Markets Closed Today, Bitcoin Is Open: TBL Weekly #32
We've got you covered on all the latest in bitcoin and macro.
Welcome to TBL Weekly #32—the free weekly newsletter that keeps you in the know with everything going on in markets. Let’s dive in.
Bitcoin-Macro Monitor
Bitcoin has materially broken above the network’s average cost basis, putting the unrealized gains for many market participants back into the green after several months of downward chop. We interpret bitcoin’s ability to break above this key level as a sign of strength; coupled with the current risk-supportive macro backdrop, our cautious optimism finds comfort in the strength bitcoin exhibits by consolidating at or above these valuation levels.
Its next big test lies just up ahead with the 200-week moving average, another key behavioral level for bitcoin—one that has never declined. Another way to think of this is that the long-term (specifically 4-year) average price, calculated once a week, has risen each week since when this calculation became feasible, about four years after bitcoin achieved a market price. Should bitcoin manage to materially rise above the 200wk MA, it has a solid chance of flipping from price resistance to price support:
Just quickly grabbing the headlines? Here’s your rapid-fire recap of the relevant action in bitcoin and macro:
Refer to our Bitcoin & Macro Term Glossary for more information: thebitcoinlayer.com/glossary
Rates have bear flattened this week with front-end yields increasing more than the long end of the curve—investor expectations for a higher Fed Funds terminal rate and a more robust growth outlook are being priced into the US Treasury curve. Note that 2s10s further inverted to -81 basis points from -79 last week. The spread between 2s and the Fed Funds rate’s upper bound has tightened this week, from -23 bps last week to now just -10 bps away from uninverting, a first for this cycle and a symptom of just how dramatically the front end is repricing right now.
Correlations have shifted materially this week. The relationship between bitcoin and the S&P 500 has weakened substantially, alongside rates and risk assets seeing their correlation move very close to positive territory. This encapsulates the shifting regime towards risk-on: movements in rates aren’t affecting risk assets as much, and bitcoin is rallying harder than equities. For a deeper dive into this fundamental shift and what’s behind it, check out this post from Friday.
The Week Ahead
In the holiday-shortened week ahead, we will be observing some key monthly prints which will continue painting the growth picture, and whether the preliminary signs of growth are outliers or the beginning of a cyclical economic expansion. We’ll be watching tomorrow’s S&P Global PMI releases and Friday’s PCE Deflator release, but the star of the week will be Personal Income and Personal Spending on Friday, the latter of which is strongly correlated with the consumption component of GDP:
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Here are your quick links to all of the TBL content for the week:
Wednesday
The first US Treasury instrument to cross above 5% in yield was the 6-month bill. That means, on a short-term basis, the risk-free rate, and the hurdle for all other investments, is now above 5%. And with the recent violation of the key 4.52% area on 2s that we flagged last week, 5% 2-year yields are now entirely possible and almost likely given the recent economic data and Fed rhetoric.
Shouldn’t this be causing stocks to crash? It isn’t, and therefore we must parse through all that is happening in the economy and markets to understand if we are indeed entering a new correlation regime that differs from last year’s “yields up, stocks down” dynamic.
Check out Where’s The Recession?
And now, the video that has blown up Twitter—our second Guest Lecture from the inimitable Michael Saylor.
In this episode, he walks through 24 risks present in the stock market & with companies, and how bitcoin circumvents those risks to offer an arguably superior investment alternative.
Friday
The more things change, the more they stay the same—cross-asset correlations remind us of this. As markets ebb and flow, from risk-off to risk-on, from tight to loose, and from meager to ample liquidity, monitoring cross-asset correlations tells us about investor behavior, allowing us to reorient ourselves with both the current and forward-looking market environment.
Today we observe the shifting correlation regime across markets and extrapolate what they mean for investor expectations for the weeks and months ahead.
Check out Correlations Are Shifting & Bitcoin Touches $25,000
Nik sits down with Mary Imasuen, a podcast host for BTC Gamer Chat and the Nobcast, and a Bitcoin-Only Gamer. In this episode, Mary discusses bitcoin adoption in Nigeria and across Africa, the new Naira that is being ushered into Nigeria, the kleptocracy of fiat money across Africa, and how bitcoin offers a genuine way out.
Sunday
Joe discusses the shifting regime in cross-asset correlations, why risk assets are rallying and Treasuries are selling off, and the conditions that could potentially change this trend. Is bitcoin’s recent rally the start of a new bull market?
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That’s all for our bitcoin and macro recap—have a great Presidents Day everybody!
The Bitcoin Layer does not provide investment advice.