The bitcoin dominance thesis is bearing fruit now that the global banking industry is in turmoil.
Week over week performance:
- BTCUSD: 27,600, +13.58%
- ETHUSD: 1,738, +3.47%
- US02Y: 4.03%, -20 bps
- DXY: 103.37, -0.37%
- GOLD (USD/OZ): 1,965, +3.2%
- NDX: 12,562, +4%
- VIX: 23.99, -7.8%
- VVIX: 110, +16%
On the macro side:
Amidst a complex economic landscape, my key takeaway is that central banks (CBs) are striving to maintain stability both in terms of inflation and as an industry.
CBs seem to believe in their ability to handle inflation while also providing liquidity.
Now, rather than directly injecting liquidity via Treasuries as in a Quantitative Easing (QE) phase, they are doing that through the Bank Term Funding Program (BTFP) and OTC swap lines. While the effects may be less immediate, billions of dollars are still moving through the financial system, and the CBs are aware that their instruments include controlling and stimulating liquidity in the markets – in addition to policy rates. In my opinion, the Quantitative Tightening phase is over.
Should banks be able to provide liquidity in the markets while keeping rates high and unemployment low: bingo!
In my opinion, while this situation may not lead to another Global Financial Crisis (GFC), there are numerous issues at play and many components of the system are held together by only a small amount of adhesive, meaning that it would not take much to cause everything to fall apart.
The upcoming FOMC meeting is this week, and tension is high in the markets. It is unnecessary to add more fuel to the fire, so I anticipate that the Fed will proceed with their regular business activities and raise rates by another 25 basis points.
Any deviation from this would most likely result in widespread market turmoil.
Numbers I am watching closely:
- Credit spreads
- Amount injected via BTFP
On the crypto side:
The bitcoin rally was a cliché, and now I believe it is time to go back to the usual.
With BTC covering 47% of the crypto market cap, ETH and alts have nearly been forgotten.
In the derivatives space: BTC volatility has become really crowded, and should the Fed go with an ordinary 25 bps hike, it will set the best scenario for a volatility crush.
On the spot side, I would expect a re-positioning out of bitcoin into ether, and alts outperforming as correlation breaks a little.
In terms of derivatives: structures like “short the wings” and “long the body” should catch the volatility crush coming from the expensive butterflies and the excess volatility premia now being paid.
Chart: 25-delta Butterfly
Also, as we are now at more than 10 days of inverted ATM term structure, playing a mean reversion on ATM 30-day and 90-day makes sense to me.
Chart: BTC ATM Term Structure
Looking at the charts:
Support: USD 25.2k Resistance: USD 28.7k
Read more News here
