Here‘s the long tldr on our recent newsletter piece 😅
War, Liquidity, and the Bitcoin Bear: Where We Really Are Now
Markets look calm, but underneath the surface war, oil, inflation, liquidity, and Bitcoin are all colliding. In this piece, we connect the dots and...
Equity markets are up across the board ytd, despite (bc of?) war. A lot of people are surprised. How can this be possible? (well, in this piece, we explain just that!)
Now, one straightforward answer is that earnings expectations are very supportive, putting a floor under financial markets.
Also, it is very likely that markets have called Trumps bluff and are looking through it all. The recent Trump tweets just a few days ago have been quite odd. Is there really gonna be a permanent peace deal or is it all Trump rhetoric for now? For now, we believe the former is the case.
That being said, you want to focus on numbers and not Trump talk anyways. A key question is whether the Strait of Hormuz is actually open or closed. What we have found in our research is tha teven if you account for shadow fleet, there are not many tankers going through the Strait (judging from satellite data).
Since the start of the war, the total barrel cost of the crisis lands around 900 million barrels. So, expecting some further disruption in the real economy because of oil supply shortage isn't that much of stretc.
As we can see, prices for fertilizers have already jumped to the highest level in three years.
Now, the follow-up question from this that is on everybody's mind: Will we see higher inflation across the board. The latest CPIs have come in above expectation. And a leading indicator like the Philadelphia Fed’s Current Delivery Time diffusion index would also suggest, higher inflation is the base case.
This is obviously a concern for central banks (around the world). While markets price hikes by the end of year for Europe, Japan and Switzerland, in the US, a pause seems to be the most likely scenario.
If the Fed does indeed keep rates steady, this should be bringing done real reates, which is positive liquidity. The same goes for the US dollar, which should tick lower, especially when other central banks will have to hike (making their currencies more attractive).
Lower real rates (to the point, where they might even turn negative in the US?) and a lower dollar are both very positive for financial liquidity, hence the recent stock (and bitcoin) market rally.
When it comes to fiscal flows (government spending) and private lending, we don't see too many concerning signs just yet. As you know, we've been highlighting since last October that government spending has been trending down year-over-year. This downtrend seems to have decelerated and it will be important to watch going forward.
The same goes for private bank lending.. It's plateauing but it's not decisively rolling over just yet. So all in all, the liquidity situation seems to be supportive.
So, does this mean bitcoin will keep its upward trend going? Well, although the liquidity situation is favorable and the circumstances are good (negative funding), we feel like the resistance around $85k to $87k will be to strong (if we get to these levels at al, sth-cost basis at $81k).
As such, we think that Bitcoin consolidation is most likely. In our article, we lay out three possible scenarios and attach a probability for each. We also try to answer the question, when the bear market really started. And it's not October 10, as most would say...
Last but not least, we focus on three bottom signals we are closely watching!
All neatly laid out in our newsletter! 👇🏻💪🏻
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