Buy in May and Go Away (Core Strategy Rebalance)
No Shortage of Uncertainty
We generally refrain from overly frequent adjustments to our allocation strategy. However, recent developments have shifted the immediate-term risk/reward balance for our Core Strategy, necessitating a relatively more cautious approach. Based on our analysis below, we also have a good idea for when the market will find a more stable footing.
The DXY has rallied significantly, and the long end of the yield curve has experienced a persistent steepening amidst rising inflation expectations and consistent supply of coupon issuance from the treasury. This past weekend was particularly detrimental to the crypto market, influenced by a confluence of factors:
- Geopolitical tensions
- Tax-related selling and reduced fiscal flows (with tax payments to the treasury exceeding disbursements into the private sector)
- A persistent rise in the US 10-year Treasury yield, driven by strong growth figures (e.g., retail sales exceeding consensus) and inflation expectations
This combination has resulted in a significant drawdown, certainly reminiscent of mid-cycle drawdowns in previous bull markets, yet notable in its magnitude, with many longer-tail assets erasing a month or two of gains within days.
The sell-off, coupled with ongoing uncertainty around ...Reports you may have missed
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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...
BUYERS ON STRIKE Last week, we discussed our immediate-term cautious approach to the crypto market, highlighting recent geopolitical tensions, tax-related selling, negative fiscal flows, and the persistent rise in real yields as reasons for a more risk-averse positioning (albeit relative, as holding 7.5% in cash and the rest in crypto is hardly considered risk-averse in most circles). This uncertainty has persisted into this week, evidenced by what we consider an...
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