CPI Opens the Liquidity Floodgates
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 to a decline in rates during the first couple weeks of May, alongside a rebound in crypto assets.
However, despite the drawdown in rates, investors wanted to see confirmation of better inflation figures given recent weak job numbers—a weak economy and hot inflation is a mix that investors do not want to see. Thus, the on-target CPI number released on Wednesday, showing progress on shelter and auto inflation as well as outright monthly deflation in goods, was important to bring investors back into the fold. Based on the initial market reaction, it appears that market confidence has been restored.
Importantly, this was not just short covering and speculative day trading. There were identifiable improvements in the flows situation.
We saw a massive uplift in the BTC Coinbase Premium, which, as a reminder, suggests ...Reports you may have missed
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