Imminent vs Inevitable - Monthly Macro & Crypto Views

Moon or Nuke? QE is back? Risk On? BTC Digital Gold Narrative

ALL HAIL THE QE

In financial markets, imminent and inevitable can have significant consequences for investors, businesses, and economies. Imminent refers to events that are expected to occur in the near future, typically within a matter of days or weeks due to a range of factors, such as sudden changes in government policy, unexpected corporate failures, or natural disasters. Imminent can be predicted and most swing traders are in the business of that, but when imminent meets unforeseen and unexpected, we call it a black swan.

One example of imminent financial trouble occurred during the 2008 financial crisis when several major banks and financial institutions were on the verge of collapse. Similarly, the failure of SVB to pay its depositors obligations and then taken over by FDIC, is seen an imminent threat to the financial system, leading to a sharp decline in regional banking stocks, and now risking a global contagion.As we laid that out as the?most probable scenario?- FED / Yellen / Elon Musk to the rescue. And that is what happened last weekend. The imminent danger has thwarted. But has the inevitable been thwarted yet?

Inevitable events are those that are expected to occur over a longer period of time, often due to underlying structural issues in the economy or financial system. These events are often difficult to predict with accuracy, but they are seen as almost certain to happen eventually. Inevitable events can include things like economic recessions, government debt crises, or corporate defaults.

An example of an inevitable financial event was the collapse of the housing market in the United States in the mid-2000s that was fueled by easy access to credit and rising home prices. Rings a bell? Post COVID, governments pumped in trillions to avoid a collapse, and in that process have created a bubble that was inevitably going to burst tragically. We have repeatedly said in almost every newsletter that QE is inevitable again as soon as something breaks. That something was broken last weekend leading to new wave or printing, aka QE.

The Bank Term Funding Program (BTFP) as a new monetary policy tool is nothing but an indirect QE via yield curve control (YCC). Short-term, by backing negative mark to mark bonds held on banks balance sheet at par, the program encourages banks to off load their bad debt to the FED and lend more to households and businesses, which can stimulate economic growth, aka inflation. This can lead to an increase in the value of financial assets such as stocks, bonds, and currencies. The is hyperinflation because ones inevitable. But imminently, risk is back on, so enjoy while there is free flow of money back to banks to take on more risk in search of higher returns. More asset bubbles and potential market crashes? But let’s worry about that later. Right?

No Wrong. We now have more questions arising regarding this new facility and it’s impact on short and long term market behaviour

1. Do we still see a bank run on other smaller banks? And what are the consequences of that?
2. Will the FED stop QT and not raise at all, or perhaps this 25 bps rate hike on 22nd March would be the last one?
3. Short term and medium term imapcts of Bank Term Funding Program (BTFP)
4. Where are the opportunities. Take my money and tell me what to buy.

TL;DR

1. Following the collapse of S3 (SVB, Silvergate and Signature), the liquidity contagion seems to be spreading to other regional & global banks. CBs all over are trying to contain that.
2. BTFP and the swap lines mean more USD liquidity. And more USD liquidity is strongly correlated to Bitcoin prices. 30K could be sooner than most believe

3. Discount window borrowing, BTFP and now FED offering dollar swap lines to its global counterparts - this is all akin to QE. Very bullish for all risk assets

4. With manageable inflation hereon and massive layoffs ahead, markets are now pricing a 75 bps cut by year end. It was zero last month.

5. A systematic collapse is not off the table yet and consequences are unknown. But with an increased likelihood of a Fed pause, strong treasuries and manageable inflation, the dollar seems to have had its best days behind it.

6. Bitcoin is showing great strength while ETH & Altcoins are lagging (except Arbitrum coins). The entire structure seems very bullish into March and beyond as demand for calls continues to increase

7. Crypto is breaking down into two narratives - BTC, that is suddenly caught th macro narrative of digital gold, AND shitcoins that will have their own legs and arms. My aim is always to identify those before other degen FOMO in.

Macro - No Landing, only Flying

We’ve been asking constantly in almost every report - how high can the rates go before something breaks with a terminal rate expected at 5.75%?

Well, “that” something did break. The chaos that ensued, is still unraveling as I write this. I am not going to write too much on that as you are probably bombarded with such emails by the hour. But here is a quick summary if anyone is interested.

Prior to this banking chaos, everyone was only worried about inflation and how FED will react to that. Suddenly everyone is talking about Balaji predicting hyperinflation in 90 days with BTC touching $1 million. Inflation seems to have subsided a bit as PPI was down in February (4.6% vs. 5.4% expected) and CPI is also expected to be be below 4% in coming months. Any dips are be bought because

1. QT has been literally terminated with these bank backstops as in the charts above
2. Inflation and wages numbers look favourable
3. A 25 bps or a zero hike would indicate the last hike for now. Either way markets are pricing it, and should rally hard once this is official
4. The only concern is a wide spread global contagion that central banks are trying to contain.

However, there is only one question on everyones mind today:?What’s next? Moon or Nuke? Have the printer inks been refilled to go Brrrr or is it the end of the time?

1. Let’s start with FED - they were clear with their messaging - control inflation with whatever means necessary, aka raise rates indiscriminately.
2. 40 years of excess liquidity suddenly starts to evaporate. FED pushed for higher rates, not seen for decades, causing mayhem in the US banking system last weekend
3. Not just US banks, but now spreading to European banks as well as I write this. Read?How a regional US bank run turns into a European government debt crisis?by Fidenza for details

4. FED / FDIC / Treasury emergency backstops come into play with new borrowing lines, BTFP and now dollar swap lines with other CB’s. Trillions of dollars in new liquidity. Hurray!!!!

5. This is nothing but blatant liquidity injection as Arthur Hays puts it very eloquently:

6. Would the FED be able to contain this along with other central bankers or we still have a lot more abyss abyss ahead? My take is that we are going to live in a very volatile 2023 as the system is inherently broken. From SVB to regional banks to CS, UBS to BNP to emerging markets? Where does this stop? Honestly, no one knows. Who will bear the bond losses that stand at?$16bn just for CS, just from AT1 types??There is more pain IMO and there would one more liquidity injection. Aka Risk On.

7. Then what do we know? All we are certain is that FED has broken “something” as the market expected and no one knows how the other skeletons will move in these hidden cupboards. Few things seem “Inevitable” to me, if not imminent:

• Hyperinflation
• Volatile markets
• Excess liquidity

That said, how do you position yourself for Macro and Crypto. Some thoughts:

1. Long hard commodities?- the race begins. First Gold/Silver pump, and then Oil & Gas. You can buy individual stocks or ETF’s or some other random structure. Pick your poison but something you can hoard in the end. Uranium is another one I like since no nation wants to rely on US, Russia or other countries for their basic needs. Nuclear energy is the most efficient, most proven form of energy so far.

2. Long Asian & Middle East real estate?as more developed market participants realise that their currencies carry less and less value in this hyperinflated world. Also, there is more to offer in Singapore, HK and Dubai today vs homelessness and brazen infrastructure problems in SF, LA & London etc

3. Short DXY?- I believe we have seen the USD top as nations start to move away from the Dollar to Gold/BTC/Commodities etc whatever they can hoard. This is not going to be pleasant IMO as US is not going to give up without a fight.

4. Long India?- From a basic consumption story, India is strongly moving towards discretionary consumption. While, India has some of its own issues, but a millennial population, coupled with geopolitical importance, makes its a great investment magnet if the government plays its card properly. As Raoul Paul says everything is perfectly aligned for India - young population, growing productivity and high savings (low debt)

5. Long AI?- With renewed liquidity tech and growth stocks come back to play. I prefer AI as the pace with which things are building on it, is unbelievable. If you cant build AI, own it.

6. Very Long Crypto?- more on that below, but I am biased as you know :)

Crypto - BTC First, Alts Next

Not Financial Advice, DYOR, Read Disclaimer in the end

BTC and ETH

$BTC 1M: +12.5% | $ETH 1M: +3.0%

Bitcoin continues to hold $27K and test $28K as flows continue into BTC following Balaji’s bet that we shall see $1mn BTC in 90 days

My two pence here is very simple. Pundits can fight all they want for QE or NOT QE, you stay focussed on the larger picture here with me. OK? Promise?

• We are back to pumping money because we broke something
• That contagion is spreading globally and there is no way out but to print more
• I am again very bullish on BTC and we could soon see 30K, perhaps within March if Powell supports us degens and does not hike
• Buy any dips

Market is now expecting a 25bps hike on 22nd March. Perhaps they would because they want to give the impression that thy are still hawkish while pumping liquidity BTFP & Swap lines now. Furthermore, on-chain data shows investors are fleeing to Bitcoin already during these uncertain times. Demand for BTC calls has also increased but with vols showing a bit of caution as we approach $28K.?BTC dips are to be bought IMO.?Here is the playbook?if you are new to this newsletter or have not been in crypto for long:

1. Strong macro liquidity conditions (pumping now)
2. Strong BTC for a while (we are here - current positioning)
3. Eventually ETH catches fire (now could be a good time to start DCAing a bit as ETHBTC RSI is around 25, at 20 even better)
4. Spreads quickly to altcoin rabbit hole from there (strongest narratives first, see below)
5. Entire ecosystem catches fire. VC’s open their purses and token launches start again. BTC halving narrative picks up by Q4 23
6. But keep one eye on macro. If you can’t then subscribe and share this newsletter and join our telegram for daily no nonsense macro update

BTC Narrative First

As we have been constantly thumping on our telegram group, next closest to BTC is STX - smart contacts on BTC coming soon. I believe that will continue to outperform along with Rune, that has had good traction as BTC rises.

Arbitrum

Arbitrum & its coins have been immune to BTC’s move as we approach the launch of ARB token, one of the best performing sectors since Arbitrum’s token confirmation. TVL on Arbi has continually increased over the past few months and will receive a massive capital injection on Thursday. With?$ARB?airdrop that is expected to be >$1B, I believe a lot of capital will trickle into its ecosystem projects. Here are some of may favourite. However, I also believe that capital will start to look out for next Arbitrum (Layer Zero, Starkware even exiting ones like $Matic, $OP etc)

1. $GMX - decentralized perpetual exchange with up to 50x leverage
2. $GNS- decentralized perpetual exchange with leveraged trading on crypto, forex, stocks, commodities and indices
3. $RDNT Capital - this has been my favourite for last few days as it covers both Arbitrum as well as LayerZero and has some massive upcoming announcements / upgrades
4. Others - $MAGIC, $GRAIL, $PENDL, $VELA, FCTR - DYOR sometims sir :)

Just try to answer this - who could be the next Arbitrum?

Matic & BNB - Medium to Long Term

Matic & BNB have held back relatively to their peers like Solana or Aptos, inspite of better tokenomics and greater transactions. I think that is about to change with upcoming Zk launch for Matic on 27th March, along with IMX announcing to launch its protocol on Matic. That makes them gaming behemoths together. IMX had its run already, Matic looks primed to accumulate under $1. BNB has more or less held its strength as well through this crisis and MID regulatory scrutiny. Perhaps time to load some BNB, as CZ invests $1bn? Go for Matic for medium term and BNB for long term investment.

DEFI & Liquid Staking

It is staring to feel that even DeFi 3.0 never happened with all major coins like UNI/CRV/MKR lagging others. I find other opportunities more attractive currently, so not investing in DeFi currently. That might change soon, not yet. Keeping an eye.

Liquid staking is starting to look interesting again as ETH Shanghai upgrade approaches mid-April. Wouldn’t be a bad trade to start accumulating some FXS, RPL & LDO as they are all down a lot from ATH.

NFT/ Gaming / Metaverses

DISCLAIMER:?Nothing in this post is Financial advise. These are authors’ personal views and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.

THANK YOU!!