The Macro Pulse | Make Sure You Dont Miss This Rally

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July 4, 2023



🚀 H1 Bitcoin Rally Set for Overdrive

🇨🇳 China’s Currency Debasement is Leading to Capital Outflow.

💼 SEC Paving the Way fo ETF

📊 Dec 40K Calls dominate OI

Up Only

Stocks and Crypto all recording strong gains in H1

June rounded out a strong month, quarter and H1 for risk as markets continue to adjust to an easier macro regime with the pace of central bank hikes slowing and inflation continuing to move lower.

Bitcoin remains king, outperforming all assets so far in 2023 💪

The pace of disinflation may remain slow - Friday’s US Core PCE at 4.6% YoY, edging down from 4.7% - yet with PPI in deflation territory, commodities continuing to trade heavy, there’s little to suggest that inflation will re-accelerate, despite continued hawkish Central Bank rhetoric.

Indeed, with a typical 12 month lag to monetary policy, last year's vicious tightening is yet to be truly felt.

Our peak inflation, peak rates narrative is set to go into overdrive in H2 🚀 

China Debasement

US Dollar / Chinese Yuan

China’s economy continues to slow sharply 📉

June Manufacturing PMI at 49 showed a third month of contraction, whilst non manufacturing activity at 53.2 was the weakest since China abandoned its zero Covid policy. 

The currency is acting as the escape valve and the PBOC appears generally content to let it slide as they look to boost competitiveness.

This is hugely disinflationary and will continue to keep Western inflation numbers heading lower. 

Significantly for crypto, the weakness in CNH is not feeding substantially into broader dollar strength given the lack of PBOC intervention.

Instead, it’s likely the weakness is driving capital outflow towards harder assets in order to protect from the currency debasement and as Arthur Hayes recently pointed out, it’s reminiscent of China’s 2015 shock devaluation which saw the price of Bitcoin triple 😳

The liquidity pump is also starting to flow. 1 trillion Yuan has been injected by the PBOC in just the last 10 days…and they’re just getting started!

So you’re telling me there’s a chance?

Spot up, vol up!

News on Friday that the SEC told the Nasdaq and CBOE that the spot BTC ETF’s they filed on behalf of Blackrock and others were ”inadequate” saw BTC take a quick 5% dump.

This highlights the important role the institutional adoption narrative has had in driving the recent rally. Specifically, the rejection required explicit mention of the spot exchange name with which the listing exchange will enter into a surveillance sharing agreement.

The SEC is actually openly engaging and providing clearer guidelines as to the requirements to get the ETF approval.

This increasingly looks like it will get done, even if the path to approval will be an arduous one. 

For a market under positioned, there’s still plenty more of this institutional adoption wave to ride before we reach the beach 🏄

Positioning for the Pump

Large upside buying continues on Paradigm as discretionary taker flow continues to position bullish.

Dec 40k Calls are in hot demand, dominating the open interest on Paradigm, with takers now long over 4k contracts.

Friday’s spot dip simply saw more vigorous buying of these topside strikes. The appetite is insatiable.

Interesting too, a notable pick up in ETH volumes, with upside buying in the form of July 2000 Calls, Sep 2200 Calls and Dec 1900/2500 Call Spreads.

These are the first signs that the ETH/BTC spot and vol mean reversion play which we’ve been speaking about might be getting underway.

A broadening out of the rally, reducing the current Bitcoin dominance would be a healthy sign of strength for this bull market rally.

Get the Party Started

Macro tailwinds propelled Bitcoin higher in H1 as markets priced “peak inflation, peak rates.”

Liquidity has also been a tailwind and looks set to get another boost from China.

The lagging impacts of monetary policy are set to pull inflation sharply lower into H2 and the positive macro dynamics will play more forcefully.

Combined with the positive narrative shift and the potential for the approval of a spot BTC ETF, Crypto looks set for some explosive moves to the topside into year end.

This party is just getting started 🚀

David Brickell 💜

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