Market Update: 21 June 2021
2 things today:
1. On the macro side we expect things to stabilise from here.
The FOMC meeting last week had hawkish sentiments that the market wasn’t expecting or pricing into the June meeting.
From an objective perspective it was a rather neutral decision, as Chair Powell kept talking up the transitory nature of inflation and the rest of the committee had kept their longer-run inflation forecasts close to 2% as well, indicating they believed the same.
However the shift in stance at this meeting itself — where Powell said that they would begin talking about tapering, rather than talking about talking about doing it, which was earlier than most expected, and showed that this FOMC under Powell had a red line too, which many people had previously believed didn’t exist.
This has led to the repricing in fixed income, equities to a lesser extent, and most of all the USD — all of which has had a bearish impact on BTC and crypto.
However it is our belief that while the outcome of this meeting would force a repricing in markets, it was not conclusive enough to lead to the start of an extended taper tantrum itself. This means we expect the macro side to calm down after month-end and into the start of Q3.
2. Crypto idiosyncrasies
We don’t see anything that has changed our view that the bull drivers of BTC have gone for now.
Globally we are seeing a much more forceful crackdown on crypto by governments. China is now leading the charge — and this directive coming all the way from the top- announced by VP Liu He this month, means it will continue reverberating throughout the lower levels for a few more weeks to come.
In the US the Senate is forming a working group to enforce crypto regulation led by crypto-sceptic Elizabeth Warren — although as with all democratic proceedings this will take much longer to come into force as compared to the top down Chinese approach.
This means we expect the top in BTC at 50k & 60k to hold for an extended time more.
However we also do not see a major driver that will break our 30k & 42k range in the near-term (Chart 1).
We expect 32k will have some good interim support, and with retail now going short, market will be primed for short squeezes (Chart 2).
Historically whenever retail starts going short like this, the market has tended to find it hard to perpetuate the downtrend (Chart 3).
With curves continuing to be flat to negative throughout, and yields across the crypto space non-existent right now, our favourite trade remains short strangles.
For example, a 30k/40k 1 month strangle is still yielding >100% annualised now. We continue to like selling 1m and above volatility as despite the sizeable intra-day moves, we still see the 1m and above volatility continue to compress further. (Chart 4).
