Competing Forces
Macro Headwinds vs. Idiosyncratic Tailwinds
In our prior notes, we highlighted the market's prevailing sideways trend. Over much of the past month, both BTC and ETH have exhibited remarkable stability, moving within a narrow range. Their realized and implied volatilities are nearing all-time lows.
We've also emphasized the waning correlation between Bitcoin's daily returns and macro assets such as tech stocks and the US dollar index. These correlations have approached zero across most timeframes.
This market seems caught in “no man’s land,” pinned by contrasting forces. On one side, macro indicators are pressuring a potential price dip. Conversely, a stream of positive catalysts favoring crypto has emerged.
Nestled between these countering forces, BTC remains steady, swaying between $28k and $30k.
Consider the following chart that captures a telling example of catalyst-driven rally squashed by a local top in market liquidity.
The chart below shows a bitcoin rally that spanned from March to early April, instigated by the regional banks' meltdown, paving the way for friendlier short-term liquidity conditions in the banking sector. Given Bitcoin's sensitivity to market liquidity conditions, ...Reports you may have missed
FLOWS RETURNING TO THE MARKET Last week, we discussed how our base case remained that conditions for liquidity-sensitive assets like crypto would improve in the near term, and we continued to lean on our "Buy in May" thesis, given the constructive setup. A combination of (1) a dovish Federal Reserve, (2) an accelerated tapering of quantitative tightening (QT), and (3) a Quarterly Refunding Announcement (QRA) that met investors’ expectations contributed...
MACRO SETUP STILL LOOKS GOOD FOR CRYPTO As discussed last week, we achieved the favorable setup we were anticipating. A combination of (1) a dovish Federal Reserve, (2) an accelerated tapering of quantitative tightening (QT), and (3) a Quarterly Refunding Announcement (QRA) that met investors' expectations contributed to a decline in rates during the first week of May, alongside a rebound in crypto assets. However, crypto investors remain cautious, and...
INFLOWS RESUME On Monday, market sentiments were rattled by a surprisingly strong manufacturing PMI figure, marking the first expansionary reading in 18 months. This led to a rise in rates, with risk assets across the board experiencing selloffs amid renewed inflation concerns and fears that the Federal Reserve might need to implement further measures to cool the economy. However, in our crypto comments video on Tuesday, we outlined a couple...
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