A Framework for Positioning Around Tightening Monetary Policy
Weekly Recap
It was yet another choppy, risk-off week for crypto, as investor concerns over inflation and the impending Fed response grew. Last week, we discussed how the March FOMC meeting minutes discussed an expeditious plan for rate hikes and a roadmap for quantitative tightening starting as early as May. This clearly reverberated throughout both traditional and crypto markets over the past week.
On Tuesday, March CPI figures were released, the first numbers to reflect the impact of the war in Ukraine. While the headline figure of 8.5% came in slightly above analyst expectations, Core CPI met expectations, thus marginally reducing rate hike expectations and leading to a partial recovery in risk assets.
As one might expect, Web3 and DeFi names have underperformed over the previous seven days. Smart contract platforms performed surprisingly well, following closely behind currencies.
A Framework for Positioning Around The Fed
In Q4 2021 and early Q1 2022, we frequently discussed how bitcoin was trading like an overpriced tech stock, falling precipitously as the US 10-year started to move higher. It was clear to us that as the macro outlook turned bearish, and as investors ran for cash/commodities, bitcoin and other risk assets traded in...Reports you may have missed
BTC AS A POSSIBLE STRATEGIC RESERVE Last week, we discussed the rising political tailwinds affecting crypto. Despite events earlier in the year that might have suggested a changed stance from the Democratic Party, the political divide over the issue has grown stronger. The GOP has become the party that is undoubtedly more favorable to the industry. The attempted assassination of former President Trump, juxtaposed against a Democratic Party seemingly in...
Gox Wallet Movements Still Present a Risk, But Macro & Politics Keeps Us Allocated Here (Core Strategy Rebalance)
DISCUSSING THE SUPPLY CONCERNS On balance, macro conditions have moved in our favor thus far in early Q3. We have received soft jobs numbers and softer ISM reports, and cooler inflation figures, which have sent rates and the DXY lower. Unfortunately, the mere reveal of imminent sales from the German BKA and the solidification of the Mt. Gox disbursement timeline were not enough to put a bottom in for bitcoin....
LESSONS FROM OPEC We have witnessed a significant market panic partially related to formerly locked BTC hitting the order books. The major sources of supply include:Mt. Gox – 141,686 BTCUS Government – 8,100 BTCGerman Government – 50,000 BTC At current prices, this would equate to over $12 billion in supply. This threat, combined with an inhospitable macro backdrop (rising DXY, higher rate expectations, hawkish Fed), has brought BTC down to...
LDO Risk/Reward Looks Good Here, Immediate-term Macro Picture Still Uncertain (Core Strategy Rebalance)
FLOWS AND SENTIMENT STILL SUBDUED Last week, we received a better-than-expected CPI print, but the DXY continued to move higher due to global weakness and a hawkish Fed. We discussed the risks appearing in the metrics we use to gauge sentiment and flows. The overall lack of follow-through in the crypto market was evident. Volumes, net ETP flows, the Coinbase discount, stablecoin market cap trend, and search interest for key...
