The 'Higher For Longer' Jitters: TBL Weekly #33
Welcome to TBL Weekly #33—the free weekly newsletter that keeps you in the know across bitcoin, rates, risk, and macro. Grab a coffee, and let’s dive in.
Bitcoin-Macro Monitor
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 had a wild ride over the past several months—from topping out last October to selling off once again in earnest due to higher inflation expectations. As yesterday’s hot core PCE print indicated, inflation may be more entrenched than previously thought (we aren’t necessarily convinced)—as such, the Fed has more leeway to hold rates higher for longer, and rates traders are adjusting accordingly. The curve has experienced yet another round of bear flattening, with 2s selling off all the way back above Fed Funds for a brief period of time yesterday, undoing the key 2sFFs inversion that historically signals the end of hiking. Here are the daily candles on 2s:
Risk traders have also started pricing in the ‘higher for longer’ jitters. Equities faced a sharp selloff this week, plunging from 4100 on the S&P 500 to 3975 at market close on Friday. It broke through a key trendline in the process but was able to rebound and close 25 points off the daily low:
Bitcoin sold off more from its peak relative to equities but has stabilized around the $23,000 level, a range familiar to bitcoin for a few weeks already this year. Also, bitcoin’s equity correlation is falling as equities are facing potentially years of higher discount rates. Bitcoin’s uptrend is still intact, and its next key support looks to be at ~$21,500. The bottom pane shows a waning, yet existent, correlation with equities:
The Week Ahead
In the week ahead, we will be observing the state of the real economy in the form of survey data, both on the consumer and corporate front. We’ll be watching Tuesday’s S&P CoreLogic data to further elucidate the path of home prices, a key inflation component. The main focus of the week is the PMI releases sprinkled throughout, namely Wednesday and Friday’s set of ISM Manufacturing and Services releases:
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Here are your quick links to all of the TBL content for the week:
Tuesday
One of the world’s most widely used reference rates is close to being completely phased out in favor of a new secured rate that falls partly under the umbrella of the Federal Reserve. In the wake of the Great Financial Crisis, interbank lending, which was once presumed to be essentially risk-free, became widely understood as inundated with potential risks that could threaten the solvency of interconnected creditors overnight. Banks suddenly became increasingly wary of lending to one another, threatening to grind the world’s capital and money markets to a halt if a solution wasn’t found.
The band-aid solution came in the form of Quantitative Easing programs from the Fed, and the long-term solution—the total transition from unsecured to secured funding rates—is at our doorstep. With this change, the Fed will enter a new echelon of dominance never before seen in global financial markets.
Check out—
The LIBOR ⟶ SOFR transition cements the Fed's global monetary authority
Wednesday
On Wednesday, Nik sat down with George Goncalves, Head of US Macro Strategy at MUFG Securities Americas Inc. to discuss the state of financial plumbing, how 5% treasuries yields will affect other assets classes, and why they may be untenable in a very short while for the US Treasury:
Friday
Our views adjust to the data and prices. We analyze the charts and fresh data and relay that information to you objectively, and the past few weeks have given us plenty to think about. Today, we’ll give you an updated view of money markets, rates, risk, and bitcoin; it all starts with what’s happening in the economy.
Hop in, and buckle up—inflation is reaccelerating.
Check out Inflation Reaccelerating, Danger Looms
On Friday, Nik sat down with Pierre Rochard, VP of Research at Riot Platforms and longtime bitcoin educator. Pierre discusses ordinal theory as a social layer and why bitcoin’s fungibility is not impacted, what's going on in Lightning, and the latest developments at Riot and across the BTC/LN ecosystem:
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That’s all for our bitcoin and macro recap—have a great weekend everybody!
The Bitcoin Layer does not provide investment advice.