Setup Still Looks Promising, Investors Just Need a Little More Convincing
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 capital remains sidelined. Recent dovishness from foreign central banks and a partial retracement of the Japanese yen rally have led investors to adopt a wait-and-see approach before fully recommitting to the market.
Despite the macro setup paving the way, we have yet to see flows return to the market.
ETF flows were strong in the early days of May but have since decreased, showing a slight net negative bias thus far this week.
Stablecoin flows have also been unimpressive at best.
CME futures open interest also remains in a downtrend, indicating that U.S. institutional investors are still hesitant to re-enter the market – either on the long side or for the carry trade.
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