5-Min Monday Macro & Crypto: Sept 25th, 2023
FED's hawkish pause, resilient growth, weakness in China 🇨🇳 & EU, BTC recovery & crypto narratives
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I spend hours reading, researching and talking to the smartest founders and investors every week. This is my attempt to give you a short 5-10 minutes summary on how I am thinking about Macro & Crypto markets and what lies ahead. Hundreds of hours summarised, so you don't have to.
Tomorrow belongs to those who can hear it coming.” - David Bowie
1. Big Macro Picture - Inflation leading to a hawkish FED
Inflation is sticky with oil around $90 and geopolitical concerns lingering on
FED is done hiking but remains hawkish with interest rates at the end of 2024 (to 5.1%) and 2025 (to 3.9%). That creates uncertainty and markets don’t like uncertainty - what’s FED going to do?
Stocks - have been sideways since June. And now FED is indicating lesser rate cuts in the future. Markets sold off with that uncertainty.
Bonds & Fx - Dollar has been up since July with DXY around 105 as market expects “higher for longer’ rates while the EU / China / Japan / UK counterparts are pausing or stimulating
EU is done hiking for now but low PMI:m numbers point toward a recession already.
China continues to stimulate to bring back consumer confidence. Declining Yuan, exports, stocks, real estate, urban unemployment and a very high local municipal debt - too many variables for Xi to manage.
Growth numbers from the US are still resilient. FED has no reason to make any panic moves to reduce rates unless we see recession flash warnings or we start to see consistent unemployment claims >300. Until then:
Good growth = resilient labour = sticky inflation = no rate cuts = sideways markets
The question I keep asking myself is: What can break for FED to start easing again? What are the early indicators of that? Rates led banking crisis again? Real estate crisis as mortgages come for renewals at much higher rates? China going all out if there is unrest within the country? Oil & food led risk sell-off? Escalation in Russo-Ukraine war?
Until then, we shall stay sideways. But a meltdown in stocks, could take crypto down as well. Suggesting caution, my dear readers.
2. Stocks - Healthy correction or recessionary fears?
As stated above, growth is strong in US. Now that there are no more FED hikes in the horizon, a little correction in stocks is healthy for now. Markets don’t like FED’s uncertain hawkish stance. VIX jumped over 17 as fears of higher interest rates being the dominant factor. S&P 500 is down around 6% from its high in July - that is a healthy pull back for now.
But it is past 2AM now and the party is almost coming to an end. You just need on drunk sailor to crash entire party. Everyone was dancing with the music and DJ FED is getting tired as well with its first pause. And there are several other global drunk veterans that could bring the party to an abrupt end.
For now, consumer spending remains strong enough but we could soon have tighter credit and rising mortgage rates that could crush consumer demand.
Q4 is notorious for corrections as traders wind down for the year and boy what a year they’ve had on stocks. With high valuations, and freaky bond markets, as we enter weak period, I am advising caution / hedging. I believe there is more pain in short to medium term till FED indicates a dovish tone. That is when we rally to new highs.
3. Bonds, Fx & Rates
1-year Treasury yields are at 5.47% and 10Y around 4.5%. Every smart investor is moving some of their portfolio into these risk free rates which is pulling out capital from other riskier assets like crypto. That is the hard truth. Higher for longer rates wisdom is not helping crypto. And FEDs messaging above is keeping a lid on any risk asset prices.
Basically Bill is saying that he remains short bonds (long yields) through the ownership of swaptions due to the belief that long-term rates, such as 30-year rates, will continue to rise. This is because the world is a structurally different place than it was before, with the peace dividend no longer in effect and long-term deflationary effects in place (aka AI).
The FED and ECB pause seems just in time as as odds of recession increased considerably. The People’s Bank of China (PBoC) continue to stimulate economy with more QE and managing their FX markets, selling dollars (or perhaps paying off their dollar debt). The Bank of Japan (BOJ) unexpectedly shifted its hard yield cap up to 1% from 0.5% but kept the half a percentage point range either side of zero as a “reference point,” allowing flexibility on bond purchases. Inflation has returned but not as much as in other economies. We expect the BOJ to let yields rise as inflation gets more entrenched, but only gradually. This is a form of tightening
Higher rates are good for DXY. But high DXY is not good for commodities or crypto in general. Since FED is signalling higher rates for longer, DXY seems to be in a good place for October, especially when its counterpart are all pausing.
4. Crypto
Bitcoin - Waiting for macro & ETF’s to give direction
Bitcoin continues to trade within a narrow range. The good news is that it is decently holding above $26.5K, but until it beats resistance around $28K, we are in no man’s land. Given current macro headwinds, and FED’s hawkish stance, I think we will stay range bound until some major macro movement or some ETF news.
However, I am starting to see some light at the end of BTC tunnel. We have been steadily holding above $26K which is a bit bullish as it seems that most holders are HODLING tight, with improving on-chain fundamentals, SEC losing to inspect Binance US (again) and a lot of FUD on crypto twitter regarding Binance. $BTC held quite well.
But we need some good news and some macro blessings to really take us higher. Smart money knows that macro environment is risky right and uncertain FED has addd to that anxiety. In the short term, as long as the $26K support holds, I am looking at $28K and then $31K.
Two major risks weighing on everyones mind:
Continuous Binance FUD - no one knows how true things are these days.
Global macro risk with FED uncertainty and recessionary fears in China & EU
ETH & Majors
ETH money is flowing into BTC with ETH/BTC at $0.06 now. Smart money is waiting for BTC ETF approval before a rotation into ETH and then potentially SOL & then Alts.
Meanwhile, Jim is back at it again - you all know what it means - 😰
L2's that I am mostly watching are $OP / $ARB / $MATIC /$SOL and $MNT. Each L2 has it's own drivers: the $OP stack is experiencing strong adoption, $ARB is the favourite for most Defi launches and releasing Stylus to onboard more developers, and ARB fund to get projects. $MATIC has a rebranding + Zk CDK (canto and Celo already onboarded) + tokenomics update to drive more value in the near future, and $MNT is making a strong push for adoption with their incentives campaign. Prices are reaching attractibve levels for al of them but one could still wait for global macro to give some good news first & $BTC to take some direction.
$ATOM was an outlier this week. I call this the “Upcoming Conference Trick” - Cosmoverse (Oct 2-4). Outperform now and then fade away just before the event. You are too late for this one already.
$TON (telegram) - has just launched a Web3 wallet. You can hold your tokens, send them, transfers are cost-free, trade NFTs etc etc. he know Telegram is huge but with a $8bn MC, there isn’t much upside, inspite of being 25% up this week. But keeping an eye.
Crypto Narratives
My mental model / thesis for next next few months is simple - keep a list of my top tokens ready and look out for decent entries. Right now stay in stables or some opportunities on short side.
Play degen narratives early like memecoins in April, GambleFi June / July / Aug, Telegram bots in July / Aug, SocialFi in Aug/Sep etc etc. What’s next? There is never a boring day in crypto.
Build - I’ve been building a DeFi project in stealth for 6 months. Some of you are aware. I am very excited to be back after 4 years to be ready for next bull run. Banker 👉 Operator 👉 Investor and now 👉 Operator. Meanwhile investing continues. See next point.
Invest - we continue to invest and focus on DeFi, DeFi infra and Consumer Dapps. I believe FriendTech has set a stage and where real use case consumer DApps will start generating more traction. I am always looking to support those brilliant founders.
SocialFi as the hottest new narrative and Post Tech threading FT
RWA as the next narrative - Some hot RWAs projects in my list - $RIO, @realio_network, $LAND, Polytrade Finance , @blocksquare_io, @ClearpoolFin, $BOSON , $PENDLE, @PolymeshNetwork, $BST $PROPY. You can learn more about RWA here
Revenue Generating coins for long term accumulation - $FXS, $UNIBOT, $GMX, $DyDx (large unlock though) - I like FXS here that brings RWA narrative, and soon we will have frxETH V2 which will boost demand for frxETH. Price is almost at the bottom. Wait for macro to settle in a bit though. I also like $MakerDAO & Radiant. $RDNT is launching on ETH mainnet in October and has a yield booster (Radpie) going live in September. This should help boost TVL & a potential LayerZero airdrop. $AAVE and $MKR, had an awesome week as some hedge funds publiclly went long
Degen / Gambling for basic human greed - I believe Degen gambling will continue as humans are lazy by nature and everyone wants to make a 100X quickly. Millennials will take more risks to earn quick money. RBT & DMT are still top coins but keeping an eye on few more. Will update next week if I feel strongly about any.
The Market Maker Pump Narrative - Random coins pumping and CT blaming few MM’s for this. This is crypto and you have to accept its realities. Play / trade / invest better than those by following their on-chain wallets and look out for hints (aka OI and some other metrics). This is how it works:
NFT Market is dead - but isn’t this when you load on assets?
5. Some Interesting Stuff
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