"Peak"-a-Boo-Brrrrrr - April 23' Crypto & Macro Monthly
The Big Picture - Go East
Every month, I will try to highlight one topic focused on the importance of looking at the bigger picture and understanding how individual components contribute to the greater whole. In this modern world, attention & creativity are the most most important resources, AI can achieve the rest. To achieve that, you need to be mission driven and hyper focussed. But it is also important that you look at, and understand the bigger picture.
The bigger picture this month is the slow train wreck that West has become. Especially, in light of the horrific stabbing and death of Bob Lee, who was 43, a father of 2 and a real gem from what I have read so far. The falling of West is not imminent by any means, but the gradual decline vs East is inevitable. High debt, falling infra, socially corrupt, depleted resources, failing infrastructure, growing crime and homelessness etc. We can write a thesis into why, how, when etc but the bigger picture is very simple - there is a clear paradigm shift happening towards the East to countries like Dubai, Singapore, India and Southeast Asian nations.
These nations have experienced rapid economic growth in recent years, leading to increased job opportunities and higher wages. Many multinational companies have set up operations in these countries, attracting Western professionals to work there. Economic opportunities, cultural experiences, affordable lifestyles, political stability, and climate are all factors that contribute to this trend. As more and more people choose to move to the East, we can expect to see significant changes in the global economy and in the way we think about travel, work, and lifestyle.
Macro
Peak Rates, Peak Inflation, Peak Wages, Peak DXY and Booooo - Recession and then Brrrrrrrrrr
Inflation is likely to come off from here in coming months giving some breathing room to FED - rents come off, housing slow down, wages will come under control etc. OPEC this week was not helpful and we might see a new floor on WTOI around $70 which is manageable in light of subdued demand.
High rates have caused significant damage to regional banks in the US. While the banking mess seems to have subsided for now, we will see tighter lending norms for foreseeable future. Credit is already contracting as banks, as well as private lenders, get cautious.
However, there are fears erupting in commercial real estate (CRE). Companies in CRE that are already reeling with negative cash flows and empty offices, will not be able to meet higher rates of interest when refinancing their existing loans. The quantum of that crisis will define if FED steps in again, or lets some of the firms crash and burn.
Recession is a 75% probability in Q3 with tightening credit, fear of further crisis in banking, CRE & elsehwere in Q2, combined with massive layoffs announced recently that take their lagging effect, demand squeeze as less credit is available, defaults on housing (CRE especially), high credit card debt and ballooning interest payments due to higher rates. As of today, I don't think that current banking and other issues willed to something larger as banks are much stable vs 2008 mortgage crisis. Also, the interest rates are already past their peak (perhaps another 25 bps from her). So the worst tightening might be over as FED has tasted the tip of the crisis and does not want any more masala chicken. As interest rates pause or start to come off, some of the unrealised looses sitting on banks balance sheets will auto hedge giving them breathing room and giving us some lending facilities aka demand.
Smart money locked in a lot of money at 4-5% rates in Q1. That is why you call them smart money. Best risk free returns in decades. As we approach peak rates and peak inflation, remaining money will start to move back into stocks and other risky assets in anticipation of FED pause, peak inflation and normalising wage growth.
De-dollarisation thesis are overblown. While Dollar stays the safe heaven for now, we might have seen the peak dollar. I think dollar moves lower from here as rates come off and money starts to move from risk free money market funds to higher yielding risky assets
Even if there is another crisis, I believe that FED has the tools to control it, especially in light of falling inflation and stabilising financial conditions. Although everything can change at the drop of a hat as we all know. But so far so good. This crisis is controllable, and not like 2008 mortgage credit crisis where 300+ small banks failed.
In short, we are now approaching looser monetary conditions towards Q3 as there are too many things that could break the US financial system if FED continues to raise rates. There could be one last 25 bps hurrah on May 2nd but beyond that there should be a pause as FED does not have the fire power to manage fires everywhere.
Hot money is good for hot assets as rates come off and we enter relatively looser monetary conditions by Q3
Also the BTC halving noice gets louder by Q4, and that makes a perfect recipe for BTC to rally further, and that will carry the entire crypto complex with it
Keep in mind, that there could be another breakdown like SVB in some other markets (US or International) that we are not anticipating, and that means we will see looser monetary conditions come in sooner than Q3 - which is good for crypto and other risky assets. I would be buying dips and starting o add to some positions here just like in January if there is some price relief on some assets I like
Beyond 2023, I don’t see FED loosening too much unless there is a crisis like SVB or something breaks in other markets. M2 money supply will keep on tightening while FED starts to decrease rates in a very balanced way.
In the end - time will tell but the trouble is you think you have time
There is so much uncertainty that no one knows how the macro economic data would evolve. No one can predict to perfection so take evryrthting with a pinch of salt. In my experience, I’ve learnt one think - humans work on FOMO and the successful ones know when they have made enough money to get out.
Crypto Macro - ETH Next, then Altcoins
BTC & ETH
As explain above, risk assets could outperform with expectations of a FED pause and end of QT. While we don't expect DXY to turn higher, but a bullish DXY could cause a dip in BTC in short term - which should be a mega buying opportunity IMO. Otherwise BTC seems rangebound for now but ETH upgrade could lead ETH / BTC to rally as altcoins start to show some strength.
In short - Macro leads to BCT and BTC leads ETH and then large caps and then alt coins. But you cannot catch bottoms so position yourself with DCA and conviction. The zK narrative is the strongets of all for now in the lead up to new alt coin season.
We’ve been pitching long BTCUSD as a way to play the tactical rally in risk-assets, these last few weeks. The daily chart has entered a major squeeze as indicated by its narrow Bollinger Band. Compression like this tends to lead to expansionary trends. We’re long and will add on a confirmed breakout from this range.
Meanwhile, BTC dominance is around 48% now and that should soon start to move to ETH & alts. ETH/BTC is also approaching bottom of a 2 year range, expecting that to change as Shanghai upgrade tilts it back to ETH until we start the BTC halving narrative back again
TL';DR on Crypto Narratives
Major narratives in play - Arbitrum (albeit dying as Layer Zero picks ups steam), Perp Dexes still thing, RWA, ZK-EVM, GambleFi, AI, LSDs
Eth Shanghai Ugrade on April 12th - there could be some attention on LSDs ;like LDO, RPL and FXS me of the $XRP lawsuit is expected to be announced soon
https://twitter.com/cyrilXBT/status/1643379588708417536?s=20
ZkSnc is the hottest talk of town and several projects that can earn you 10X
Real World Assets
https://twitter.com/IamZeroIka/status/1645079737898004481?s=20
Mastering Crypto Alpha
Secular Trends, Market Cycles, and Narratives in Crypto.
https://twitter.com/CryptosEngineer/status/1643285523501576192?s=20
Trading Framework for Crypto
https://twitter.com/resdegen/status/1642843534767308800?s=20
Good Luck & God Speed from the 4 Horsemen