Waiting for Yields to Steady, “Digital Silver” Looks like A Good Trade
Another Rinse
Last week, we talked about the futures market getting ahead of its skis, trading with increased leverage despite a continued lack of follow-through in spot market demand. Well, rates and the dollar have remained stubbornly high on the back of continued hawkish rhetoric from central bankers, and as we will discuss below, global liquidity has pulled back in recent weeks.
Thus, bulls received another blow on Thursday evening when, in the span of an hour, the crypto market experienced a good old-fashioned liquidation cascade.
Total liquidations would amount to nearly $200 million in the span of an hour. The effect on spot market prices was exacerbated by the low liquidity environment that we are in and will likely remain in for the near future.
Below we can see the current market depth – exchange liquidity is anemic. This is important to keep in mind moving forward. Illiquidity is conducive to large candles in both directions.
While open interest remains elevated compared to the total crypto market cap, the good news is that futures traders may be starting to take their feet off the gas, evidenced by falling funding rates on perps.
Market Liquidity Update
Shifting from micro liquidity dynamics to macro-ones, a key theme we have been covering is...Reports you may have missed
CORE STRATEGY Most of the risks that prompted us to turn cautious in early February still persist, so we believe it’s right to remain patient. However, the near-term (2–4 weeks) setup is starting to look compelling for a tactical rally as sentiment is miserable, liquidity conditions are improving on the margin, a lot of risk has already been priced in, and we’ve seen serious capitulation and deleveraging. All eyes will...
MSTR Reloading Presents Opportunity for Bounce, But Broader Picture Remains the Same
CORE STRATEGY There is a chance that MSTR flows spark a short-term bounce here, but assets further out on the risk curve continue to face headwinds from ongoing uncertainty surrounding trade and monetary policy. Although the current administration takes a pro-crypto stance, there appears to be no immediate catalyst to revive market enthusiasm. We still anticipate that crypto will outperform this year, but until we see further progress on trade/monetary...
CORE STRATEGY With lingering trade war talks and robust economic data dissuading a dovish Fed pivot, we think the potential for downside volatility remains elevated. While regulatory developments and institutional adoption continue to bolster the medium- to long-term outlook, no immediate “good news” seems likely. Nevertheless, we still expect crypto to outperform this year. Until we see flows return to crypto, raising cash/trimming altcoin positions appears prudent (BTC dominance higher)....
CORE STRATEGY With the looming threat of an escalating trade war and economic data robust enough to discourage a more dovish Fed stance, we believe the upside risk for the DXY and yields has increased in Q1. Moreover, the market remains highly volatile and headline-driven, inhibiting the crypto market from gaining meaningful momentum. While regulatory developments are a key medium- to a long-term tailwind for crypto, it is unlikely that...