The Macro Pulse | Bitcoin is about to Break to the Upside, and Markets aren’t ready!

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June 27, 2023



🌊 Riding the Institutional wave of liquidity.

⚠️ Recessionary fears are back as Jpow looks to keep hiking.

✍️ Breaking down the Paradigm flows.

🤔 What's next, Trade or Fade?

Institutional Wave 🌊

Bitcoin Break Out

Hot on the heels of Blackrock’s filing for a spot BTC ETF, the institutional news keeps rolling.

Both Invesco and Golden Tree have reactivated their applications for a spot BTC ETF having previously been rejected.

Fidelity, the world’s third largest asset manager with $4.1trn AUM are also rumored to be preparing to file a spot BTC ETF and/or submit a bid to acquire Grayscale.

Adding to the positive news was the official launch of US crypto exchange EDX, backed by tradfi titans such as Citadel, Fidelity and Charles Schwab.

And finally Deutsche Bank also applied for a crypto custody license and Credit Agricole’s giant asset servicing arm gained crypto custody registration in France.

“Narratives” are important drivers of any asset class, but perhaps none more so than crypto.

Policy Mistakes

Recession signals: US 2s10’s inversion deepening

The world of macro was relatively quiet last week, although it kicked off with China cutting its main benchmark lending rate by 10bps, following the previous cuts to other lending rates.

Markets have been left somewhat underwhelmed by the tepid cuts, but continue to expect more stimulus in the coming weeks.

The Bank of England meanwhile surprised markets with a 50bp hike in a panicked response to earlier announced inflation data which stuck on the headline at 8.7% YoY and core inflation ticking higher from 6.8% to 7.1%.

Further, demand destruction looks well under way, with activity data in the form of PMI’s looking ugly as the manufacturing recession intensifies and is spilling over to services.

Interestingly, Bitcoin decoupled from broader risk, and we might actually see rotation from those exhausted tech stock gains whilst the duration rally (as longer yields fall) provides a tailwind.

Finally, with JPow reaffirming expectations for the Fed to hike twice more, recessionary fears are resurfacing as Central Banks look to overtighten.

Only time will tell how this plays out.

Vols & Flows

BTC ATM 25d Normalized Skew

Spot up, vol up!

The break higher in spot drew out some hungry taker flow, reminiscent of the early Q1 pump.

The focus here has been on BTC (ETH vols trading ~ 8 vols under BTC) as dealers and short vol holders scramble to cover and 30 June ATM vols which jumped from 40v to peak 54 vols on Wednesday.

Massive demand for the topside driving 25d skew, normalized for ATM’s, to most extreme levels YTD.

The market is bullish and we see that in the flows.

👉 1.1k BTC 29 Dec 40k Call bought
👉 1.1k BTC 30 June 27K Call bought
👉 1k BTC Aug 36k Call bought
👉 1.2k BTC 30 June 30k Calls bought
👉 1k BTC 30 June 32k/35k 1x1.5 Call Spread bought

You get the picture.

This market remains under positioned risk and the party is really going to start when price go up.

Fight or Flight?

Lets summarize what we’ve learned.

We have a big pump in a short space of time as the crypto narrative flips.

Broader risk is under pressure as recessionary fears re-surface.

But, crypto has recently de-correlated from broad risk to play catch up on asset rotation into a under-positioned market.

Fight or flight, trade or fade?

As JPow said of Bitcoin, so too this rally looks to have “staying power.”

David Brickell 💜

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