👇1-11) Our growing concern is that risk assets (stocks and crypto) are teetering on the edge of a significant price correction (see yesterday’s report). The primary trigger is the unexpected and persistent inflation. With the bond market now projecting less than three cuts and 10-year Treasury Yields surpassing 4.50%, we may have arrived at a crucial tipping point for risk assets.
👇2-11) It is essential to understand that trading is a continuous game with high-conviction opportunities. The key is to keep analyzing the markets and uncovering those opportunities when the odds are in your favor. There are times when we advocate for a total risk-on approach and when the priority is safeguarding your capital, enabling you to seize opportunities at lower levels.
👇3-11) While the market has digested that six rate cut expectations have been cut in half (to three), we are concerned that the Fed might not cut at all this year. Keep in mind that interest rate expectations popped the crypto bull market in November 2021, and when inflation printed lower in January 2023, a new Bitcoin bull market started. Most of this 2023/2024 Bitcoin rally is driven by expectations that interest rates would be cut, and this narrative is being seriously challenged now.
👇4-11) The US stock market leadership has become narrower, from the magnificent seven to just three to four stocks holding the market up. However, those mega tech stocks are cyclically dependent on a smooth interest rate cycle. Smaller tech stocks have failed to rally, a sign that longer-duration tech investments are already experiencing significant headwinds as expectations for rate cuts are not enough when those companies are dependent on actual lower borrowing costs.
Bitcoin ETF Inflows Have Dried Up - Who Is Now The Marginal Buyer?
👇5-11) The narrative for a sustainable crypto bull market can not simply be that the US boomers are buying Bitcoin because Blackrock suddenly promoted an ETF. There must be a broader portfolio allocation diversification approach to include Bitcoin in portfolios, which is a medium-term narrative, not a three—to six-month trade. After an initial novelty hype, ETF flows tend to run out unless prices continue increasing—which they have not done since early March. With two—to 17% drawdowns, those investors might stay on the sidelines (as was our argument a month ago).
👇6-11) Importantly, we tied the Bitcoin funding rate to the ETF inflow amount, a correlation indicating a reliance on arbitrage-seeking traders rather than the stable, long-term investments many hoped Blackrock would attract. This is just a theory, but market dynamics appear to confirm this daily, and anecdotal evidence indicates that Blackrock’s IBIT ETF is being accepted as collateral for some margin relief on CME Bitcoin Futures.
👇7-11) The low funding rate caused weak ETF inflows and, importantly, lower trading volumes, notably in heavy retail markets like Korea, as predicted. Still, this analysis also holds firm with volumes overall. Volumes are significantly lower, and Bitcoin peaked shortly after the meme-coin craze (on Solana). Solana also has correctly quietly by -30% this month alone. We notice more and more air pockets in the market.
👇8-11) As we have pointed out, the signs of exuberance were visible to everyone. Trading volumes in Korea exploded from $3bn to $16bn—twice the daily trading volume of the local stock market. Meme-coin Shiba Inu was the most actively traded token (in USD terms) for seven consecutive days.
Bitcoin vs. MicroStrategy - From +80% to ‘just’ +29% overvaluation
👇9-11) Or how MicroStrategy traded 80-100% above fair value based on their Bitcoin holdings or our regression analysis with Bitcoin prices. MicroStrategy has corrected -30% from the highs (1,919), but its fair value is still lower at 1,034 (or another -29% from here). Based on its 215k BTC holdings, its market cap is 73% overvalued.
Bitcoin 60—days after the halving dates - initially rallied during week 1
👇10-11) True, the Bitcoin halving tends to be bullish, at least initially, but a lot less than people try to make you believe. Sixty days after 2012, 2016, and 2020 halving, Bitcoin was up +16%, but returns were skewed to the 2012 post-halving return when prices rallied +45%. The data indicated that the pre-halving 60-day window was bullish and predicted a rally towards 68,000 - as we have seen. In contrast, the post-halving data still shows a +16%, with the returns only picking up after 50 days.
👇11-11) As we wrote many times, the previous all-time high at 68,300 is our line in the sand, and another important stop is 62,500 as Bitcoin could then gap lower to its next support level in the low 50s. We sold all our tech stocks last night (at the open) as the Nasdaq is trading very poorly and reacting to the higher bond yield. We only hold a few high-conviction crypto coins. Overall, we are bearish risk assets (stocks + crypto). We are lightly positioned and are expecting to buy again at better levels.
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