*|MC_PREVIEW_TEXT|* | Good morning my tasty friends, and what a tasty morning it is. Yes, that there is green on your screen!
Most of our attention this week was on the Fed's 50 basis point super cut and the resulting rip higher in asset prices. Bitcoin and its alt friends clocked gains close to 10% heading into Friday, though only time will tell if it holds.
Historically, the decisions around a first hike/cut to start a rate cycle are easy to make, and the Fed delivered what the market was already pricing in (no surprise).
Where we go next and how quickly, not so sure. Uncertainty abounds.
During his presser, Powell basically said he doesn't know what they'll do next either, as there's no pre-set path for rates and they could actually stay higher for longer, depending on how the data plays out. I suppose the biggest risk for policymakers is an environment where inflation reaccelerates as rates are cut.
I'm betting we see sustained, higher levels of volatility as this plays out. Give me back 80 vol BTC, I don't want to sleep at night.
Speaking of volatility, let's take a look at our implied trading ranges before we get into what else was going on in crypto this week. | | |
How Does Crypto React To Rate Decisions?
I'm not going to opine on whether the Fed is late to the party, or the likely path forward. What happened Wednesday will be an afterthought by next week.
An argument could also be had around whether there's any real relationship between what the Fed decides and how crypto reacts, at least in the short-term.
I spent some time on the tastycrypto show looking at exactly this, and while I wouldn't go so far as to say it doesn't matter, in my opinion it all seems kinda random.
Below shows the initial reaction of Bitcoin prices to both interest rate cuts and hikes (mostly) going back to 2018.
Obviously this is only a 5 year window of interest rate policy, but it encompasses bitcoin's relevancy as a macro asset class.
| | | The Fed hasn't cut rates in four years, and during this look back to 2018, we mostly see hikes, as the decade prior was spent with interest rates basically at 0, following the Great Financial Crisis.
The initial response to rate decisions has been lower prices, more often than not.
Over time we see a more normal distribution of returns with bitcoin often trending higher following the initial move. Even then, for an asset that often moves 10-20% in a week, these rate reactions aren't very big. | | | Rates matter, but they're a single variable, one piece to the puzzle. More importantly, the factors driving interest rate policy and the degree of uncertainty surrounding investors is the larger force behind price performance.
For example, without context, one might assume a significant cut of 100 basis points should boost prices. Money is cheap, investors go further out on the risk curve, assets inflate! Well, not if the rate cut is in response to an economic emergency, a la March 2020 and the COVID-19 induced market meltdown.
On the flip side, 2022-23 saw one of the most aggressive hike cycles in recent history, and yet, once it was over, bitcoin hit a new all time high. | | | Once the dust settles and traders have a decent sense of what's next, prices adjust to the rate environment, which can be very supportive over time if rates are held at low levels, but it's not the only driver.
For more on this, make sure to watch the tastycrypto show on YouTube where we dive in to the data in a lot more detail.
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New Ways To Get Your Volatility Fix
If you've built up a bit of tolerance to bitcoin volatility, REX Shares and Tuttle Capital Management have something you might like to try, the The T-REX 2X Long MSTR ETF (MSTU) and the T-REX 2X Inverse MSTR ETF (MSTZ), now available to trade on the Cboe BZX exchange.
MSTU gives you 200% daily exposure to MicroStrategy (MSTR), while MSTZ takes the other side, offering -200% inverse exposure.
MicroStrategy: A Bitcoin Proxy?
MicroStrategy has practically become a stand-in for Bitcoin at this point. With 244,800 BTC on the balance sheet, valued at roughly $14 billion,, and a correlation of over 70%, MSTR's stock tends to move in lockstep with the cryptocurrency.
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How It Works: Leveraging the Leverage
The T-REX ETFs, use swaps and futures contracts to amplify daily returns. Either doubling the performance or moving inversely by double the amount of MicroStrategy's daily stock movement. Through the daily rebalancing process required to maintain said leverage, it's estimated their volatility could be as high as 15 times that of the S&P 500.
What's Next For Microstrategy?
MicroStrategy develops business intelligence software, though with 240k of BTC on the balance sheet, its actual business is probably less relevant than bitcoin's price. They're not done stacking either, recently raising another $1 billion through convertible notes, to buy even more bitcoin.
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Risk Averse? You Need Some Bitcoin
Is bitcoin the ultimate hedge to global risks? Blackrock seems to think so.
According to research put out by the investment manager this week, there's a strong case to be made that bitcoin is a unique diversifier against a range of global risks - fiscal, monetary, and geopolitical.
Bitcoin stands out because it shows little correlation to the macro factors that shake up traditional assets.
Inflation? Rate hikes? Global recession? Bitcoin shrugs them off—or at least does its own thing. In fact, over the past decade, Bitcoin has outperformed all major asset classes in seven out of ten years.
Not bad for something that's only been around since 2009.
You can read the full report here.
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It's All About The Flow
Blackrock has an axe to grind here as they're behind IBIT, one of the largest US listed spot bitcoin ETFs in the market, which across the group, continued to see positive flows this week.
Coinciding with the rebound in prices, BTC ETF inflows were about $150 million this week, taking total inflows to $17.7 billion year-to-date according to analysis from Bloomberg's Eric Balchunas.
9 months after launching, Bitcoin ETFs now account for about 5% of bitcoin's total market cap.
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That's it for now. Next week we'll be back with a look at the macro environment as we head into October. Hopefully we'll find signs we're transitioning into a more constructive environment for prices.
Stay tasty,
Ryan | | | | | |
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