Overall, it was a Good CPI/FOMC Day

As any market observer knows by now, CPI came in remarkably cool yesterday. May CPI data was soft across the board, with headline inflation at 0.0% M/M vs. 0.1% expected and core inflation at 0.2% M/M vs. 0.3% expected.

The unexpected data fueled a violent rally across all risk assets as rates fell, and the futures market started to price in additional cuts, undoing much of the damage following the hot NFP print last Friday.

Fast forward to the FOMC presser, and we received a relatively hawkish dot plot, where Fed officials priced in one cut for the rest of this year and raised their longer-term inflation expectations. This reversed some of the gains seen in the market. There is speculation over whether the committee was able to fully digest the morning’s data and reflect it in their economic projections, but regardless, this was overall a hawkish data point.

The tone of the press conference was typical, with Chair Powell sticking to his usual script, applauding progress thus far but remaining steadfast on the need for further progress. Importantly, there was no mention of an additional rate hike, which has been enough to keep the market buoyant to date.

Overall, we categorize this day as a net positive macro day for crypto.

Beyond the Initial Rally, Data Points to a Muted Reaction

Yes, the initial reaction was violent as we shot back up to $70k, saw strong outperformance in Core Strategy constituent STX, and impressive rallies in most of our crypto equity names. However, under the surface, the reaction to this data point left much to be desired.

We see below that the Coinbase premium remained relatively subdued. This metric is a good barometer for demand from US investors, especially larger ones. When BTC trades at a premium on Coinbase relative to Binance, it is a positive sign for markets.

These data points are closely related, but it is worth noting that we did not see the massive ETF inflows that one might expect following a cool CPI print. Total flows amounted to about $100 million on Wednesday, bringing the 5-day moving average down to a mere $37 million.

Furthermore, stablecoin inflows, while positive for the better part of the last week, have yet to really accelerate higher as we saw earlier in the year during the stronger parts of the bull market.

We remain net bullish in the near term but need to see these metrics improve to gain confidence in a more sustained move higher in prices.

Animals are Missing

Despite prices in the majors being elevated compared to the start of the year and recent macro data skewing in the market’s favor, volumes are quite muted. Below is the 7-day moving average of aggregate volumes across Coinbase, Binance, Bybit, and OKX for all crypto assets. You can see that volumes are generally well below YTD highs and are about on par with volumes when BTC was still in the $40k-$50k range back in January.

A better perspective might be the chart below, in which we divide volumes by the BTC price. The obvious caveat here is that this is volume across all crypto assets, but regardless, it should serve as a decent picture of the lack of participation from investors as of late.

Finally, social data is consistent with the relative lack of participation from investors. Below we see that Google Trends shows declining searches for both “bitcoin” and “crypto.” While the impact of this social sentiment gauge is less quantifiable, it seems reflective of the general apathy towards the market right now.

Trade Update: Closing DOGE (For Now)

This one is relatively self-explanatory. As discussed above, while the setup remains bullish and the current environment is favorable for liquidity-sensitive assets, we believe the risk/reward for a tactical trade like DOGE does not make much sense until we see flows improve more consistently and animal spirits return in full force.

Core Strategy

The macro setup remains favorable with lower rates and higher liquidity, positioning us net bullish in the near term. However, if the lack of follow-through from crypto market participants persists, it may be prudent to consider derisking for the low-liquidity summer months and preparing for outperformance in late Q3/Q4.

A brief summary of the theses behind each component of the Core Strategy:

• Bitcoin (BTC 1.36% ): Censorship-resistant money that serves as a liquidity sink in developed markets and base layer money in the global south. It is provably decentralized and can be used to build out a more robust, green energy grid throughout the globe.
• Ethereum (ETH 2.64% ): Distributed internet architecture whose proven use cases include the distribution of fiat currencies on global rails and a venue through which one can exchange digital assets globally in a permissionless fashion. Potential to supplant rent-seeking intermediaries via immutable smart contracts and digital ownership rights.
• Solana (SOL 9.60% ): The monolithic competitor to Ethereum’s layered strategy. High throughput L1 relying on the eventual reduction in hardware costs to scale. Goal is to be a global shared state operating at the speed of light.
• Optimism (OP 3.33% ): As ETH looks to scale in layers, more applications and users will migrate to layer 2 networks. OP Stack is the most popular development platform for other L2s. Outside of ARB, which is excluded due to the recent inflation of token supply, Optimism has garnered the most traction compared to other L2s with a liquid token. Offers beta exposure to ETH.
• Stacks (STX -2.18% ): A bet on the development of a bitcoin economy. Key catalysts include the bitcoin halving and the Nakamoto upgrade in Q2 2024.
• Helium (HNT 7.77% ): DePIN is an emerging theme in crypto that we think is bound to make waves in traditional markets. Helium is a leader in this category and has shown signs of early traction in its 5G product. Helium also adds Solana beta to the portfolio.
• Immutable X (IMX) & Ronin (RON N/A% ): Both networks have displayed impressive traction and are poised to be the category leaders among crypto gaming platforms.
• MakerDAO (MKR 10.61% ): MakerDAO stands as an integral piece of the DeFi landscape, offering a decentralized alternative to traditional banking with its stablecoin, DAI. With the anticipated Endgame upgrade, expanding product offerings, and increasing integration with traditional financial markets, MakerDAO is well-positioned to achieve outsized adoption and growth, making MKR a compelling ETH beta opportunity in the intermediate term.