TL;DR

The peak inflation, peak rates narrative is growing stronger and as flows continue to position for the topside, it feels just a matter of time before we break into a higher range. 🚀

- Ripple Keeps the Good News Narratives Rolling
- ETH Flows Flip BTC
- China on the Deflationary Edge
- Dollar Dumping, Yields Reversing Forming a Powerful Dynamic
- What’s Holding Crypto Back?

Ripple Effect

The good news narratives keep rolling for Crypto with US Courts ruling that Ripple’s offer and sale of XRP on digital asset exchanges did not amount to offers and sales of investment contracts and therefore cannot be classified as a security. 🎉

The victory is a partial one for Ripple, as the “Institutional Sales” of XRP were investment contracts and so deemed as the sales of unregistered securities.

However, with the XRP as a token in and of itself not being deemed a security, the read across to other alts was immediate.

ETH finally seeing outperformance Vs BTC and perhaps for the first time since the post Shapella rally, ETH Deribit volumes have outshone BTC, with July 2000 Calls very much the focus of flows.

Interestingly, the elusive ETH overwriter appears to have been covering vol shorts, evidenced by the significantly reduced OI across their active strikes.

Is this programme wrapping up? If so, that’s a lot less vega supply weighing on the curve. 

The ETH/BTC spot and vol mean reversion trade is game on. ⚡

China on the Edge

The disinflationary pulse emanating from China continues to beat hard as China sits on the edge of outright deflation.

CPI YoY was at 0% whilst PPI declined a huge 5.4%. These numbers are BIG and typically act as a lead on US and global inflation.

Imports also declined 6.8%mYoY in June adding to global growth concerns.

China’s response? Pump more liquidity. 💦

Total Social Financing data this week clocked in at a massive 4.2trn Yuan for the month of June. Credit is starting to flow and typically correlates positively with Bitcoin.  🚀

Dollar Dumping, Yields Reversing

US yields sharply reversed after last week’s bond bloodbath, triggered by weaker inflation data.

US CPI recorded its 12th straight month of YoY declines at 3%. This was 9.1% a year ago! 

Core inflation also came in softer than expectations at 4.8%, whilst US PPI was just 0.1%. Maybe inflation was transitory after all. 🤔

Whilst July remains priced for a hike, the market moved quickly to price “one and done” which saw yields across the curve hit lower, 2yr closing at 4.77% having touched 5.11% just last week.

As the market prices the end of the Fed hike cycle, the dollar also took another leg lower and the DXY is now below the psychological 100 level and the lowest levels since April 2022. 😳

The macro headwinds are now turning to tailwinds and it’s forming a powerful positive dynamic behind crypto.

Wen Crypto Moon?

Given the positive macro dynamics, it was disappointing that Bitcoin failed to sustain a break above 31k, especially with the Ripple victory over the SEC.

Talk that the US government's Silk Road holdings were back on the move perhaps weighing and it does feel like there’s a “flow” out there.

Yet the peak rates, peak inflation narrative is growing stronger and will continue to be an increasingly positive driving force for crypto in H2.

Flows on Paradigm also continue to position for the topside as institutions “buy the dip”.

It feels just a matter of time before we break into a higher range. Patience.

‍

Sincerely,
David Brickell 💜