Connecting the Dots
Episode 113 - Buy When Markets are Fearful...Easy Right?
Welcome to the new subscribers that have joined us over the last week. The aim of this newsletter is to help you navigate the world of crypto. There’s an incredible amount of information out there so we try to distil it into the things you MUST know each week, covering both macro and crypto.
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Onto the newsletter. Here’s what you’re getting this week:
Macro Update: Our latest view on the macro and its impact on crypto markets.
Crypto Native News: Bitwise unveils its Bitcoin and Gold ETP, Flowdesk raises $52m, Solana to potentially launch a new governance proposal.
Institutional Corner: President Trump signs the Executive Order to establish a Strategic Bitcoin Reserve, El Salvador to maintain their BTC purchases despite IMF deal.
Charts of the Week: Solana has highest DEX volume for 5 month in a row, Kaiko token liquidity rankings, list of SEC charges dropped.
Top Jobs in Crypto: Featuring Blockchain.com, Binance, Wallet, Coinbase, Ripple, BTSE.
Macro Update
This is where we connect the dots between macro and crypto.
Buy When Markets are Fearful...Easy Right?
Risk continued to trade heavy last week, weighed down by US growth concerns and continued tariff related policy uncertainty, with major US indices falling over 3%. Bitcoin and the broader crypto space was pulled lower in sympathy, despite President Trump signing an executive order to establish a Strategic Bitcoin Reserve and a US Digital Asset Stockpile.
On the Bitcoin reserve, the reserve will be capitalised with the Bitcoin currently held by the Federal government (circa 200,000 Bitcoin valued at $17bn) with future accumulation to come via “budget neutral” means so as not to impose additional costs on the tax payer ✊ The Digital Asset Stockpile will simply be for other “forfeited” crypto currency.
The Strategic Bitcoin Reserve is intended to serve as a strategic national asset and was positioned as a long-term store of value akin to a “digital Fort Knox” highlighting Bitcoin’s unique qualities relative to other crypto currencies.
Markets reacted in a typical “buy the rumour sell the news” fashion on the executive order with some disappointment that there are no immediate plans to purchase additional Bitcoin and it remains unclear what “budget neutral” options will be available and how large the reserve should be. Yet this remains a huge milestone for Bitcoin, one even here at London Crypto Club with a long term super bullish view on the asset couldn’t have envisaged just a couple of years ago. This validates Bitcoin as an asset class and the ramifications run wider than just the US, where “game theory” will dictate that other nations will strategically follow suit in holding Bitcoin as a reserve.
There are echoes here of the post ETF launch price action which was short lived before going on to reach new all time highs. For the disappointment that the US won’t immediately be purchasing Bitcoin, as Treasury Sec. Scott Bessent said, “before you can accumulate it, you have to stop selling it.” The US is telling us they will start buying Bitcoin at some point. It’s difficult for us to not see this as a long term bullish development, especially when in the past we have fielded questions on whether we think the US will ban Bitcoin! Don’t overthink the unequivocally bullish implications of this pivotal moment in Bitcoin history 🚀
Risk-off volatility…
More immediately, Bitcoin’s short term correlation to risk looks set to keep volatility high. Despite a slew of tariff delays and exemptions on the previously announced 25% tariffs on Canada and Mexico, the policy uncertainty continues to weigh on investor sentiment which is also feeding the US growth concerns.
The recent resurgence in manufacturing showed signs of stalling with ISM Manufacturing at 50.3 down 0.6 from January’s print, driven by a sharp drop in new orders. The more important ISM services however came in stronger at 53.5 and continues to feed our slowing not collapsing growth narrative which we view as “goldilocks” for markets. Currently the market however, is trading the risk toxic “stagflationary” narrative, fretting over recession risks alongside sticky inflation which prevents the Fed being able to respond to a slowdown.
Non farm payrolls came in at a softer 151k, with the unemployment rate ticking up to 4.1%. On the surface a solid number still, although under the hood, broader measures of unemployment point to weakness which was perhaps underscored earlier in the week by Challenger Gray’s job cuts report that showed employers announced 172k job cuts in Feb, the highest number since July 2020.
Given that JPow has clearly stated that labour market weakness would be a sufficient reason to continue with rate cuts, we continue to believe, even with sticky inflation, the market needs to price for these rate cuts more aggressively, adjusting to this slowing growth backdrop as the US seeks to reduce deficits. We’re now priced for 75bps of cuts in 2025, but we suspect the market needs to price at least an additional 50bps of cuts yet.
For those concerned on inflation, however, we’ve outlined previously our disinflationary view and take confidence from Truflation which is now placing “real time” US inflation at 1.4%. This directionally leads official measures of inflation by 6 months and so we continue to expect labour market weakness, alongside these disinflationary forces to reignite the Fed’s rate cutting cycle which will reflexively be bullish for risk assets, reinforcing our bullish outlook for 2025.
Disinflationary forces reasserting according to Truflation
Stimulating…
Elsewhere, despite the ECB cutting rates another 25bps to 2.5% as expected, the BIG news of the week came out of Germany where Friedrich Merz’s conservative alliance and the Social Democratic Party, which are in talks to form the next government, agreed to create an off-balance sheet EUR 500 billion infrastructure fund, exempt defence spending above 1% of gross domestic product (GDP) from the constitutional borrowing limit, and loosen debt rules for states. The proposals will be put before parliament in the coming week. EU leaders also backed plans to jointly borrow EUR 150bn to spend on their militaries, given concerns that they can no longer depend on US military support.
Consequently, from this newly planned, huge fiscal expenditure, European bond markets sold off sharply, led by German bunds which recorded their worst daily drop since 1990 on Wednesday, surging 30bps in yield.
The convergence between European and US yields driving EUR$ sharply higher on the week and reinforcing the broader dollar sell off.
Not for nothing, China also, at the annual National People’s Congress (NPC) set a fiscal deficit goal of 4%, its highest level since 1994. This is a major change for China which has long sought to keep the official debt/gdp level at 3%, but comes amidst the onset of a trade war with the US, alongside a domestic deflationary spiral reinforcing the need to ramp up spending to achieve its stated 5% growth target
We were bullish in 2025 on a continued global easing cycle and rising global liquidity led by China ramping fiscal stimulus. Now we have Europe joining the fiscal party with a potential $1trn fiscal package themselves. Global M2 money supply has already been rising (and tends to lead Bitcoin) but with this fiscal will accelerate. We continue therefore to maintain our bullish stance for new record Bitcoin highs.
Global M2 breaking higher leading Bitcoin (h/t @zerohedge)
Despite the clearly negative risk tone to our markets then, we continue to monitor the bullish macro developments as they relate to rates and liquidity alongside this hugely bullish crypto narrative with the establishment of a Strategic Bitcoin Reserve.
Why then are markets selling off like the world is about to end?
We wrote a couple of weeks ago about the macro regime shift that is underway (which we see ultimately as positive for a continuation of this bull market.) Largely the move away from US fiscal dominance, with Bessent and Co gunning for smaller deficits, forcing the Fed to pick up the slack and driving lower yields and a weaker dollar.
Change in macro regimes can often come with volatility as the levered momentum trades of the old regime are forcefully unwound. Many popular “Trump Trades” are getting taken to the woodshed and shot and it's forcing an unwind of this momentum trade and a “grossing down” of risk. Volatility is consequently picking up and the shock to VAR models (value at risk) means risk positions need to be reduced further.
The magnitude of the Bund move has also reinforced this VAR shock and consequent deleveraging of risk. In a broad deleveraging, all correlations go to 1 and Bitcoin and the broader crypto space is getting hit hard as the high beta risk proxy.
Once the period of deleveraging has run its course and volatility settles down, new risk positions are established and new momentum trades and consequent leverage start to build. We saw something similar last year when JPY “carry” based momentum trades were being unwound as the JPY started to strengthen. That process started in mid July with the S&P 500 (and Bitcoin) putting in lows on the 5th August and starting a full recovery from the 9th August.
A weaker dollar and lower US rates also start to ease financial conditions and market reflexivity kicks in and we rally hard. It’s hard to know exactly when the deleveraging is done, but if the JPY carry unwind is a guide, it would suggest the process is close to being done and the next leg of the Bitcoin bull market can begin.
Bitcoin feels like maybe it wants one more flush to test $78k but we wouldn’t be so cute as to try and pick the lows on this corrective sell off. This is where you scale in or outright buy for your long term holds. Buy when others are fearful. Easy right?
Native News
Key news from the crypto native space this week.
Bitwise unveiled an exchange-traded product (ETP) tracking bitcoin and gold. The Bitwise Diaman Bitcoin & Gold ETP (BTCG) replicates the Diaman Bitcoin and Gold Index, which dynamically reallocates value between BTC and gold, depending on the risk-adjusted performance of bitcoin, thus taking advantage of cyclical trends between risk-on and risk-off behaviour in financial markets. The press release says the product allows investors to benefit simultaneously from the full transformative potential of Bitcoin as well as the time-tested defensive characteristics of gold. BTCG is designed for investors looking for a “store of value” strategy to minimize losses in crypto bear markets, while capitalizing on Bitcoin’s potential during upturns. Bradley Duke, Managing Director, Head of Bitwise Europe, said: “I am excited to see the launch of yet another state-of-the-art product in our European markets. As crypto rapidly enters the mainstream, it is essential that we offer investors the full gamut of options available in traditional markets, including sophisticated hedges such as the ones we have developed in cooperation with Diaman Partners. We’re thrilled to join forces with such an ambitious industry player with the backing of one of the continent’s foremost asset managers, Azimut.”
Crypto market maker Flowdesk has raised $52 million in new funding, with 80% as equity and around 20% as debt. Flowdesk's new funding is a $52 million Series B extension, bringing the total Series B funding to $102 million, including the previous $50 million round. HV Capital, a European investor, led the equity portion of the extension round, with participation from French private equity firm Eurazeo, Cathay Innovation and ISAI VC. Flowdesk plans to capitalise on the growing demand for tokenisation, scale its OTC derivatives business and set up a dedicated crypto credit desk. Flowdesk CEO Guilem Chaumont said "We aim to bridge a gap in the market for crypto credit facilities. Our goal is to act as an institutional credit provider with both the balance sheet and market access to source liquidity from multiple providers. The desk will facilitate borrowing and lending by matching supply and demand at competitive rates. For example, we can provide debt against a foundation's own token, collateralised loans for high-net-worth individuals against Bitcoin, or leverage solutions for investors."
The Solana community is debating Solana Improvement Document (SIMD)-0228, a governance proposal that will reshape the network’s tokenomics by introducing a dynamic, market-driven inflation model for SOL tokens. SIMD-228 is authored by Tushar Jain and Vishal Kankani of Multicoin Capital, with support from Max Resnick, lead economist at Anza, a key player in Solana's development ecosystem. It proposes a market-driven emissions model that adjusts the issuance of new SOL tokens (inflation rate) based on the percentage of the total SOL supply that is staked. This proposal seeks to replace Solana's fixed inflation schedule — currently set at 4.6% annually, decreasing by 15% each year until stabilizing at 1.5% — with a system that adjusts emissions based on staking participation. If the percentage of staked SOL drops below the target 33% threshold, the emissions rate increases. With a high staking rate, rewards decrease, reflecting that the network doesn’t need to "overpay" for security, thus reducing inflation. However, the proposal may impact the profitability of stakers and validators, especially smaller ones.
Institutional Corner
Top stories from the big institutions
President Trump signed an Executive Order to establish a Strategic Bitcoin Reserve. The key points from the announcement are - Reserve will be capitalised with Bitcoin owned by the federal government that was forfeited as part of criminal or civil asset forfeiture proceedings. - The Secretaries of Treasury and Commerce are authorised to develop budget-neutral strategies for acquiring additional BTC, provided that those strategies have no incremental costs on taxpayers. - The U.S. will not sell any bitcoin deposited into the Reserve. - Executive Order Also establishes a U.S. Digital Asset Stockpile, consisting of digital assets other than BTC forfeited in criminal or civil proceedings. - The government will not acquire additional assets (likely referring to Altcoins not BTC) for the Stockpile beyond those obtained through forfeiture proceeding.
El Salvador President Nayib Bukele said the country will not stop purchasing bitcoin, despite its deal with the International Monetary Fund to scale back bitcoin activities. Last December, El Salvador and the IMF reached an agreement for the country to limit bitcoin-related activities in exchange for a financing package, including a $1.4 billion loan, with the total package expected to be worth over $3.5 billion. The IMF previously said that El Salvador's bitcoin reserve held potential risks that "have not yet materialised." El Salvadors Congress moved quickly to comply with IMF requirements, approving amendments that include making the acceptance of bitcoin voluntary for the private sector, according to Reuters. Last month, the IMF approved the $1.4 billion loan, giving El Salvador an immediate disbursement of around $113 million. The IMF wrote in its press release last week that "Going forward, program commitments will confine government engagement in Bitcoin-related economic activities, as well as government transactions in and purchases of Bitcoin." See the full press release from the IMF HERE.
Charts of the Week
Because charts are just as important as macro.
Solana takes the top spot in monthly DEX volume for the fifth month in a row, reaching $105.857bn.
Kaiko published its most recent liquidity rankings, here’s a snapshop of the top 20 coins.
The SEC has dropped and paused a number of lawsuits in recent weeks, here’s the list.
Top Jobs in Crypto
Well, we all want to work in Crypto don’t we. Here’s a bit of help on your job search!
Junior DeFi Quant Analyst at Blockchain.com
Sales Trader for EMEA at Binance
Specialist, Prime Trading Execution Services at Coinbase
Senior Sales Manager, Crypto Natives at Ripple
Listing Business Development Manager at BTSE
DISCLAIMER: The content in this newsletter is not financial advice. This newsletter is strictly educational and is not investment advice or a recommendation to buy or sell any assets or to make any financial decisions. Crypto markets are volatile, please be careful and do your own research.