Crypto Strategy

ON ETH APPROVAL AND VOLATILITY We expect a decision on the ETH ETFs today and are bullish on the prospect of approval. ETH open interest is well above all-time highs. Whichever way this breaks, expect some potentially whipsawing volatility. Our base case right now is that we are likely to see a bit of a rally and drawdown post-19b-4 approval, then a slow march higher into S-1 approval and listing....

IMMINENT 19B-4 APPROVAL SEEMS LIKELY Up until yesterday, we were quite bearish about the prospects of a spot ETH ETF approval. Our off-the-record conversations with those close to the situation confirmed this sentiment. ETF experts James Seyffart and Eric Balchunas, who accurately predicted the Bitcoin ETF call, also assigned a very low probability of approval. The market agreed as well, with the ETHE discount widening from 8% to over 20%...

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...

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...

SHORT-TERM OUTLOOK RECAP Our short-term market outlook over the past few weeks has been one of caution and patience, particularly in anticipation of yesterday's events—the Treasury's quarterly refunding announcement and the FOMC meeting. During this period, we observed a weakening market characterized by declining flows, surging rates, and a strengthening dollar, compounded by negative fiscal flows during tax season. _Source: Farside Investors, Fundstrat_ We viewed yesterday as a potential turning...

BUYERS ON STRIKE Last week, we discussed our immediate-term cautious approach to the crypto market, highlighting recent geopolitical tensions, tax-related selling, negative fiscal flows, and the persistent rise in real yields as reasons for a more risk-averse positioning (albeit relative, as holding 7.5% in cash and the rest in crypto is hardly considered risk-averse in most circles). This uncertainty has persisted into this week, evidenced by what we consider an...

NO SHORTAGE OF UNCERTAINTY We generally refrain from overly frequent adjustments to our allocation strategy. However, recent developments have shifted the immediate-term risk/reward balance for our Core Strategy, necessitating a relatively more cautious approach. Based on our analysis below, we also have a good idea for when the market will find a more stable footing. The DXY has rallied significantly, and the long end of the yield curve has experienced...

WHAT BTC SHRUGGING OFF CPI SAYS ABOUT CURRENT FISCAL SITUATION The most significant piece of macro data this week was the CPI. Headline CPI registered at 3.5%, surpassing the anticipated 3.4%, while core CPI remained steady from last month at 3.8%, also above the expected 3.7%. This increase was largely attributed to rising costs in auto insurance and shelter. Consequently, interest rates saw a sharp rise, with the 10-year Treasury...

INFLOWS RESUME On Monday, market sentiments were rattled by a surprisingly strong manufacturing PMI figure, marking the first expansionary reading in 18 months. This led to a rise in rates, with risk assets across the board experiencing selloffs amid renewed inflation concerns and fears that the Federal Reserve might need to implement further measures to cool the economy. However, in our crypto comments video on Tuesday, we outlined a couple...

MARKET SHRUGS AT HOT CPI The latest Consumer Price Index (CPI) data indicated a hotter inflationary environment than forecasted for February. Despite the surprise in the numbers, market participants appeared largely unmoved, suggesting that the potential impact had already been factored into their calculations prior to the release. This resilience reflects a broader sentiment that a rates-driven selloff, in response to the CPI figures, is not a significant near-term risk....

BY POPULAR DEMAND, WE ARE RE-SENDING THIS BITCOIN PRICE IMPACT OF SPOT ETF REPORT FROM JULY 24, 2023 The Bitcoin spot ETF was finally approved. And we are seeing the surge in price of Bitcoin because of attractive supply and demand dynamics.We received multiple requests to resend this report from July 24, 2023 which looked at supply and demand dynamics if a spot ETF was approved.In short, we believe a...