Some Thoughts on Things
ramblings on the current crypto & macro environment
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Whew boy, it’s been a wild two weeks since our last post, but we, along with every risk asset in existence, are so back. I’m intimately familiar with weeks in crypto evaporating a rational sense of time that feels like months to quarters, but I’m absolutely not familiar with that feeling in tradfi markets. The past three weeks of price action have not only been intoxicating, but also historic.
Nasdaq past 13 day returns (~18%) surrounded by corollary events that exclusively include a cluster of, gulp, 1998-2001, ‘08-’09 and the COVID bounce
“The last 10-days have been unlike any 10-day period in the market since 1950. First, the S&P 500 is up 9.8% in 10-days, which is 99.7th percentile of all 10 day returns.”
From April 14th, “The S&P 500 is up 9.83% the past 10 trading days, for the best 10 day gain since coming off the COVID lows in March 2020.”
“Hedge funds covered their ETF short positions last week at the fastest pace in more than a decade.”
Pure chaos, but finally the good kind! Those headlines and data can easily read bearish, you know the whole 99%+ percentile rallies and return clusters included alongside 2000 and 2008, but instead of direction the core focus they should highlight is the continuously rapid changing market structure.
We often joke about everything trading like a shitcoin, but it’s unequivocally true with each passing day. Fundamentals still (mostly) drive the market on long enough timeframes, but in the short to mid term flows, positioning, leverage, options and overall market plumbing dominate the direction. Of course, this is not something new or particularly insightful, but I think the weight of that collective influence is still broadly under appreciated.
To highlight this more specifically, we’ll examine what happens when those plumbing factors work in the bulls favor. After a treatise of bad news in the post from two weeks ago, I closed the macro section with the below.
“And finally, for the good news, if that doesn’t happen and things are more or less wrapped up in a couple weeks then hope wins out, at least in the short to mid term, through the aforementioned charts of oil, dxy, yields and the vix.
Correlation algos, along with myself and countless other traders, will see those four key assets almost certainly systemically trade lower as everything related to risk on is bid as a result and the endless hedging and puts are wound down.”
While in hindsight I wish I would’ve pounded the table for the bull scenario in that post a bit more, the effects outlined above, make the reactionary nature of markets much more valuable than the predictive ones. Of course, everyone wants to quote tweet victory lap predictions, but pseudo trend/algo following these headline terrorism markets is more valuable as you know the chase, that importantly happens in both directions, is now on. As we saw in the headlines at the top of the article, in this market, the predictive outcomes are less valuable than following the systemic that flows are forced to crowd back into markets.
As I outlined two weeks ago, the current chase in markets were them drowning as DXY, oil, VIX & yields ripped. Algos, flows, leverage and the overall market plumbing were “forced” to sell as these assets continuously climbed higher. Since then, and more specifically since April 6th circled in the charts above, those four assets have absolutely puked “forcing” those same market participants to generally buy anything and everything. What a beautifully simple market it can be sometimes.
Okay, so what now. Well, as you can see in the charts above, we’re probably back in the danger zone. The binary outcome of two weeks ago (“solve” this somehow, someway to rip markets or everything really dies) is reset and as of Saturday morning we’re, imo, squarely leaning more heavily into the scared again phase. Not scared in the sense of “oh shit this is horrendous” like we were in the initial outset of the war, but scared enough by the combination of:
how much better can it get — crypto people are deeply aware of this, and even more so the opposite phrase of how much worse can it get at market bottoms. at this stage, i’m not sure what news flow could meaningfully guide the markets higher and they’re currently priced to essentially a perfect outcome of the chaos that is still the Strait of Hormuz
the propensity for “silliness” to occur at/around market highs; the admin routinely feels emboldened when markets are at their highs like we now currently are, i would argue this is compounded by the velocity of the rally providing them with even more confidence moving forward
with that emboldenment in mind, i feel confident in believing that we’re generally in a structurally higher VIX, DXY, yields and oil environment. how much lower (worse) can these assets trade in the short term? we’ll almost certainly continue to wax and wane between the buying and selling these assets force while the pendulum has now clearly swung back to upside in them (net market selling as a result)
the strait of hormuz still isn’t open? we’re going on six weeks of this now and while two weeks ago i highlighted how the market doesn’t particularly care about things until they hit the US, the situation for the rest of the world deteriorates by the day. the binary outcome has played out and the picture is once again increasingly opaque.
we just had one of the greatest bounces in the history of equities markets. while ATHs beget ATHs and buying ATH breaks is true in both equities and crypto, it’s probably okay to be a bit cautious now given the circumstances that caused the initial selloff haven’t changed that much
how much longer can the peace during the week, escalation and bad news during the weekends continue? if there’s an edge to be had, it’s almost always quickly erased. is this different?
Where this leaves me heading into next week (because it’s almost impossible to trade anything but core positions on timeframes longer than a week these days) is relatively bearish. I spent most of the last few hours of trading on Friday buying index puts and some longer dated calls on OXY and VIX for the reasons stated throughout the above section. Core equity long positions remain and are only added to during market stress given the overall direction equities head on any long enough timeframe. I’m kicking myself a bit this Saturday morning for not slamming some oil, natgas and energy related things to close the week (as I don’t think a long term solution for them is in place as they tapped their 100emas Friday morning) but OXY and VIX will be a fine enough substitute for the time being.
With that specific positioning in mind, I don’t really have major qualms about the overall economy. It’s abundantly clear that there remains a massive bid for inference, compute and token demand so I’ll continue to remain a buyer of stocks throughout those sectors on any and all pullbacks until that changes. Uranium, solar and Euro defense are also core interests moving forward for me as alternatives to oil and Europe/NATO’s defense structure become more important by the day. On a final note, it’s absolutely insane how hard and deranged it is to be a longer term equity bear. We had one of the most legit reasons for a continued pullback in a decade+ and the best bears could do was a ~10% selloff followed by a historic V reversal to new ATHs. The Michigan consumer sentiment index just hit an all-time low while the indexes rocketed to new high after new high. Brutal.
Being in equity bear is essentially always a losing game, but it compounds to a truly dangerous place when the bearish case makes so much sense. Add in the whiplash of headline terrorism combined with a pavlovian response to bid equities no matter what the selloff is and you’re quickly ran over. Even if there is escalation next week, the fear of missing the rally on the other side of whenever the solution comes has compounded since COVID. 20% selloffs become 15% selloffs that become 10% selloffs which result in 5% selloffs because it’s all going to be okay anyway. That is until, you know, the mythical big one. Optimists win.
Cryptographic Currencies
Okay, that was plenty macro-pontificating for the time being, so let’s talk coins. I don’t think it should come as any surprise that since I’m positioned (short-term) bearishly on equities, I generally feel the same for the coins. As I wrote two weeks ago, I’ve been routinely buying spot coins (almost exclusively in BTC, HYPE, ZEC, MON & LIT) since the initial Iran strikes so any upside is of course a welcomed sight. But, I’m still not fully deployed and continue to selectively short coins when I think they’re overextended (like after Friday close into bad news Saturday morning) and unfortunately can’t fully shake the gut feeling of lower still. The red button for me is not fully disabled.
Some underlying reasons that I continue to remain skeptical of sustained, trending upside in crypto markets include:
Relative strength against equities since the initial strikes of the war has mostly faded; the coins are more so keeping pace and/or being drug higher by equities instead of outperforming strongly to the upside as you’d hope given potential downside and the risk premium that should applied comparatively speaking, concerns for continuation given the recent equity rally make sense (if we can convincingly exit this range after the 3 weeks equities have had, it’s incredibly not looking good bruv)
There still isn’t consistent, strong spot demand outside of Saylor and Tom Lee. Despite the equities run and their incessant continued buying, we’re mostly struggling to outperform QQQ & SPY over the past week; lack of other meaningful buyers remains clear while overhead supply is still present
A lot of continued fuckery (RaveDAO, RAVE briefly the top 15 of market cap Friday night) in the alt market, specifically with Binance coins (this is of course not a new thing but still mildly concerning regardless); AAVE & ZRO once again highlighting this weekend how challenging the defi environment can be, risk premium continues to grind higher
I fully understand it’s part of the game we play, but I can’t tell you how much I despise Saylor and STRC determining the direction of the market intraweek (and on that note, Saylor and Tom are a bit sidelined in the interim)
Quantum — i’ll have deeper thoughts on this in the coming weeks, but the fears, fighting and potential forks here are only increasing
On BTC and majors specifically, we’re mostly in a slowish, controlled stairway higher market regime. After tightly ranging for ~70 days, I would expect more explosive moves that aren’t routinely retested if the market structure has truly changed. Instead it’s more like partially explosive move, then the prices that were left behind are offered again in a couple days, rinse and repeat — if the prices are so good at/around the bear market lows, why are the offered multiple times over?
Competition — it’s been years now since the coins have been the new shiny thing and it’s difficult to imagine a scenario where excess capital, froth and excitement continuously choose the coins over AI and the downstream effects there
Alts (generally the trash ones) leading majors at this stage of the market, weakness in HYPE and the previously strong coins that lead this rally from the range lows give me caution for further upside (HYPE, ETH, MON, LIT, ZEC, TAO ((subnet drama obviously a factor here)), VVV)
While you can absolutely call me bearholed and that’s fine (despite a chunk of spot exposure), to change my mind in the short term I’d love to see idiosyncratic demand for spot crypto majors, outperformance of equities and the previously strong, “good” alts outperforming the dogshit to signal further momentum and upside. Two weeks ago I wrote,
“Moving forward, I’m highly confident that last cycle’s early stages signal in the SOL pairs will now be found in the HYPE pairs. Monitoring HYPEBTC and HYPEETH will almost certainly provide a good overall signal for the broader market moving forward…Speaking of HYPE being the new SOL pairs, I’m also pretty confident that SOL pairs are the ETH pairs from last cycle. Since the downtrend began it’s been reliable in signaling that the market is becoming tired and I don’t see what changes that moving forward. ETHBTC was a giant red warning flag for rallies to stop last cycle and until something changes I’m viewing SOLBTC as that continued signal moving forward”
Nothing has, or likely will, change in that regard and I’m hoping that HYPE strength and SOL weakness continues to signal healthier markets and the potential for more upside to come. One other chart I’m watching closely is BTC.D.
I think in an ideal world, we would see this exit the ~250 day range higher to 61%+ in a broad selloff. That would ideally be it for the BTC.D climb higher and then we can talk about sustained, trending upside higher across the board. As you can see in that chart, the spikes come on those market selloffs (OCT, NOV, JAN) and represent a healthy reset of the market. As I stated in the tweet above, I just can’t be wildly bullish when TIA, LDO and dead memes are leading the market higher while BTC.D coils at the top of the range. To be clear, I don’t think the lows are in danger of being swept and I will almost certainly be long anything I can get my hands on if/when we do get that (ideally) last wipe. The bullish line in the sand has, in my mind, been raised from 66k two weeks ago to ~70k today.
With the bearish thoughts out of the way, let’s focus on some good that gives me confidence in holding the spot coins I have and the countless coins I’ll be max long if/when we another wipe on BTC.D expansion. First, there’s continued to be strong buy and forget tendencies throughout the various BTC ETF products and I don’t particularly see what changes that trend. This is just how tradfi and ETF assets work. Supply is bought and held mostly without ever having a second thought. Second, the massive underlying institutionalization buildout, growth and demand continues to accelerate week over week beneath the surface.
In addition to the consistent, steady ETF buying and the ever increasing institutionalization of the asset class, the regulatory climate consistently, at least for now, improves as the SEC once again ruled in crypto’s favor. This time, defi frontends, wallet providers and browser extensions were cleared as having to register as broker-dealers as long as they do not monetize order flow, offer investment advice or take custody of user funds.
Furthermore, for as much as I despise the reliance on Saylor and STRC, Strategy announced a somewhat predictable change to STRC this week. As their tweet states, “Strategy is proposing to pay semi-monthly dividends on STRC, instead of monthly. No change to the annual dividend obligations or dividend rate. These proposed changes are intended to stabilize price, dampen cyclicality, drive liquidity and grow demand.” We’ll see how this develops in the coming weeks to months, but this should give Saylor/Strategy more continuous buying power throughout a month as the volume circus around the once a month dividend date is smoothed moving forward.
You know, after writing all the above maybe it is a bit silly to be bearish short term, but hey that’s what makes a market doesn’t it? To me, as we sit Saturday afternoon, the charts look tired and I’ll be hyper aware of potential failed breakouts across the board if we move lower throughout next week. Accepting back into the months long range after equities pulled the rally they did will be a bit painful.
Collectively though, I still feel better about the overall state of crypto than I have at anytime in the past ~9 months (which ofc happens when you compare the prices/froth from then to now) and I suppose that’s a large reason why I started writing again. I’m not fading that feeling on any timeframe longer than a few months at max, but until then I’ll continue to land where I think the market is pointing me (like net short right now). Unfortunately I think that’s down in the short term but I’d love for the bulls to prove me wrong. Cheers friends, I’ll see you in the orderbooks and here next week.
Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.