The Tide Pulling Out
The Bloodbath
The bloodbath that has persisted for the better part of the past seven months continued this weekend, with the market shedding an additional $200 billion in total market cap, falling below the $1 trillion mark for the first time since late 2020. Yesterday was the single biggest decline for bitcoin (-16%) since March 2020. At the time of writing (early morning hours of June 14th), there have been a total of $1.2 billion in liquidations of leveraged positions in the futures market.
We are witnessing a combination of macro forces and over-leveraged positions in the market to result in the forced selling of BTC and ETH.
First, a couple of notes on the macro landscape.
Rates
On Monday, we saw the yield curve invert briefly, for the second time this year, as the 10Y-2Y went negative.
Reports you may have missed
Today's employment numbers broadly met investor expectations, placating a nervous market. Risk assets rallied, aligning with our view that yesterday's de-risking would not persist through today. Yields continued their downward trajectory, and Fed funds futures also declined, reflecting the market's adherence to the Fed's dovish messaging. Yields Falling: Source: TradingView Fed Funds Futures Showing More Cuts: Source: TradingView Oil prices nearing YTD lows likely assisted in alleviating near-term concerns about...
INDICATIONS OF FROTH Given the violent nature of the past month’s rally, we have been vigilant for signs of a local top. It would be disingenuous to claim that some qualitative "top signals" are not flashing right now. XRP—which we noted as a possible election trade back in October—with only 1–2k daily active addresses (vs ETH's over 400k, source: Artemis), is ripping toward new highs while influencers take to TikTok...
TURNING CAUTIOUSLY OPTIMISTIC There is a lot of pain in the ETHBTC chart. It peaked in December 2021 and, save for several brief rallies, has been on a downwards slope ever since. It peaked at just under 0.09 and currently trades around 0.038. Source: TradingView Fortunately, we have anchored most of our attention on BTC and SOL this cycle, as BTC has continued to lead the market in a generally...
BTC DECOUPLING FROM EQUITIES Over the past two weeks, BTC has begun to decouple from other risk assets. While the broader macro environment experienced choppy conditions from November 12th through yesterday, BTC has appeared indifferent to fluctuations in risk appetite, continuing its upward momentum and approaching the $100K milestone. A chart of BTC correlations highlights this decoupling, with sharp declines in its correlation to the QQQ, SPX, and IWM. The...
