The situation is a double-edged sword: digital assets as a monetary alternative look promising, but new legal concerns and investigations are casting a dark cloud over the industry.
Week over week performance:
- BTCUSD: 26,935, -2.41%
- ETHUSD: 1,717, -1.21%
- US02Y: 3.94%, -9 bps
- DXY: 102.62, -0.72%
- GOLD (USD/OZ): 1,957, -0.41%
- NDX: 12,673, +0.88%
- VIX: 20.61, -14.09%
- VVIX: 95, -13.63%
On the macro side:
As anticipated in our previous communication (reference: https://t.me/c/1349343248/2512), the Fed increased rates by 25 basis points last week, bringing the current target rate to 4.75%-5%, which helped to soothe the market.
The Fed’s forward guidance on future rate hikes remains consistent with its December views but is slightly more hawkish following January’s strong NFP report. Powell confirmed that there is only one more potential hike for the terminal rate, but in my opinion, the Fed may cease raising rates and attempt to maintain this rate until the end of the year, unless something breaks. Additionally, the bond market is largely predicting a “Fed pivot” with the US 2-year yield trading at 3.94%.
On Thursday evening, we also saw the Federal Reserve H.4.1 release, which showed that the borrowing for the week ended March 22 vs. the prior week:
- FIMA facility: + $60B
- BTFP: + $43B
- Discount window: -$42B
- Other credit extensions (FDIC bridge bank loans): +$37 billion
Fig 1: Federal Reserve statistical release H.4.1
Although these numbers are not currently a cause for concern, I anticipate that the new funding measures will have QE-like effects to counteract QT.
There are still several important questions that need to be addressed, such as whether the banking situation will worsen and whether CPI and PCE will soften. Currently, VIX in the 20s and VVIX below 100 appear to be cheap. However, given the rapid pace at which things can change, I would not be surprised to see VIX in the 30s and a general turmoil in the technology sector.
- All week Fed Govs speaking/testifying to Senate and House
- Friday 8.30am ET: US PCE Index
On the crypto side:
The situation is a double-edged sword: the positive narrative surrounding crypto, particularly BTC, as either a macro risk asset or a monetary alternative, continurs to look promising.
However, new legal concerns and investigations are casting a dark cloud over the industry.
Yesterday, the Commodity Futures Trading Commission (CFTC) sued CZ and Binance for alleged crypto trading and derivatives violations.
(Details about the lawsuit: https://storage.courtlistener.com/recap/gov.uscourts.ilnd.431767/gov.uscourts.ilnd.431767.1.0_1.pdf )
For various reasons, this development should be concerning. Without delving into specifics, it is important to note that the CFTC is not the SEC. The SEC reviews all cases, even those involving small players, but when the CFTC acts, it tends to result in a “spectacular” show. The recent lawsuit against Binance, which revealed internal chat messages, reminded me of the banking crises of the past, and none of them ended well.
Looking at the positioning, we are now in a high vol-of-vol environment, which I believe is still in favour of long high-betas (altcoins & ETH) and short bitcoin. My bias is that upside for BTC look now limited to the $30Ks while ETH and most of the altcoins are still waiting for the exploit. Similarly, on the way down, despite BTC being the mega-cap here, I can easily see it trading in the $25k-$22.5k range and ETH above $1.5k-$1.6k.
In terms of derivatives:
- The BTC ATM Volatility Term-Structure is flat and trading in the 60s. Should the Binance case take long, I would expect short-term volatility to soften in the 45s. Additionally, the ETH term structure is trading at the same values, which is exceptionally rare. I believe a relative vol trade here is the best: long ETH vol and short BTC vol.
- The BTC 25-delta skew finally moved back to a historical median value for most of the tenor which to me makes sense given the current uncertainty.
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