Sentiment Sweet Spot (Core Strategy Rebalance)
Early Proof of “Catch-Up” Trade
Last week witnessed a significant development as traditional market participants, most notably BlackRock, entered the cryptocurrency space with a spot-based ETF application. This move not only carried implications for market structure but also sparked a noteworthy narrative shift. Despite Bitcoin's relative resilience to regulatory pressures compared to other cryptoassets, it still faced some performance drag. However, the entry of BlackRock, Citadel, and other prominent players into the market changed the perspective of U.S. market participants toward the asset class. This development attracted individuals back into the crypto market.
We think that bitcoin appears well-positioned to serve as investors' preferred "catch-up" trade to tech stocks. The rally of the Nasdaq index this year has been met with skepticism, leaving many investors on the sidelines. With the largest asset manager now entering the Bitcoin sphere, the narrative-driven momentum seems to be favoring Bitcoin in the latter half of the year.
This shift in sentiment among the public is reflected in fund flows. Digital asset investment products experienced their largest weekly inflows since July 2022, totaling $199 million. Bitcoin was the primary recipient, receiving $18...Reports you haven't read
BREAKING AWAY While we maintain that macro conditions are still the most critical factor in assessing the medium/long-term trajectory of BTC prices, daily returns of the leading cryptoasset continue to exhibit a lack of defined correlation with any major macro asset. To us, the biggest reason for this sustained lack of correlation is the advent of the spot BTC ETF. A prime example of how ETFs are influencing BTC's performance...
WEATHERING THE STORM Heading into Q1, the key risks identified were: (1) A potential QRA supply shock, as long-term interest rates could surge due to a possible shift in bond issuance towards longer-duration securities, (2) the repricing of interest rate cuts, as the Federal Reserve downplayed expectations regarding the timing and frequency of such cuts, and (3) concerns regarding the dynamics between the expiration of the Reverse Repurchase Agreement (RRP)...
QRA IN LINE WITH MARKET EXPECTATIONS _THE RESULTS_ The Treasury’s quarterly refunding announcement (QRA) was the first of two major macro events to transpire on Wednesday. Leading up to this, on Monday, there was an indication that the net borrowing for the current quarter would be $760 billion, which is $55 billion lower than the initial $815 billion estimate, and the total funding needs for Q2 would be just over...
THE GBTC PROBLEM We have been watching spot BTC ETF flows closely since their launch two weeks ago, and while overall net flows remain decidedly positive, the market seems hung up on GBTC outflows. As a reminder, the outflows we care the most about are those from entities that are not rotating into other spot BTC ETFs. This is comprised of some speculative capital that played the run-up into ETF...
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