the worst performer, with its stock down by about 26% over the last 12 months.

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